MNI US MARKETS ANALYSIS - Tepid Bounce for Stocks

US TSYS SUMMARY: Trading Weaker Ahead Of 20-Yr Supply

Tsys have given back a bit of Tuesday's gains in early European trade Wednesday with some modest curve steepening, albeit within a fairly narrow range. Little in the way of newsflow drivers, with most attention on 20-Yr auction today.

• Jun 10-Yr futures (TY) down 2/32 at 132-16 (L: 132-13 / H: 132-19.5). The 2-Yr yield is up 0.2bps at 0.1512%, 5-Yr is up 0.8bps at 0.8001%, 10-Yr is up 1.3bps at 1.5714%, and 30-Yr is up 1.5bps at 2.2665%.
• Equities are flat/lower, holding some ground after losses earlier in the week; dollar trading a little stronger.
• With no key data or speakers, supply is the focus of the session. At 1130ET we get $35B 119D-Bill auction, with the highlight being $24B 20Y Bond sale at 1300ET.
• NY Fed buys ~$1.750B of 20Y-30Y Tsys.

EGB/GILT SUMMARY: Trading Soft

Core European sovereign bonds have traded a touch weaker this morning, although have started to claw back the early losses. Equities are broadly higher following yesterday's correction, while G10 FX is trading mixed against the dollar.

• Gilts have outperformed core EGBs with cash yields 1-2bp higher and the curve bear steepening.
• The bund curve is marginally steeper with the 2s30s spread 1bp wider on the day.
• OATs sold off early into the session and have gradually retraced back towards yesterday's closing levels.
• BTPs have rallied with yields 1-2bp lower and the curve bull flattening.
• Supply this morning came from the UK (Gilts, GBP2.5bn), Germany (Bund, EUR3.41725bn allotted) and Portugal (BTs, EUR1.25bn).
• UK inflation data for March came in slightly below expectations (Headline 0.7% Y/Y vs 0.8% survey).
• Focus remains on the ECB meeting tomorrow. No material change in monetary policy or the economic outlook is expected, but markets will be focused on communication around the weekly PEPP purchases. The MNI ECB Preview has been published and is available online and by email.

EUROPE ISSUANCE UPDATE

UK DMO sells GBP2.50bln of the 0.625% Jul-35 gilt, Avg yield 1.105% (Prev. 1.179%), Bid-to-cover 2.46x (Prev. 2.64x), Tail 0.2bp (Prev. 0.1bp)

Germany allots E3.41725bn 0% Feb-31 Bund, Avg yield -0.25% (Prev. -0.36%), Bid-to-cover 1.15x (Prev. 1.21x), Buba cover 1.70x (Prev. 1.48x)

EUROPE OPTIONS FLOW SUMMARY

Eurozone:
RXM1 169.5/167.5ps 1x2, bought for 22 in 2k

2RZ1 100.37^, bought for 21 in 1k
2RU1 100.37/100.25ps vs 100.50c, bought the ps for 0.25 in 4k
3RZ1 100.12/100/99.87/99.75p condor trades 2 in 1.5k
3RZ1 100.37/100.50cs, trades 2 in 1k

UK:
2LU1 99.75/99.50/99.25p fly sold at 8.75 in 12.5k
2LU199.25/99.37/99.50c fly, bought for 2 in 10.65k
2LU1 99.12/99.00ps, bought for 1.5 in 2k

FOREX: Markets Watch for BoC Taper Clues

• Treasury yields appear to have found a near-term bottom, with the 10y yield bouncing back above 1.58%, which has underpinned some further support for the greenback at present levels.
• The USD Index remains between the 50- and 100-dma directional parameters for now, which may dictate price action in a session devoid of data or central bank speakers.
• The single currency is among the weakest performers Wednesday as markets continue to book profits on the late EUR/USD rally last week. The pair remains above the 1.20 mark which continues to act as decent psychological support for now.
• CAD and NZD are among Wednesday's best performers, but both currencies trade very much inside recent ranges.
• Focus turns to Canada later today, with the Bank of Canada rate decision due as well as March CPI. The BoC are expected to keep policy unchanged, with rates at 0.25%. Markets watch for any clues on the BoC's approach to tapering their government bond purchase programme.

FX OPTIONS: Expiries for Apr21 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.1890-05(E942mln), $1.1920-40(E922mln)
• EUR/JPY: Y129.90-130.00(E443mln)
• GBP/USD: $1.3700(Gbp582mln), $1.3800(Gbp638mln)
• AUD/USD: $0.7740-50(A$1.15bln-AUD puts)
• USD/CNY: Cny6.40($700mln), Cny6.55($541mln)

Price Signal Summary - Risk On?

• In the equity space, S&P E-minis have traded lower this week and remain below resistance at 4183.50, Apr 16 high. Support levels to watch are seen at 4101.25, Apr 13 low and 4068.31, the 20-day EMA.
• In the FX world, a gravestone doji in EURUSD warns of a possible top. Key short-term resistance is at yesterday's high of 1.2080. A deeper pullback would expose 1.1943, Apr 19 low. Gains above 1.2080 would resume the uptrend. GBPUSD traded higher yesterday but did find resistance at the former bear channel base drawn off the Nov 2, 2020 low. Yesterday's high of 1.4009 marks a key short-term resistance. Support is at 1.3810, Apr 19 low. USDJPY has this week traded through 108.41, Mar 23 low and 108.13, the 50-day EMA. The next key support and pivot level is 107.64, a trendline support drawn off the Jan 6 low.
• On the commodity front, Gold maintains a bullish tone. The focus is on $1805.7, Feb 25 high. Brent (M1) stalled at yesterday's high of $68.08. Key support to watch is $64.93, the 20-day EMA. WTI (M1) has found resistance at $64.38, yesterday's high. The 20-day EMA at $61.48 is seen as a firm intraday support.
• In the FI space, Bunds (M1) remain vulnerable with support at 170.52, Mar 18 low cleared. This opens 170.05 next, 76.4% of the Feb 25 - Mar 25 rally. Support to watch in Gilts (M1) remains 127.81, Apr 14 low. Initial firm resistance is 128.93, Mar 25 high.

EQUITIES: Tepid Bounce After Tuesday's Sharp Weakness

• Cash markets in Europe are modestly higher, with the EuroStoxx50 adding around 0.6% while Germany's DAX and Italy's FTSE-MIB lag, but are still in the green by 0.1% or so.
• The bounce is minor, however, relative to yesterday's sharp weakness, which saw most European indices shed 2% or more, leaving a firmer recovery still in the balance.
• Tech and healthcare names are leading the bounce in Europe, with utilities and real estate countering at the other end of the table.
• In US futures space, markets hold above yesterday's lows, but there's been no material reversal in sentiment, evident in the continued support for VIX futures, which trade in close proximity to April highs.

COMMODITIES: WTI, Brent Lower on Price Action Hangover

• Major oil benchmarks trade lower ahead of NY hours Wednesday, with WTI and Brent off around 1% as downward pressure carries over from Tuesday's sell-off and a rebounding greenback. News yesterday that the House Judiciary Committee had advanced the so-called 'NOPEC' bill continues to exert influence, with yesterday's lows in WTI at $61.50/bbl a key level headed into today's DoE crude oil inventories data. Markets expect a draw of over 3mln bbls at today's release.
• Both spot gold and silver are broadly unchanged, keeping the technical picture in tact for now. Gold eyes weekly highs at $1790.14 for direction.