MNI US MARKETS ANALYSIS - Stocks Falter Ahead of Friday Highs

US TSYS: Tepid Volumes Ahead of Heavy Supply Later

• Cash Tsys have been paring losses seen after gapping lower at the open on no clear headline driver. The pace of the intraday rally has gathered speed through the European session but with Tsys still underperforming core EU FI.
• Ahead of a session likely relying on headlines for drivers until heavy Treasury issuance later on, it leaves Treasuries back little changed from Friday’s close as markets gear up for US CPI tomorrow before the FOMC decision on Wed.
• 2YY +0.0bp at 4.596%, 5YY -0.2bp at 3.911%, 10YY +0.0bp at 3.739%, 30YY -0.9bp at 3.871%.
• TYU3 trades just 1 tick higher at 113-13+ having lifted off Friday’s low of 113-06+, which for now has prevented a stronger run to key support at 112-29+ (May 26/30 lows). Volumes are particularly subdued volumes at just 160k.
• Data: Monthly budget statement May (1400ET)
• Note issuance: US Tsy $40B 3Y Note auction (91282CHH7) at 1130ET, US Tsy $32B 10Y Note auction re-open (91282CHC8) at 1300ET
• Bills issuance: US Tsy $58B 26W bill auction at 1130ET, US Tsy $65B 13W bill auction at 1300ET

STIR FUTURES: Fed Rates Marginally Lower, Treading Water Ahead Of CPI/FOMC

• Fed Funds implied rates sit marginally lower overnight, more so June and July meetings, with pricing for Wednesday’s decision back at +6.5bps at levels after Thursday’s drop on a surprise spike in initial claims.
• Cumulative changes from 5.08% effective: +6.5bp Jun (-1bp on the day), +20bp Jul (-1bp), +19bp Sep (-0.5bp), +10bp Nov (-0.5bp), -2.5bp Dec (-0.5bp), -16bp Jan (unch), with the combination leaving just 22.5bp of cuts from the July terminal to year-end.
• Focus is firmly on tomorrow’s US CPI before the FOMC decision on Wednesday, with a thin docket today except for heavy Treasury issuance. Headlines are likely the main drivers today including BoE’s Mann speaking later although we don’t expect the same spillover as from last week’s BoC 25bp hike.

EUROZONE ISSUANCE UPDATE

• E2.136bln of the 2.00% Oct-27 EU-bond. Avg yield 2.95% (bid-to-cover 1.54x)
• E1.756bln of the 3.375% Oct-38 EU-bond. Avg yield 3.33% (bid-to-cover 1.14x).

FOREX: USD Softer to Kick Off Fed Week

• The greenback is the poorest performing currency in early G10 trade Monday, with markets happy to keep the dollar weaker ahead of the FOMC decision Wednesday and the core expectation of an unchanged 'skip' meeting from the Fed.
• The USD Index is within range of last week's lows but is yet to make any material test on the first key support undercutting at the 103.01 100-dma. Weakness through here would open 102.74 - the 50% retracement for the April - May upleg as well as the 102.54 50-dma.
• SEK is the strongest performer in G10, helping USD/SEK fade off last week's best levels of 10.9459 to make some progress through the sharp late May rally in the pair. Swedish CPI takes focus later in the week, with May inflation crossing on Wednesday.
• The positive equity backdrop is helping provide some support for risk proxies, putting the likes of AUD and NZD toward the top-end of the table. The e-mini S&P sits just below Friday's highs and a dose of risk-on would put the index at the best level since August last year.
• Typically for a Monday, there are no key data releases to watch, with the speaker slate similarly quiet. An appearance from the BoE MPC's most hawkish member - Catherine Mann - is set for 1500BST/1000ET, however the Chatham House Rules applying to the event may mean little in the way of major headlines.

FX OPTIONS: Expiries for Jun12 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0650-70(E1.6bln), $1.0695-00(E541mln), $1.0710-20(E839mln), $1.0740-50(E554mln), $1.0787-00(E984mln), $1.0860(E501mln)
• USD/JPY: Y139.50($503mln)
• USD/CNY: Cny7.1500($541mln)

BONDS: Greek Bonds Underperform After Fitch Declined to Upgrade Sovereign

Gilts have continued to cheapen, with a fairy parallel 4-5bp move now observed across the major benchmarks, while futures are -60 or so. The previously outlined hawkish offerings from BoE MPC Haskel have helped set the tone and come in front of scheduled comments from the most hawkish MPC Member, Catherine Mann, which will cross later today (15:00 London).

• Note that benchmark yields & futures have failed to challenge recent extremes today. SONIA futures sit little changed to 7bp cheaper through the reds, with the later reds/early greens providing the soft point on the broader strip.
• BoE-dated OIS is little changed to a touch higher vs. levels outlined earlier, with terminal pricing operating just above 5.55% in policy rate terms.
• GGBs now underperform the wider EGB space, widening by ~5bp vs. Bunds at the 10-Year point. This comes after a lack of initial impetus after Fitch chose only to affirm Greece's BB+; Outlook Stable sovereign credit rating status on Friday.
• WTI crude oil futures have moved further through last week's low, seemingly allowing wider core global FI markets to stabilise before moving off session cheaps. That leaves Tsys 0.5-1.5bp cheaper on the session, while Bunds are 1bp cheaper to 1bp richer, twist flattening and Gilts run 2.5-3.5bp cheaper across the curve. Verbal jousting out of China re: the U.S. hasn't represented a meaningful escalation in tensions but could also be factoring into the move in bonds (at the margin) on what is a quiet news day.

EQUITIES: E-Mini S&Ps Continue in Uptrend

• Eurostoxx 50 futures remain in consolidation mode and price is trading above 4216.00, the May 31 low and a key support. For now, the recent gains appear to be a correction. The recent breach of support at 4252.00, the May 25 low, highlights a potential bearish threat. The contract has also pierced support at 4233.00, the May 4 low and a key short-term level. Resistance to watch is 4362.00, May 29 high. Clearance of this level would be bullish.
• S&P E-minis traded higher Friday and the contract has cleared its recent highs. This confirms a resumption of the uptrend and maintains the bullish price sequence of higher highs and higher lows, marking an extension of the bull cycle that started in October 2022. The focus is on the 4400.00 handle next. The 50-day EMA, at 4210.03 marks a key support. A break would signal a reversal. Initial firm support is at 4267.69, the 20-day EMA.

COMMODITIES: E-Mini S&Ps Continue in Uptrend

• Eurostoxx 50 futures remain in consolidation mode and price is trading above 4216.00, the May 31 low and a key support. For now, the recent gains appear to be a correction. The recent breach of support at 4252.00, the May 25 low, highlights a potential bearish threat. The contract has also pierced support at 4233.00, the May 4 low and a key short-term level. Resistance to watch is 4362.00, May 29 high. Clearance of this level would be bullish.
• S&P E-minis traded higher Friday and the contract has cleared its recent highs. This confirms a resumption of the uptrend and maintains the bullish price sequence of higher highs and higher lows, marking an extension of the bull cycle that started in October 2022. The focus is on the 4400.00 handle next. The 50-day EMA, at 4210.03 marks a key support. A break would signal a reversal. Initial firm support is at 4267.69, the 20-day EMA.