MNI US MARKETS ANALYSIS - Stocks Recover, But Below Monday High

US TSYS SUMMARY: Bull Flattening, With 3-Yr Supply Ahead

Bull flattening has been the dominant theme Tuesday, with TY futs climbing from Friday/Monday's lows. With no data / speakers for the rest of the session, attention is on 3-Yr supply later.

• Jun 10-Yr futures (TY) up 15.5/32 at 132-11.5 (L: 131-26.5 / H: 132-12).
• The 2-Yr yield is down 0.8bps at 0.1548%, 5-Yr is down 4.4bps at 0.81%, 10-Yr is down 6.8bps at 1.5229%, and 30-Yr is down 7.7bps at 2.2388%.
• Note the curve flattened further following large futures blocks (30,085 FVM1 sold at 123-22+18,650 TYM1 bought at 132-10+) at 0400ET.
• The Tsy rally has come alongside a bounce in equities (led by tech) and a turn lower in the USD.
• The only data point of the day was NFIB small business confidence which was a mild disappointment, rising to 95.8 in Feb from 95.0 in Jan (97.0 expected).
• With Senate passing the $1.9B relief bill, looks as though the House will vote either late Tuesday or, more likely, Weds morning.
• 1130ET sees $30B 42-day bill auction, with $58B 3-Y Note auction at 1300ET. Mmore attention on 10-Yr and 30-Yr supply the next two days though.
• NY Fed buys ~$3.625B of 7-20Y Tsys.

EGB/GILT SUMMARY: Bull Flattening Across The Board

European sovereign bond curves have sharply bull flattened this morning, while equities have pushed higher and the dollar loses ground against G10 FX.

• Gilts opened higher and made further gains through the morning. Cash yields are 2-5bp lower on the day with the long end of the curve outperforming.
• Bunds have rallied sharply with long end yields 5-6bp lower and the curve 5bp flatter.
• OATs trade broadly in line with bunds. Last yields: 2-year -0.6240%, 5-year -0.5657%, 10-year -0.0866%, 30-year 0.7088%.
• BTPs have outperformed core EGBs with longer end yields pushing down 7-8bp.
• Supply this morning came from the UK (Gilts, GBP2.25bn), Spain (Letras, EUR 1.94bn) the Netherlands (dsls, EUR2.330bn), Belgium (TCs, EUR2.933bn) and the ESM (Bills, EUR1.1bn).
• The final estimate of Eurozone Q4 GDP came in marginally below expectations in Q/Q terms and a touch better on a Y/Y basis (-0.7% Q/Q vs -0.6% survey, -4.9% Y/Y vs -5.0% survey).
• Focus this week is on the upcoming ECB meeting. MNI will publish its ECB March 2021 preview later today.

EUROPE ISSUANCE: UK, Netherlands Bond Auctions

UK sells GBP2.25bln of 1.25% Oct-41: Avg yield 1.223% (Prev. 0.987%), Bid-to-cover 2.52x (Prev. 2.51x), Tail 0.1bps (Prev. 0.1bps)

Netherlands sells E2.330bln of 0% Jan-27 DSL: Avg yield -0.484% (Prev. -0.656%)

The EU has held a syndication today selling E9bln of the new long 15y Jun-36 bond (we had expected E8-10bln). Bloomberg reports books closed above E61.5bln ex JLM with the spread set at MS-4bp. We expect the transaction to price this afternoon.

EUROPE OPTION FLOW SUMMARY

Eurozone:
RXJ0 173c, bought for 15 in 1.4k

DUU1/DUM1 112.20/112.30cs spread, bought the June for 1.25 in 2.5k

ERM1 100.25/100.37/100.50c fly 1x3x2, bought for half in 2.5k

UK:
0LM1 99.75/99.62/99.50p fly sold at 1.5 in 3k
3LU1 99.12/98.87/98.62p fly sold at 3 in 3k
3LM1 99.00/98.75ps 1x1.5, bought for 3 in 6k

FOREX: USD Edging Off 2021 Highs

• The greenback is edging lower after Monday's strong session put the USD at the best levels since late November.
• At the top end of the G10 table so far Tuesday is NOK, which is pressuring EUR/NOK to new cycle lows and narrowing the gap with the February 2020 support at 10.00. Strong oil prices continue to contribute to the currency's outperformance, but markets also keep an eye on the upcoming Norges Bank policy decision, at which the bank may steepen their rate path projections to indicate a sooner-than-expected first post-COVID rate hike.
• AUD and NZD are chewing through Monday's losses, with AUD?USD nearing the week's best levels at $0.7722. A break above opens 50-dma resistance at $0.7736.
• There are no major data releases due Tuesday, with few central bank speakers on the slate either. RBA governor Lowe speaks after the close from Sydney.

FX OPTIONS: Expiries for Mar09 NY cut 1000ET (Source DTCC)

EUR/USD: $1.1610-15(E653mln), $1.1620-25(E562mln), $1.1640-50(E552mln), $1.1800(E652mln), $1.1835-50(E710mln), $1.1880-00(E662mln)
AUD/USD: $0.7700(A$524mln)
USD/CAD: C$1.2450($620mln), C$1.2550($545mln), C$1.2595-00($742mln), C$1.2725-30($828mln)
USD/CNY: Cny6.56($500mln)

TECHS: Price Signal Summary - USD Bulls Meet Resistance

• In the FX space, the USD is weaker today however this year's uptrend remains intact. EURUSD, is off today's low of 1.1836. Gains are considered corrective with resistance at 1.1952, Feb 5 low and the recent breakout level. Bearish objectives are 1.1825, the 200-day MA and 1.1800, Nov 23 low. USDJPY continues to defy gravity despite still being in overbought territory. The focus is on 109.56, 61.8% of the Mar 2020 - Jan downleg and an important pivot resistance. Support is seen at 107.82 Low Mar 5.
• On the commodity front, Gold remains in a clear downtrend and has cleared $1700.00. This opens $1671.0, Jun 5, 2020 low. Gains are at this stage, considered corrective. Oil contracts are off yesterday's highs but remain in a bull trend. Brent (K1) potential is for $71.75 next, Jan 8, 2020 high (cont). Support is at $66.82, Feb 28 high and a recent breakout level. WTI (J1) bulls eye $70.00 with support at $63.81, Feb 25 high.
• In the FI space, recent gains in Bunds (H1) are still considered corrective. The Mar 3 sell-off signals the potential end of this correction. Key pivot short-term resistance is 174.97, Mar 3 high. Gilts (M1) remain bearish. Scope is for a move towards the 127.00 handle. Resistance is at 129.27, Mar 2 high. Treasuries last week registered a fresh trend low print at 131-23+, highlighting the likelihood of still higher yields going forward. Scope is seen for weakness towards 130-07, Feb 2, 2020 low.
• In the equity space, a fresh trend high yesterday in EUROSTOXX50 index opens 3798.19, 0.764 projection of Mar - Jul - Oct 2020 swing. E-mini S&P futures remain vulnerable despite the recent recovery. Last week's leg lower exposes key support at 3656.50, Feb 1 low. Initial resistance is at yesterday's intraday high of 3878.75.

EQUITIES: European Stocks Higher After Mixed US Finish

• In the US, futures markets are uniformly higher, with tech leading the rebound after the NASDAQ posted a lower close on Monday. The e-mini NASDAQ is higher by over 2% at pixel time, with yesterday's highs marking first resistance at 12,761.
• Across Europe, indices are posting similar gains, with the DAX higher by 0.4%, while UK and Spanish markets outperform, higher by 0.6%.
• Europe's utilities sector is leading gains, closely followed by tech and energy names. Financials and materials are the laggards, but only after posting decent gains Monday.

COMMODITIES: Oil Stabilises, Gold Needs to Top Yesterday's High

• WTI finished 4% below the cycle high printed early Monday, as oil benchmarks wrote off Middle-eastern tensions and focussed instead on the firming US dollar. Markets have stabilised so far Tuesday, with both WTI and Brent higher, but well off the Monday highs. This keeps the technical outlook unchanged, with focus on the $67.98/bbl level for WTI, and a climb back above $71/bbl for Brent.
• Gold is firmer so far Tuesday, but remains within the February - March downtrend. A break and close above the Monday highs of $1714.38 would slow the downtrend and bring some stability to the outlook, but the re-correlation of gold with equity markets leaves precious metals needing a firmer stock rally this week to solidify gains.