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MNI US MARKETS ANALYSIS - Mixed Start for Stocks, Eyes on Earnings

HIGHLIGHTS:

  • US futures mixed ahead of the beginning of earnings season Tuesday
  • Treasury curve bull flattening ahead of supply
  • Haven currencies seeing modest strength to start the week

US TSYS SUMMARY: Bull Flattening Ahead Of 3Y And 10Y Supply

Tsys have strengthened a little in overnight trade to start the week, with the long end outperforming - but remain well off last week's best levels. A busy session for supply lies ahead.

  • Sep 10-Yr futures (TY) up 5/32 at 133-18.5 (L: 133-11.5 / H: 133-20.5), w volumes on the light side (~250k).
  • Bull flattening in the curve: 2-Yr yield is down 0.6bps at 0.2067%, 5-Yr is down 1.3bps at 0.7721%, 10-Yr is down 2.7bps at 1.3326%, and 30-Yr is down 3.2bps at 1.9573%.
  • Auctions take center-stage in an otherwise slow schedule: 1130ET sees $58B 3Y Note auction (alongside $51B in 26-week bills), and at 1300ET we get $38B 10Y re-opening (with $54B 13-week bills).
  • Little new in Richmond Fed's Barkin WSJ interview out this morning. The only scheduled Fed speaker today is Minn's Kashkari at 1200ET.
  • NY Fed buys ~$2.025B of 1-7.5Y TIPS.

EGB/GILT SUMMARY: Firm Start To The Week

European bonds have firmed this morning with curves bull flattening alongside a broadly weak performance for equities.

  • Gilt yields are 1-2bp lower across the curve with the 2s30s spread 1bp narrower.
  • The bund curve is similarly 1bp flatter on the day.
  • The short end of the OAT curve has been a little soft with the 2s30s spread narrowing 2bp.
  • BTPs have marginally outperformed core EGBs with cash yields edging down 1-3bp.
  • Supply this morning came from Germany (Bubills, EUR3.466bn allotted) and Ireland (IRTB, EUR750mn). France will sell a combination of BTFs later today for EUR5.1-6.3bn).
  • There was no tier one European data this morning.
  • UK PM Boris Johnson is expected to announce today that the remaining social restrictions in England will be lifted on July 19.

EUROPE OPTIONS FLOW SUMMARY

Eurozone:
ERM2 100.5p, bought for 5.25 in 11.5k
ERU2 100.50^, bought for 14.75 in 3.75k (ref 100.48)

UK:
0LU1 99.87/99.75/99.62p fly 1x3x2, bought the 3 for 6.5 in 8.5k

FOREX: Mixed Outlook for Stocks Helps Buoy Haven FX

  • Equity markets are mixed early Monday, with mainland European indices failing to carry on the stronger stocks theme from the Asia-Pac session. As a result, JPY is firmer so far this morning, higher than all others in G10 ahead of the NY crossover.
  • USD/JPY's weakness has been modest, however, with the pair still above first support at the Y109.82 50-dma.
  • Growth proxies including AUD, NZD and NOK are among the weakest, although AUD/USD is still well clear of last week's lowest levels. $0.7410 acts as the first key level.
  • There's little in the way of tier one data Monday, with focus on the beginning of US earnings season (a number of bulge bracket banks report from Tuesday onwards) with Fed's Kashkari also speaking at 1700BST/1200ET.

FX OPTIONS: Expiries for Jul12 NY cut 1000ET (Source DTCC)

  • EUR/USD: $1.1930-35(E528mln)
  • USD/JPY: Y109.00($500mln), Y109.30-50($669mln), Y110.00($705mln)
  • AUD/USD: $0.7400(A$627mln), $0.7500(A$758mln)
  • USD/CAD: C$1.2360-68($870mln), C$1.2500($610mln), C$1.2505-25($1.5bln), C$1.2575($500mln), C$1.2695-05($1.1bln)
  • USD/CNY: Cny6.4530($560mln)

Price Signal Summary: Gold Strong Above the 50-Day EMA

  • In the equity space, S&P E-minis recovered very well Friday, striking a new alltime high in the process. Key near-term support remains the 4271.36, the 20-day EMA. A clear breach of this average would signal scope for a deeper corrective pullback. The bull trigger is at 4400.00, round number resistance. EUROSTOXX 50 (U1) futures initially traded lower Friday before finding solid support and recovering into the close. The contract has topped previous support-turned-resistance at 4015.00, Jun 21 low. This raises the risk of a rally toward the Jul 1 high at 4101.50.
  • In FX, the USD outlook remains bullish despite the Thursday/Friday recovery. EURUSD traded lower mid-week, extending the downtrend to keep focus on 1.1704, Mar 31 low. Gains are considered corrective. The GBPUSD focus is on 1.3733, Jul 2 low where a break would open 1.3717, Apr 16 low. Resistance is at 1.3948, the 50-day EMA. USDJPY remains vulnerable following last week's sell-off. The move lower has resulted in a print below the 50-day EMA at 109.88 as well as the Jun 21 low at 109.72. A resumption of weakness would expose 109.19/14, the Jun 7 low and the 100-dma.
  • On the commodity front, Gold maintains a firmer tone. Attention is on the 50-day EMA that intersects at $1814.1. A clear break of the EMA is required to suggest scope for a stronger rally. This would open $1833.7, 50.0% of the Jun 1 - 29 decline. Brent (U1) remains vulnerable following this week's downleg. The focus is on $71.24, the Jun 17 low. Gains are considered corrective. WTI (Q1) has also cleared its 20-day EMA this week and attention turns to $69.54, Jun 17 low.
  • Within FI, Bund futures remain firm having cleared resistance at 173.16, Jun 11 high. Scope is for a climb to 174.97 next, Mar 3 high (cont). Gilt futures remain bullish despite the pullback from Thursday's high. Futures have topped key resistance at 128.39, Jun 11 high, strengthening the current bullish case. Attention is on 129.99, the Feb 24 high (cont).

EQUITIES: Nasdaq Gains Defy Broader Weakness

  • Asian stocks closed higher, with Japan's NIKKEI up 628.6 pts or +2.25% at 28569.02 and the TOPIX up 40.95 pts or +2.14% at 1953.33. China's SHANGHAI closed up 23.748 pts or +0.67% at 3547.836 and the HANG SENG ended 170.7 pts higher or +0.62% at 27515.24
  • European equities have slipped, with the German Dax down 5.06 pts or -0.03% at 15648.87, FTSE 100 down 36.76 pts or -0.52% at 7082.61, CAC 40 down 23 pts or -0.35% at 6496.3 and Euro Stoxx 50 down 6 pts or -0.15% at 4050.01.
  • U.S. futures are mixed, with the Dow Jones mini down 113 pts or -0.33% at 34637, S&P 500 mini down 7 pts or -0.16% at 4353, NASDAQ mini up 33 pts or +0.22% at 14843.5.

COMMODITIES: Copper, Oil Lead Losses

  • WTI Crude down $0.59 or -0.79% at $74.02
  • Natural Gas down $0.03 or -0.79% at $3.636
  • Gold spot down $5.46 or -0.3% at $1803.8
  • Copper down $4.1 or -0.94% at $430.35
  • Silver down $0.13 or -0.48% at $26.0466
  • Platinum down $7.56 or -0.68% at $1095.57

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

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