MNI US MARKETS ANALYSIS - Markets Rangebound Ahead of Busy CB Week

US TSYS SUMMARY: Minor Twist Flattening On Fed, Omicron

• Cash Tsys have seen a minor twist flattening this morning, as prospects for a hawkish FOMC on Wednesday conflict with concerns surrounding Omicron.
• 2Y yields are +1.0bp at 0.665%, 5Y +0.2bps at 1.252%, 10Y -1.0bp at 1.473% and 30Y -1.6bps at 1.862%.
• TYH2 futures have edged higher since open to 130-13+, well within Friday’s range. First support is seen at 129-31 (Dec 8 low) whilst on the upside, clearance of 131-16 would reinstate a bullish outlook.
• Biden is scheduled to meet with Sen. Manchin as early as today to discuss Build Back Better.
• No data today.
• NY Fed buy-op: Tsy 22.5Y-30Y, appr $1.600B (1030ET).
• Solely bill issuance today with $57B 13W and $51B 26W Bill auctions (1130ET).

EGB/GILT SUMMARY: Gearing Up For The ECB

European government bonds trade relatively mixed as the market gears up for a slew of central bank policy meetings. The ECB has strongly signaled that its policy instruments will be re calibrated at the December meeting, although uncertainty around inflation risks and Omnicron have complicated matters.

• The gilt curve has slightly steepened on the back of the short-end outperforming with the 2s30s spread widening by 1bp.
• The bund curve has conversely flattened as the short-end pushes lower. The 2s30s spread is 2bp wider.
• The OAT curve has flattened sharply with the 2s30s spread trading down 4bp on the back of short-end selling.
• BTPs have firmed across the curve with cash yields 1-2bp lower on the day.
• Supply this morning came from Germany (Bubills, EUR3.146 allotted) and the Netherlands (DTCs, EUR1.7bn).
• Austria announced its 2022 funding programme which targets EUR60-65bn of issuance with RAGBs being around EUR40bn. 3-4 syndications are also expected.
• The European data calendar was light this morning.

EUROPE OPTION FLOW SUMMARY

Eurozone:
RXG2 172.50/175.50 ^^ sold at 120 - 119 in 1.75k
RXF2 173/172 1x1.5 put spread bought for 17 & 18 in 2.5k
RXF2 173.00/172.00 1x2 put spread bought for 6 in 1.8k

OEF2 133.5/133.0/132.5 put fly sold at 5 in 1.25k
OEG2 133.0/133.5/134.0 put fly bought for 6 in 1k

FOREX: Currencies Rangebound as Markets Position for CB Heavy Week

• The greenback trades well early Monday, with the USD higher against most others in G10 to tip the USD Index through Friday's highs. News and macro catalysts are few and far between, with equity markets largely consolidating inside last week's range. Currencies are similarly rangebound Monday, keeping EUR/USD within range of support at 1.1228.
• AUD, NOK and EUR are the weakest so far Monday, with AUD/USD showing just below the Friday lows at 0.7132. This opens support at 0.7113, the 38.2% retracement of the recovery off the Dec 3 lows at 0.6993.
• Monday's schedule is relatively light ahead of a jam-packed central bank slate across the week. The highlight of Monday trade will be the release of the Bank of Canada's new inflation mandate at 1500GMT/1000ET. The BoC are expected to have their inflation target re-affirmed, but language tweaks could be made around commitments on employment.

FX OPTIONS: Expiries for Dec13 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.1200(E572mln), $1.1225-35(E667mln), $1.1250(E1.3bln), $1.1320(E2.0bln), $1.1370(E765mln)
• USD/JPY: Y114.00-05($629mln)
• GBP/USD: $1.3150(Gbp712mln), $1.3200(Gbp560mln), $1.3250-60(Gbp507mln)
• EUR/GBP: Gbp0.8530-50(E798mln)
• AUD/USD: $0.7120-30(A$547mln), $0.7200-15(A$848mln)
• USD/CAD: C$1.2730-50($563mln)
• USD/CNY: Cny6.3500($1.9bln)

Price Signal Summary - Bearish Triangle In EURUSD

• In the equity space, S&P E-minis have started the week on a firm note. The outlook remains bullish and the focus is on the all-time high print of 4735.00 on Nov 22. The contract remains above the 50-day EMA at 4577.19. The EMA marks the key support. EUROSTOXX 50 futures maintain a bullish theme and the most recent pullback is considered a correction. Attention is on 4311.70 next, the 76.4% retracement of the Nov 18 - 30 downleg. Support is seen at 4137.00, the Jul 7 low.
• In FX,EURUSD continues to consolidate and remains below resistance at 1.1383, the Nov 30 high. A break of this level is required to signal potential for a stronger short-term recovery. The recent consolidation appears to be a triangle formation. This is a continuation pattern and reinforces the underlying bear trend. Support levels to watch are; 1.1228, the Dec 7 low and 1.1186, Nov 24 low and the bear trigger. GBPUSD remains vulnerable. Last week’s break of support at 1.3195, Dec 1 low confirmed a resumption of the downtrend and opens 1.3135, the Dec 11 2020 low. 1.3332 is resistance, the 20-day EMA. The USDJPY bullish engulfing candle on Dec 6 is still in play. The pattern suggests the pair has found a base and a resumption of gains would open 114.38, 61.8% of the Nov 24 - 30 downleg. Key support is unchanged at 112.53, the Nov 30 low.
• On the commodity front, Gold is consolidating and trading close to the base of its bull channel that intersects at $1766.3 today. The channel is drawn from the Aug 9 low and represents the key short-term support. A break would strengthen the bearish condition and open $1721.7, the Sep 29 low. The trend outlook in WTI futures remains bullish. The focus is on $74.53 next, the 50-day EMA. Initial support lies at $69.52, the Dec 7 low.
• In the FI space, Bund futures remain above the 20-day EMA, at 173.51 today. Last week’s high of 175.02 is the bull trigger and a break would confirm a resumption of the uptrend. A move below the 20-day EMA is required to suggest scope for a deeper pullback. The Gilts trend outlook remains bullish. The focus is on 128.00 next, the Aug 31 high.

EQUITIES: Promising Start

• Asian markets closed mostly higher, with Japan's NIKKEI closed up 202.72 pts or +0.71% at 28640.49 and the TOPIX ended 2.65 pts higher or +0.13% at 1978.13. China's SHANGHAI closed up 14.734 pts or +0.4% at 3681.082 and the HANG SENG ended 41.14 pts lower or -0.17% at 23954.58.
• European futures are higher, with the German Dax up 155.32 pts or +0.99% at 15782.34, FTSE 100 up 10.83 pts or +0.15% at 7303.68, CAC 40 up 29.2 pts or +0.42% at 7022.22 and Euro Stoxx 50 up 36 pts or +0.86% at 4235.62.
• U.S. futures are gaining to start the week, with the Dow Jones mini up 100 pts or +0.28% at 36067, S&P 500 mini up 15.5 pts or +0.33% at 4726.5, NASDAQ mini up 60 pts or +0.37% at 16389.75.

COMMODITIES: Broad Gains, With Energy Leading

• WTI Crude up $0.1 or +0.14% at $71.77
• Natural Gas up $0.07 or +1.76% at $3.994
• Gold spot up $2.78 or +0.16% at $1785.53
• Copper up $0.7 or +0.16% at $429.35
• Silver down $0.01 or -0.03% at $22.1884
• Platinum down $1.26 or -0.13% at $944.39