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MNI US MARKETS ANALYSIS - Haven FX Offered, Stocks Stronger

HIGHLIGHTS:

  • Stocks start week on a positive note, but still well shy of Friday highs
  • NOK, CAD outperform as oil extends bounce off Friday low
  • Data, speaker slate light Monday, with just an appearance from ECB's Lagarde on the docket

US TSYS: Curve A Little Flatter In Run-Up To CPI

Treasuries are trading fairly flat Monday - within Friday's ranges for the most part, and on limited volumes. Attention is already on Tuesday's CPI release, with Monday's schedule looking very light.

  • Curve a little flatter, with 30s outperforming: 2-Yr yield is up 0.6bps at 0.2189%, 5-Yr is up 0.2bps at 0.8176%, 10-Yr is down 0.9bps at 1.3326%, and 30-Yr is down 1.4bps at 1.9194%.
  • Dec 10-Yr futures (TY) up 0.5/32 at 133-5.5 (L: 133-02.5 / H: 133-08)
  • The only data is the monthly budget statement at 1400ET, and there are no Fed speakers as we have entered the pre-FOMC blackout period.
  • In an interview published Sunday, Philly Fed's Harker said he saw tapering "sooner rather than later" but still saw a rate hike in late 2022/early 2023. No discernable market reaction, as Harker already seen leaning hawkish, and not a 2021-22 FOMC voter.
  • In the absence of obvious macro drivers, there could be some attention on Capitol Hill, with headlines over the weekend focused on Democratic tax hikes and intra-party disagreements over the size and scope of the $3.5T reconciliation package.
  • Supply is limited to bills: $93B combined of 13-/26-week bill sale at 1130ET.
  • NY Fed makes its last operational purchase purchase (22.5-30Y Tsys for approx $2.025B) until its next schedule is published Tuesday.

EGB/GILT SUMMARY: Schnabel Echoes Lagarde's Inflation Risk Comments

European sovereign bonds trade mixed this morning and have not materially departed from Friday's closing levels.

  • Gilts firmed early in the session, but subsequently trade back towards the Friday close.
  • The bund curve trades close to flat on the day.
  • It is a similar story for OATs, which have so far lacked clear direction.
  • The ECB's Isabel Schanbel stated that long-term bottlenecks could lead to higher inflation and that this was being monitored diligently. Schnabel's comments echo President Lagarde, who last week acknowledged the risk of higher inflation.
  • President Lagarde will participate in a discussion with the Financial Times' Martin Wolf at 1430GMT today.
  • Supply this morning came from Germany (Bubills, EUR3.867bn). Later today France will offer EUR5.6-6.8bn) of BTFs.
  • The European data slate was light this morning with not tier one releases.

EUROPE OPTION FLOW SUMMARY

Eurozone:
RXV1 172.50p, sold at 95/94/92 in ~9k
RXV1 173.5/174.5cs, bought for 3.5 in 1k
RXV1 170p, bought for 9 in 2k
RXV1 171.50/171.00ps 1x1.5, bought for 4.5 in 1k

FOREX: Extension of Oil Bounce Works in Favour of NOK, CAD

  • A more solid session for equity markets Monday is dictating price action across currencies, with a solid start across core Europe weighing on haven currencies. As a result, CHF and JPY are among the weakest performers across G10, with oil-tied CAD and NOK at the top of the pile.
  • The move in CAD and NOK reflects the $2.50/bbl climb off the Friday lows for WTI crude futures, aiding USD/NOK's slip back toward last week's lows. A slip below 8.6073 opens declines toward the 100-/200-dmas at 8.5886/8.5569.
  • The USD index is in modest positive territory, with last week's highs already under pressure. A solid clearance back above 92.877 opens gains toward 93.0483 (61.8% Fib for the late August down-move) as well as 93.181, the Aug 27 high.
  • Data releases are few and far between Monday, keeping focus on central bank speak. ECB's Lagarde is due to be speaking from the Aspen International Conference at 1430BST/0930ET on the topic of women in finance.

FX OPTIONS: Expiries for Sep13 NY cut 1000ET (Source DTCC)

  • EUR/USD: $1.1975-85(E1.1bln)
  • AUD/USD: $0.7350-60(A$629mln)
  • NZD/USD: $0.6990-10(N$697mln), $0.7088(N$705mln)
  • USD/CNY: Cny6.4500($580mln)

Price Signal Summary - USD Continues To Find Support

  • In the equity space, S&P E-minis traded lower Friday and in the process cleared the 20-day EMA. This signals potential for a deeper pullback towards the key 50-day EMA at 4405.55. Key resistance is at 4539.50, the Sep 3 high. EUROSTOXX 50 futures remain above 4132.50, Sep 9 low. A clear break of this level would expose 4078.00, Aug 19 low. The bull trigger is unchanged at 4252.00, Sep 6 high.
  • In FX, EURUSD has started the week on a soft note and traded through last week's low of 1.1802, Sep 8 low. The break signals scope for a deeper pullback and has opened 1.1758. Recent activity in GBPUSD has defined short-term directional parameters at; 1.3892 as resistance, Sep 3 high and support at 1.3727, Sep 8 low. A break of either level would provide a clearer directional signal.
  • On the commodity front, Gold has pulled back from recent highs and is consolidating just ahead of recent lows. The near-term outlook remains bullish but a break of $1834.1, Jul 15 high is required to confirm a resumption of gains. Support to watch is $1774.5, Aug 19 low. A break would threaten a bull theme. WTI futures remain in a bull mode. The focus is on $70.74, 76.4.% retracement of the Jul 30 - Aug 23 sell-off and $71.44, the bear channel top drawn from the Jul 6 high.
  • In FI, Bund futures remain vulnerable following last week's move lower. The focus is on 171.30, 2.382 projection of the Aug 5 - 11 - 17 price swing. Resistance to watch is 172.76, Sep 2 and 3 high. Gilt futures remain in a bear mode following last week's breach of support at 128.03, the Jul 6 low (cont). This opens 127.65, 61.8% of the Jun 3 - Aug rally (cont).

EQUITIES: Stocks Start Week Positively, But Well Shy of Last Week's Highs

  • Equity markets have started the week on the front foot, with cash European indices higher by 0.5-0.8%. The recovery is further reflected in US futures, with the e-mini S&P higher by over 20 points at pixel time.
  • Across Europe, the energy sector is leading the bounce - helped higher by the $2.50/bbl recovery in oil prices. Utilities and financials also trade more favourably.
  • Despite the positive across Europe, US futures remain well below Friday's best levels, keeping a more solid bounce in check for now. Markets need to top 4509.20 to improve the near-term outlook, which looks far more fragile after last week's price action. On the weekly chart, last week marked the first week in 14 in which the e-mini S&P failed to print a new alltime high.

COMMODITIES: Oil Bounce Extends, Eyes Bear Channel Top

  • US energy markets trade well, with WTI crude futures extending the bounce off Friday's lows to $2.50/bbl. Strength across crude oil markets continues to play catch-up with NatGas, which holds close to $5.00/MMBtu.
  • The oil squeeze persists as markets continue to eye the particularly sluggish return of production from the Gulf following the lingering aftermath of Hurricane Ida.
  • Prices also remain supported by persistent coverage of an expected supply squeeze across Winter, with Bank of America this morning flagging the risk of $100/bbl oil prices should winter be colder than usual - with oil demand lurching higher by 1-2mln bpd.
  • Precious metals markets are more muted with gold broadly unchanged, although silver modestly underperforms.


MNI London Bureau | +44 203-865-3809 | edward.hardy@marketnews.com

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