MNI US MARKETS ANALYSIS - Markets On A More Stable Footing

US TSYS SUMMARY: Retail Sales In Focus As Inflation Fears Ebb

Treasuries strengthened overnight with breakeven inflation subsiding, as post-CPI data fears appear to be ebbing somewhat.

• Jun 10-Yr futures (TY) up 8/32 at 132-14 (L: 132-06 / H: 132-15.5) and have nearly fully reversed the post-CPI drop. Volumes slightly elevated (front 345k). The 2-Yr yield is down 0.2bps at 0.151%, 5-Yr is down 2.1bps at 0.8064%, 10-Yr is down 2.2bps at 1.6352%, and 30-Yr is down 3.7bps at 2.3582%.
• Apr retail sales (0830ET) provide the next data signpost in the pandemic reopening: headline seen +1.0% M/M (+9.8% prior), with ex-auto/gas +0.3% (+8.2% prior) and control group -0.4% (+6.9% prior).
• In variations on the same theme: some attention on industrial production (0915ET) esp for signs of supply chain disruptions, and prelim May UMichigan sentiment at 1000ET bears watching in part for inflation expectations.
• The only scheduled Fed speaker is Dallas Pres Kaplan (1300ET).
• Treas Sec Yellen speaks at a Vatican conference ("Dreaming Of A Better Restart") at 1450 local time, so 0850ET/1350UK.
• No supply; NY Fed buys ~$12.4B of 0- 2.25Y Tsys. Note yesterday, as we'd flagged, the NY Fed shifted bond purchases to the 7-30Y Tsy range by 3% and away from TIPS "modestly".

EGB/GILT SUMMARY - Core Govies Gain

Core European government bonds have traded firmer this morning while the EGB periphery has sold off and equities have broadly pushed higher.

• Gilt yields are 2-3bp lower on the day and the curve has bull flattened.
• Following a weak start, bunds have edged higher with yields up to 1bp below yesterday's close.
• OATs similarly firmed following soft trading early in the session and now trade close to flat on the day.
• BTPs have traded lower and remain offered. Cash yields are 1-3bp higher with the curve 1-2bp steeper.
• The UK DMO sold GBP4.5bn of 1-/3-/6-/month bills.
• The final Spanish CPI print for April matched the initial estimate (2.2% Y/Y).

EUROPE OPTION FLOW SUMMARY

Eurozone:
Notable option flows have been in Blue downside Euribor structures, via put spread and ladder. Positions look for ECB rate hikes further out to 2024

RXM1 169/168.5/167.5p ladder, bought for 15 in 4.5k

3RU1 100/99.62ps 1x2, bough for 2.5 in 10k
3RU1 100/99.87/99.62 broken put ladder, bought for flat in 4k (circa 20k done this week)
3RQ1 100.125/100/99.875p ladder, bought for 0.25 in 2k
3RZ1 100/99.87ps vs 100.50/100.62cs, sold the ps at 3 in 5k

UK:
0LU1 99.62c, sold at 9.25 in 2.5k
3LU1 99.00/98.87ps 1x2, bought the 1 for -5 (receive) in 1.75k

FOREX: Greenback Edging Lower as CPI Rally Unwinds

• Having staged a fierce rally mid-week, the greenback is G10's poorest performing currency ahead of NY hours, as markets unwind and take profit on the volatile post-CPI moves. The USD Index is still comfortably ahead of the week's multi-month lows printed at 89.987, with focus shifting to today's retail sales release.
• The USD's losses are working in favour of EUR/USD, which has crept well off yesterday's 1.2052 low to narrow the gap with Wednesday's high, and next resistance, at 1.2152.
• NOK and NZD are among the session's best performers after both currencies traded heavy on commodity weakness across the Wednesday/Thursday sessions. USD/NOK is edging off resistance that held yesterday at the 8.4160 50-dma.
• Today's retail sales numbers are expected to show a 1.0% gain, a marked slowdown from March's revised 9.7%. The prelim University of Michigan data also crosses, with forward-looking expectations seen rising to a new post-pandemic high.

FX OPTIONS: Expiries for May14 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.2000(E715mln)
• USD/JPY: Y109.45-50($975mln), Y110.00($680mln)
• GBP/USD: $1.3990-05(Gbp539mln)
• AUD/USD: $0.7750(A$981mln)
• USD/CAD: C$1.2125-40($555mln), C$1.2280-85(C$575mln)

EQUITIES: Stocks Extend Bounce, ES1 Steers Clear of Close Below Key Support

• Global equity markets are firmer Friday, with US indices leading the bounce as the e-mini S&P recovers over 100 points off the Thursday low. The index probed the 50-dma support yesterday but managed to steer clear of a close below, which has aided this morning's bounce.
• European cash markets are all higher, with Spain's IBEX-35 a modest outperformer, trading with gains of just shy of 1%. European financials lead the firm trade, with industrials and energy not far behind. Materials remain weak after sagging on Wednesday/Thursday and are the only European sector in the red so far.
• VIX futures are trending away from the Wednesday/Thursday high and gravitating back toward recent averages. Focus turns to the upcoming US retail sales release, which could spark further activity.

COMMODITIES: Oil Regathers, Gold Eye Week's High

• Oil markets suffered Thursday, with WTI and Brent crude futures shedding close to $3 apiece, as the post-CPI greenback strength and resumption of flow through the Colonial Pipeline weighed on prices. Both benchmarks have regathered some poise early Friday, with markets across currencies to commodities trading in a more stable fashion.
• This keeps directional parameters for crude unchanged, with WTI support undercutting at $63.09 and vol band support at $63.69.
• Precious metals markets are trading more favourably, with the small pullback in the dollar helping support prices. This helps keep gold pointed toward the week's best levels printed on Monday at $1845.51.