MNI US MARKETS ANALYSIS - JPY Weakness Accelerates

US TSYS SUMMARY: Drifting Lower Ahead Of Consumer Metrics

Treasuries have reversed most of Thursday's gains in overnight trade Friday, drifting lower through both Asia-Pac and European trade with some bear steepening in the curve. Immediate focus will be on data updating the health status of the US consumer.

• The 2-Yr yield is down 0.2bps at 0.3586%, 5-Yr is up 2bps at 1.0699%, 10-Yr is up 3.5bps at 1.5458%, and 30-Yr is up 3.8bps at 2.0527%.
• Dec 10-Yr futures (TY) down 5.5/32 at 131-10.5 (L: 131-08 / H: 131-17).
• Tsy moves have mirrored equity futures which continue to gain ground. Risk sentiment boosted overnight by talk of China easing rules on home loans for the rest of the year.
• A busy week of data releases is rounded out this morning by Sep retail sales / Oct Empire manufacturing / Sep Import and Export Prices (all at 0830ET), and later, prelim Oct UMich sentiment and Aug business inventories (1000ET).
• Richmond Fed's Barkin (0815ET, on CNBC), St Louis Fed's Bullard (1145ET) and NY's Williams (1220ET) make appearances.
• No supply. NY Fed buys ~$12.425B of 0-2.25Y Tsys.

EGB/GILT SUMMARY: Gilts Lead European FI Sell Off

European government bonds have traded weaker this morning alongside modest gains for equities and mixed performance in FX.

• Gilts have significantly underperformed with yields 3-5bp higher and the long-end of the curve leading the sell off.
• Bunds have edged lower with yields now down 1-2bp on the day.
• It is a similar story for OATs where the curve is marginally steeper.
• BTPs have slightly underperformed core EGBs with cash yields 2-4bp higher across the curve.
• Supply this morning came from the UK (UKTBs, GBPbn).
• There were not tier one European data releases this morning and no speakers from the ECB and BoE following a relatively busy schedule this week.

EUROPE OPTION FLOW SUMMARY

Eurozone:
RXX1 168p, bought for 8 in 3k
RXZ1 167.5/166ps, bought for 20 in 1.5k

OEZ1 135.25/135.50/135.75c ladder, bought for 1.5 in 1k (was bought yesterday in 4k)

DUZ1 112.20/30/40c fly, bought for 2.25 in 4k

SX7E 17th Dec 110c, bought for 1.50 and 1.65 in 12.5

UK:
0LZ1 99.25/99.00ps sold at 17.5 in 15k

SFIM2 99.50/99.35/99.00p ladder, bought for 1.25 in 2k

US:
TYZ1 132.5c bought for 17 in 15k

FOREX: USD/JPY Climb Accelerates, Narrows In On 2018 Highs

• The upside in USD/JPY accelerated early Friday, with the pair taking out further resistance to print up at 114.38 - just shy of the 114.55 high last printed in 2018. The pair's rally comes alongside further strength in equity markets and as markets continue to assess the policy divergence evident between the BoJ and Fed - with the former having few policy options to shore up domestic currency weakness.
• As a result, JPY is comfortably the poorest performer in G10 ahead of the NY crossover. GBP is at the other end of the table, rallying against all others as markets respond to the rise in front-end UK yields across the week, as a number of BoE speakers over the past few days flagging the raised likelihood of a rate hike in the coming months.
• Markets see out the week with a slew of tier one US data, with retail sales, import/export price indices and the prelim October University of Michigan sentiment figures. BoE's Pill, Fed's Bullard & Williams are the key central bank speakers.

FX OPTIONS: Expiries for Oct15 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.1550-65(E1.3bln), $1.1600(E670mln), $1.1650(E738mln)
• USD/JPY: Y111.90-00($788mln), Y112.50-65($1.0bln), Y113.00-15($1.4bln), Y113.90-00($585mln)
• USD/CAD: C$1.2360-75($630mln), C$1.2480-00($1.9bln)
• USD/CNY: Cny6.40($891mln), Cny6.45($770mln)

Price Signal Summary - Yen Weakness Accelerates

• In the equity space, EUROSTOXX 50 futures continue to appreciate and the contract has cleared the 50-day EMA. The focus is on 4200.50, Sep 24 high. S&P E-minis continue to trade higher. Futures have cleared the 50-day EMA and the follow through is encouraging for bulls. The focus is on resistance at 4472.00, Sep 27 high. It's an important short-term resistance and a break would signal potential for stronger gains near-term. Look out for:
  • A strong weekly close.
  • An ability to remain above the 50-day EMA at 4387.60.
  • This would bode well for further gains next week.
• In FX, EURUSD is holding onto recent gains. The next resistance is at 1.1629, the 20-day EMA. Gains are considered corrective and the primary trend remains down. A strong break above the 20-day EMA would suggest scope for a stronger correction. GBPUSD has moved through its 50-day EMA as the uptrend since Sep 29, extends. The next resistance is at 1.3751, Sep 23 high. USDJPY continues to weaken. This week's key technical development has been the break of 113.41, a multi-year trendline drawn from the Dec 1975 high. This reinforces bullish conditions and opens 114.50, a vol band resistance and 1.382 projection of Apr 23 - Jul 2 - Aug 4 price swing. Sticking with the Yen, EURJPY is also appreciating and gains have accelerated. The focus is on the 133.00 handle and 133.68, Jun 15 high.



• On the commodity front, Gold rallied Wednesday and in the process cleared a number of short-term resistance levels. This signals scope for a climb towards $1808.7, Sep 14 high. Support to watch is $1768.3 - 20-day EMA. WTI trend conditions remain bullish and futures have resumed their uptrend. The focus is on $82.89 - 1.764 projection of the Aug 23 - Sep 2 - Sep 9 price swing.
• In the FI space, the primary trend is unchanged and remains down. Furthermore, short-term gains are considered corrective. Recent Bund weakness has exposed 167.98, 2.382 projection of the Sep 9 - 17 - 21 price swing. Resistance is at 170.02, 20-day EMA. Gilt futures remain in a downtrend. A resumption of weakness would refocus attention on 123.27, 2.00 projection of the Aug 31 - Sep 17 - 21 price swing. Resistance is at 125.47, the 20-day EMA.

EQUITIES: European Indices Higher as Asia Stocks Surge

• A solid session for the Nikkei 225 (+1.8%) and Hang Seng (+1.5%) has fed into a strong start across European headline indices, leading the EuroStoxx50 higher by a further 0.50% ahead of the NY crossover.
• US futures are similarly higher, with the e-mini S&P higher by 15 points or so and indicating a positive open Friday. Earnings season remains a focus, with Goldman Sachs, Charles Schwab and PNC Financial Services among the reports due today.

COMMODITIES: Crude Touches Fresh Cycle Highs

• WTI Crude up $0.75 or +0.92% at $82.07
• Natural Gas up $0.08 or +1.41% at $5.767
• Gold spot down $9.22 or -0.51% at $1786.71
• Copper up $1.4 or +0.3% at $464.55
• Silver down $0.17 or -0.72% at $23.3517
• Platinum down $4.37 or -0.41% at $1055.21