MNI US MARKETS ANALYSIS - Sterling Sceptical of "Imminent" Deal

US TSYS SUMMARY: Weaker Ahead Of Payrolls

Tsy futures have pared about half of Thursday's gains amid risk-on headlines overnight, with a heavy slate of data and the final Fed speakers ahead of the pre-FOMC blackout.

• Positive trial news from a Glaxo-backed vaccine and Reuters reporting that a UK-EU trade deal is "imminent" helped offset some of Thursday's late Pfizer disappointment, boosted equities and weighed on global core FI in European trade.
• Curve a little steeper: 2-Yr yield is up 0.6bps at 0.1546%, 5-Yr is up 1.3bps at 0.4067%, 10-Yr is up 2.3bps at 0.9294%, and 30-Yr is up 2.5bps at 1.6776%.
• Mar 10-Yr futures (TY) down 2/32 at 137-19 (L: 137-18 / H: 137-25) though not big volumes (~240k)
• A busy schedule to end the week, highlighted by the November employment report (alongside trade balance) at 0830ET. MNI dealer median for headline nonfarms is +412.5k (150-735k range), BBG whisper is 500k.
• 1000ET sees Oct durable goods / factory orders.
• Fed speakers include Chicago's Evans (0900ET), Gov Bowman (1000ET), Minn's Kashkari (1100ET).
• NY Fed buys ~$8.825B of 2.25-4.5Y Tsys.

EGB/GILT SUMMARY: EGBs Mixed 

European sovereign bond markets trade mixed this morning with EGBs little changed on the day.

• Gilts have traded weaker and the curve is marginally steeper. The Mar 21 gilt future trades at 133.96, towards the bottom end of the morning range (L: 133.87 / H: 134.18).
• Bunds trade close to unch on the day. Last yields: 2-year -0.7479%, 5-year -0.7578%, 10-year -0.5570%, 30-year -0.1406%.
• The OAT curve is 1bp steeper, largely on the short-end firming.
• Amid signs of UK-EU negotiating positions firming, France has again warned that it could veto any Brexit deal if the terms are not satisfactory.
• The European data calendar has been light today. Focus is on US NFP this afternoon.
• Looking ahead, attention will be fixed on the ECB next week, which since the last policy meeting has strongly signaled that additional stimulus is planned.

EUROPEAN OPTION SUMMARY

EUROZONE:
RXG1 173.00 put bought for 9 in 2k
RXH1 175/173ps 1x1.5, bought for 17.5 in 5.5k

ERJ1 (Apr) 100.625/100.75cs 1x2, bought for 0.25 in 3k

UK:
LM1 100.00/100.125/100.25c fly, bought for 1.25 in 6k
LH1 100.12/100.25cs, sold at 0.5 in 3.85k (ref 99.96, 10 del)

UK DMO UPDATE: Gilt calendar for Jan-Mar 2021 released: Highlights

• The long conventional linker syndication will be held in the week commending 18 Jan and will have a maturity date of 31-Jan-2046.
• There will be a long-dated linker syndication in the week commencing 8 February (and two linker auctions have been cancelled to make way for this).
• The new conventional 5-year gilt maturing Oct-26 will be launched on 2 March.
• A new 10-year linker maturing Aug-31 will be launched via auction on 27 Jan.
• Full details on short, medium Gilts here and linkers here.

FOREX: "Imminent" Deal Not Enough to Prop GBP

The single currency is outperforming early Friday, with the EUR rising against all others in G10. Commodity-tied currencies are at the bottom end of the table, with AUD and NZD trimming some of their recent strength. Equities are generally positive, with all major European indices in minor positive territory ahead of the key US data.

Once again, GBP has been one of the more volatile currencies, with GBP/USD briefly making another attempt at the 1.35 mark as Reuters cited an EU official as saying a trade deal is '"imminent" and is expected by the end of the weekend barring any last minute breakdown in talks. Nonetheless, the market clearly remains skeptical, with no long-lasting rally in GBP just yet.

November's Nonfarm Payrolls Report takes focus going forward with markets expecting the US to have added 475,000 jobs over the month - although the whisper is ever so slightly higher, at 500,000. The unemployment rate is seen dropping a further 0.1 ppts.

Key Price Signal Summary - Sterling Maintains Centre Stage In FX

• Cable yesterday traded through resistance at 1.3482, Sep 1 high and confirms a resumption of the broader uptrend that started in March. This has exposed 1.3514, Dec 13 high and 1.3547, a Fibonacci projection.
• EURGBP maintains a bullish technical tone following this week's rally through trendline resistance drawn off the Sep 11 high. Firm support to watch though is 0.8974, the former trendline resistance. A break below this support would reinstate a bearish risk.
• GBPCHF is volatile. If EURCHF is able to clear resistance at 1.0878, Sep 1 high and 1.0916, Jun 5 high, GBPCHF would likely be a main beneficiary in a bullish Sterling rally.
• Trend and level summary for PM and Oil:
  • Gold remains bullish and is approaching firm resistance at $1848.8, Sep 18 and the recent breakout level.
  • Brent (G1) has resumed its uptrend. The next resistance and objective is $50.00 and $50.45, 61.8% of the Jan - Apr sell-off (cont). WTI (F1) bulls eye $48.07 - 0.764 projection of Apr - Aug rally from the Nov 2 low.
• FI bearish pressure earlier this week is likely to still weigh on sentiment: Bund (Z0) key support is 173.47, low Nov 11 and the bear trigger. Gilts (H1) initial support is at 133.52, Dec 2 low. Treasuries (H1) support and downside trigger is at 133.52, Dec 2 low.

Expiries for Dec4 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.1900(E825mln), $1.2000(E2.1bln, E1.78bln of EUR calls), $1.2250(E928mln-EUR calls)
• USD/JPY: Y102.00($718mln), Y103.00($871mln), Y104.00-20($646mln-USD puts), Y105.00($864mln), Y105.50-55($750mln)
• EUR/GBP: Gbp0.8900(E587mln), Gbp.0.9000-05(E500mln)
• USD/CAD: C$1.2900($540mln-USD puts), C$1.3000($743mln, $643mln USD puts)
• USD/CNY: Cny6.60($917mln)

EQUITIES: European Cash, US Futures Markets Make Progress

Ahead of today's Nonfarm Payrolls release, global equity markets trade well, with core European indices higher by between 0.2-0.9%. UK's FTSE-100 slightly outperforms, while the DAX in Germany lags slightly.

Across Europe, energy firms are surging, echoing the price action seen earlier in the week, with communication services not far behind. Utilities are the sole sector in the red, with defensive names underperforming.

Notable individual stocks include oil & gas firms Repsol, BP and TechnipFMC, which are all following the oil price higher as WTI crude futures touch fresh multi-month highs.

COMMODITIES: WTI, Brent Crude Futures Hit Fresh Multi-Month Highs

Both crude oil benchmarks trade higher pre-NY hours Friday, with both contracts showing gains of as much as 1.5%. Oil prices this morning have been buoyed by the conclusion of OPEC+ negotiations over output curbs in the coming months, with the group seen (very) gradually increasing production on a month-by-month basis. With the recent steepening of the oil futures curve, markets appear to be taking the news well, helping prices higher this morning.

Alongside the outperformance in equities both on the continent and in the US, copper futures have resumed their bull trend, with copper futures touching new multi-decade highs up at $353.60 this morning.