MNI US MARKETS ANALYSIS - Stocks Narrow in On All Time Highs

US TSYS SUMMARY: A Little Weaker, With PMIs Eyed

Treasuries weakened a little in European hours following an uneventful Asia-Pac session, all well within Thursday's ranges.

• With no supply or speakers, the only remaining item on the week's schedule is July Flash PMI at 0945ET.
• Tsy weakness comes alongside equity strength, with S&P eminis nearing all-time highs. Dollar slightly higher too.
• Sep 10-Yr futures (TY) down 5.5/32 at 134-02.5 (L: 134-01/ H: 134-07), on light volumes (<200k). Note for the 2nd consecutive session, we've had a Japanese market holiday.
• Our tech analyst highlights first support at 133-26; 135-07 is the Jul 20 high and the bull trigger.
• Curve is bear steepening slightly. The 2-Yr yield is down 0.4bps at 0.196%, 5-Yr is up 0.5bps at 0.7231%, 10-Yr is up 1.3bps at 1.2914%, and 30-Yr is up 1.4bps at 1.9301%.
• NY Fed buys ~$6.025B of 4.5-7Y Tsys.

EGB/GILT SUMMARY: Mixed PMIs Still Point To Strong Growth

EGB curves have steepened this morning while equities continue to make up for lost ground earlier in the week.

• Gilts have sold off with yields 2-3bp higher and the short-end of the curve underperforming.
• The bund curve has bear steepened with the 2s30s spread widening by 2bp.
• It is a similar story for the OAT curve where cash yields 1-2bp higher.
• BTP's trade mixed, albeit with the curve also steepening a touch.
• This morning's European preliminary PMI data for July were mixed, while still pointing to a sustained expansion in economic activity. The German prints surprised higher, France was a touch weaker than expected and the UK data posted a significant miss.
• Supply this morning came from the UK (UKTBs, GBP3.0bn).

EUROPE OPTION FLOW SUMMARY

Eurozone:
DUU1 112.20^, bought for 11.5 in 4k
DUU1 112.30^ sold at 9 and 8.5 in 10k

2RZ1 100.25/100ps 1x1.5, bought for 1.25 in 2k
3LZ1 99.25/99.00/98.12 broken p fly, bought for 1.5 in 1k

FOREX: Risk Appetite Returns, Sending JPY to Bottom of the Pile

• Equity markets have resumed the incline, with the e-mini S&P narrowing the gap with the mid-July alltime highs to 5 points. The resumption of risk appetite has worked against haven currencies, leaving the JPY the poorest performer in G10 so far Friday.
• EUR continues to hold the post-ECB losses, with EUR/USD circling Thursday's worst levels of 1.1757. This keeps the outlook bearish, with first support undercutting at 1.1738 ahead of the key level of 1.1704. A heavy slate of option expiries layered between 1.17--1.1800 today could keep spot muted going forward.
• Greenback has resumed recent strength, with the USD index closing in on the multi-month highs printed earlier this week at 93.191.
• The data slate thins out headed into the close of the week, with Canadian retail sales and the flash Markit PMI data from the US the last few releases. There are no notable central bank speakers.

FX OPTIONS: Expiries for Jul23 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.1700-10(E1.5bln), $1.1725-35(E1.2bln), $1.1800(E724mln), $1.1865-70(E1.1bln), $1.1925(E731mln)
• USD/JPY: Y110.75($500mln)
• GBP/USD: $1.3775-85(Gbp643mln)
• EUR/GBP: Gbp0.8525(E510mln)
• AUD/USD: $0.7400-20(A$1.1bln)
• USD/CAD: C$1.2470-75($576mln)

Price Signal Summary - S&P E-Minis Approach The ATH

• In the equity space, conditions have improved for bulls. S&P E-minis found support at Monday's low and importantly, the 50-day EMA contained the recent corrective pullback. The contract is approaching the bull trigger at 4384.50, Jul 14 high. EUROSTOXX 50 futures are firmer today as the contract extends the recovery from 3895.00, Jul 19 low and a pivotal short-term support. Watch resistance at 4101.50, Jul 1 high.
• In FX, the USD outlook remains bullish. EURUSD focus is on 1.1704, Mar 31 low and a key support. GBPUSD has recovered from Tuesday's low of 1.3572. Gains are still considered corrective with resistance at 1.3813, the 20-day EMA. USDJPY is trading above Monday's low and is firmer today. This week's low print of 109.07 did confirm a resumption of the downtrend paving the way for an extension lower. The focus is on 108.47, 76.4% of the Apr 23 - Jul 2 rally. Watch resistance is at 110.70, Jul 14 high. A break would be a bullish development.
• On the commodity front, Gold is consolidating and maintains a bullish tone. Key short-term support is at $1791.7, Jul 12 low. A break of this level would however be bearish. Brent (U1) is testing $73.87, 61.8% of the Jul 6 - 20 downleg. A clear breach would open $75.39, the 76.4%v level. WTI (U1) is holding on this week's gains. An extension would open $73.46, 76% of the Jul 6 - 20 downleg.
• Within FI, Bund futures remain firm following this week's break of 174.77, Jul 8 high. Sights are on 176.30, 76.4% of the Dec '20 - May sell-off (cont). Gilts remain in a bullish condition despite the recent pullback. The break of 129.92, Jul 8 high opens 130.72, 2.236 projection of the May 13 - 26 - Jun 3 price swing. We are still monitoring a bearish candle pattern, an evening star reversal. A deeper pullback would expose support at 128.54, low Jul 14.

EQUITIES: Stocks Resume Incline After Thursday Pause

• Equity markets across both futures and cash are higher Friday, resuming their incline after a pause on Thursday. European markets are higher by 0.7-1.0% while US futures are making strong progress toward alltime highs. The e-mini S&P has traded within 1.50 points of the best levels on record printed back on July 14th.
• Across Europe, the tech and materials sectors are leading the way higher, with just utilities and real estate names in negative territory (although only just).
• The resumption of the equity uptrend has worked against VIX futures, which have come under modest pressure across European hours.

COMMODITIES: Oil in Holding Pattern, Close to Highs

• WTI and Brent crude futures are broadly flat on the day ahead of the Friday open, holding the week's solid gains as well as the 10% rally from the Monday low. Stocks continue to trade well, providing a healthy tailwind for oil benchmarks, which could work in favour of further gains in crude.
• Datapoints Friday are few and far between, with focus on the US prelim PMI data as well as the Baker Hughes Rig Count.
• Gold and silver both trade negatively, with silver underperformance prompting a modest correction higher in the gold/silver ratio. The measure hit multi-month highs of 72.9 earlier this week.