MNI US MARKETS ANALYSIS - Risk-Off Evident Amid Kabul Rout, Taper Talk

US TSYS SUMMARY: Tsys A Little Stronger, But Taper Talk Eyed

Treasuries are mostly higher to start the week, but off session's best levels.

• Sep 10-Yr futures (TY) up 7/32 at 134-5.5 (L: 134-02 / H: 134-12). Elevated volumes (~420k).
• The 2-Yr yield is down 0.6bps at 0.2012%, 5-Yr is down 1bps at 0.7635%, 10-Yr is down 0.5bps at 1.2717%, and 30-Yr is up 0.1bps at 1.9298%.
• Risk appetite globally has been weighed down by the chaotic situation in Afghanistan and weaker-than-expected Chinese economic activity data overnight. Tsys outperforming Bunds and Gilts.
• No scheduled Fed speakers today, with focus this week on the release of the July FOMC minutes.
• WSJ published an article this morning saying "some" FOMC members want asset purchases to end by mid-2022, but nothing particularly new (had heard this before from Bullard et al who are cited in the piece). Tsy futures ticked a bit lower though TYs now higher than when article was released (0530ET).
• This came after Minn Fed Pres Kashkari told BBG overnight he'd want to see a "few more" strong jobs reports before tapering.
• In supply, $99B 13-/26-week bill auctions at 1130ET. NY Fed buying ~$1.425B of 10-22.5Y Tsys.
• Fairly limited on the data front: Empire Manufacturing at 0830ET, and TIC flows at 1600ET.

EGB/GILT SUMMARY: Edging Lower

European sovereign bonds traded weaker while equities have edged lower.

• Gilts initially started the session on a strong footing before grinding lower through the morning. Cash yields are now broadly 1bp higher across the curve.
• The bund curve has bear steepened with the 2s30s spread 2bp wider on the day.
• The OAT curve is similarly 1bp steeper.
• BTPs have marginally underperformed core EGBs with yields 1-3bp higher.
• Supply this morning came from Germany (Bubills, EUR5.26bn allotted) and the Netherlands (DTCs, EUR3.71bn). France will offer EUR3.8-5.0bn of BTFs this afternoon.
• There were no significant European data releases this morning. Focus shifts to US Empire Manufacturing later today.

EUROPE OPTION FLOW SUMMARY

Eurozone:
RXV1 173.00 put bought for 49 and 50 in 2k
RXV1 172.00/171.00 1x1.5 put spread bought for 7 in 1.25k
RXU1 175.00 put bought for 5 in 2k

UK:
SFIH2 99.85/99.90 1X2 call spread bought for flat in 2.5k

FOREX: Greenback Clawing Back Small Segment of Friday Losses

• Currency markets have been relatively quiet so far Monday, with most currencies trading inside their recent ranges - the 10y yield came under pressure early doors, extending losses back below the 1.25% mark in an extension of Friday's UMich-inspired move. Despite this, USD's a touch stronger as it chews through a minority of Friday's losses.
• AUD is the underperformer so far, following domestic equities lower as markets respond to the NSW state government tightening COVID restrictions and placing the whole state into a strict 1-week lockdown.
• China data overnight was a general disappointment, with retail sales and IP missing expectations. CNH is little changed, however, with recent pledges of PBoC support possibly lending a hand. Nonetheless, the poor China data has fuelled JPY gains, putting USD/JPY back below the Y109.50 mark.
• Data releases and central bank speakers are few and far between Monday, with US Empire Manufacturing and Canadian existing home sales the sole releases.

CFTC: AUD Position Deteriorates to New 12m Low

• The AUD position deteriorated further in the most recent week of CFTC data, with the net position slipping lower by over 8k contracts. This puts the short position at 28.7% of open interest, the lowest level of the past 12 months.
• Other notable changes include an improvement in the GBP net position of over 7k contracts, switching the net position from neutral to small long. Similarly, the CHF position improved by just over 2k contracts or 3.7% of open interest - which may reflect the EUR/CHF downtick seen across the second half of July.

FX OPTIONS: Expiries for Aug16 NY cut 1000ET (Source DTCC)

• EUR/GBP: Gbp0.8590-00(E515mln)
• USD/CNY: Cny6.45($1.4bln)

Price Signal Summary - Silver Bear Flag

• In FX, EURUSD bounced Friday but has found resistance at the 20-day EMA. Initial short-term resistance is Friday's high of 1.1805. Gains are considered corrective. EURGBP gains are also considered corrective and the cross remains in a bear trend. Last week's 0.8450 print - the lowest level since February last year - marks the bear trigger. A break would open the vol band support at 0.8413 as well as the Feb 27, 2020 low at 0.8430. USDJPY has started the week on a softer note and attention has turned to the key support at 108.72, the Aug 4 low. Key resistance is at 110.80, Aug 11 high.
• On the commodity front, Silver remains weak. The confirmation of a death cross in the DMA space recently, highlights the current bearish theme and note too that the recent consolidation has taken on the appearance of a bear flag. A break and close below the Aug 9 low of $22.626 would confirm a resumption of bearish pressure and open a key Fibonacci support at 20.871, 50% of the Mar '20 - Feb '21 range. Gold on the other hand is holding onto recent gains. The 20-day EMA at $1784.00 marks initial resistance. WTI futures key support lies at $65.01, Jul 20 low. This level represents a key pivot point.
• S&P E-minis outlook remains bullish as evidence of dip buying remains solid on intraday pullbacks. Recent gains have again confirmed a resumption of the uptrend and signal scope for a continuation near-term. The focus is on 4481.75, 1.00 projection of the Jun 21 - Jul 14 - 19 price swing. EUROSTOXX 50 futures are lower this morning but remain in a clear uptrend. The focus is on the 4253.86 2.0% 10-dma envelope
• Support to watch in Bunds is at 176.13, the 20-day EMA. Gilt futures stalled ahead of the 200-dma last week, but managed a high watermark of 130.72 before prices faded. The support to watch is 129.10, Jul 22 low.

EQUITIES: Stocks Sink as Kabul Rout, Fed Taper Talk Dents Sentiment

• Equities across Europe trade solidly in negative territory, with the UK's FTSE-100 leading the decline to post losses of over 1%. This points toward a negative open on Wall Street, with the e-mini S&P some 15 points off the alltime highs posted last week.
• Europe's energy sector is leading the decline, with consumer discretionary names not far behind. Real estate is the sole sector holding onto minor gains ahead of the NY crossover.
• Sentiment has been dented by the ongoing scenes of chaos in Kabul, Afghanistan, as well as a WSJ report highlighting a number of FOMC members who are eyeing an end to asset purchases by mid-2022.

COMMODITIES: Energy, Metals on Backfoot Amid Global Risk-Off

• WTI Crude down $1.14 or -1.67% at $67.3
• Natural Gas down $0.01 or -0.21% at $3.853
• Gold spot down $4.15 or -0.23% at $1775.55
• Copper down $7.1 or -1.62% at $431.05
• Silver down $0.2 or -0.83% at $23.5513
• Platinum down $17.86 or -1.73% at $1014.31