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- Treasuries inching higher alongside stocks, 10y yield nears week's lows
- Crude within range of another cycle high
- Busy session ahead, with US PPI and a deluge of central bank speakers
Treasuries continued to move higher overnight Thursday, alongside a constructive session for equities and commodity prices. Another busy schedule lies ahead today.
- The 2-Yr yield is down 0.6bps at 0.3521%, 5-Yr is down 1.3bps at 1.0566%, 10-Yr is down 0.9bps at 1.5281%, and 30-Yr is up 1.1bps at 2.0392%.
- Dec 10-Yr futures (TY) up 7/32 at 131-14 (L: 131-06 / H: 131-14.5).
- 0830ET sees a double shot of data, with jobless claims and PPI.
- Plenty of Fed Speakers today: St Louis' Bullard at 0835ET, Atlanta's Bostic at 0945ET, NY Fed's Logan (arguably the highlight of today's agenda as will be on policy implementation) at 1200ET, Richmond's Barkin at 1300ET, SF's Daly at 1300ET, and Philly's Harker at 1800ET.
- Supply today is all bills: $50B combined of 4-/8-week bills sold at 1130ET, with $60B 39-day at 1300ET.
- NY Fed buys ~$2.025B of 22.5-30Y Tsys, and releases its upcoming purchase schedule (1500ET).
European sovereign bonds have continued to post gains alongside a broad recovery in equities.
- Gilt yields are 2-4bp lower on the day with the short-end outperforming and the curve bull steepening.
- The bund curve has bull flattened with the 2s30s spread 3bp narrower.
- BTPs have firmed with cash yields broadly 1-2bp lower across the curve.
- An IMFC statement by ECB President Christine Lagarde, published on the ECB's website, argued that the inflation surge is being driven by temporary factors and that it was crucial not to withdraw policy support prematurely.
- The ECB's Francois Villeroy de Galhau has suggested that while PEPP is likely to end in March, the ECB should keep some of the PEPP's flexibility in the toolbox.
- It is another busy day for central bank speakers with the ECB's Knot and the BoE's Tenreyro, Mann, and Cunliffe due up.
- Supply this morning came from Ireland (IGBs, EUR1.5bn).
EUROPE ISSUANCE UPDATE:
E450mln 0% Oct-31 IGB, Avg yield 0.184% (Prev. 0.020%), Bid-to-cover 2.73x (Prev. 2.43x)
E650mln 2.00% Feb-45 IGB, Avg yield 0.716% (Prev. 0.717%), Bid-to-cover 1.23x (Prev. 1.67x)
E400mln 1.50% May-50 IGB, Avg yield 0.8850% (Prev. 1.030%), Bid-to-cover 1.92x (Prev. 1.68x)
EUROPE OPTION FLOW SUMMARY
RXX1 168.5p, bought for 25.5 up to 29 in 7k (short cover)
RXX1 167.50p, bought for 5.5/6.5 in 9k (short cover)
0RF2 100.25/100ps 1x2, bought for 2.25 in 2k
0LZ1 99.00/98.87/98.75p fly sold at 1.5 in ~26.5k (said to be rolling down strikes)
2LZ1 98.88/98.75/98.62p fly, sold at 1.5 in ~48k
0LZ1 99.00/98.87 ps sold at 5.25 in ~30k
- JPY remains on the backfoot, with the currency underperforming all others in G10. This puts USD/JPY just below the Y113.50 mark, with the week's highs of Y113.80 the upside target and bull trigger. A break above would open levels not seen since late 2018.
- The greenback also trades offered, with the USD Index extending yesterday's slide to drop to the lowest levels since early October. the moves put EUR/USD back above the 1.16 handle, opening gains toward 1.1640 and the 50-dma at 1.1722.
- Risk appetite appears to have improved, with European equity markets in positive territory with gains of 0.7-1.1%. This has helped growth proxies and high beta currencies to the top of the table, with NZD, AUD and NOK outperforming.
- US PPI data crosses later today, with markets expecting a moderation in price pressures on a M/M basis, although Y/Y metrics are expected to continue to climb, putting PPI Final Demand at 8.7%, another series record. Weekly US jobless claims data also crosses.
- Central bank speak picks up at the NY crossover, with highlights including ECB's Knot, BoE's Tenreyro & Mann as well as FOMC members Barkin, Daly and Harker and Fed's Logan.
- EUR/USD: $1.1485-00(E691mln), $1.1550-65(E904mln), $1.1600(E1.4bln), $1.1700-20(E999mln)
- EUR/GBP: Gbp0.8510-25(E1.2bln)
- USD/JPY: Y113.00($835mln), Y113.75-90($700mln)
- USD/CAD: C$1.2495($520mln), C$1.2550-60($578mln)
- USD/CNY: Cny6.4500($1.3bln)
- In the equity space, S&P E-minis have traded higher and are currently testing the 50-day EMA at 4385.86. The area around the EMA represents a key resistance area and a clear break is required to suggest scope for an extension that could see price move towards 4472.00, Sep 27 high. A failure at the 50-day EMA would expose key support at 4260.00, Oct 1 low. EUROSTOXX 50 futures are climbing this morning and the contract has cleared the 50-day EMA. Clear follow through would open 4200.50, Sep 24 high.
- In FX, EURUSD is trading higher, following through on Wednesday's bounce. The next resistance is at 1.1633, the 20-day EMA. Gains are considered corrective and the primary trend remains down. GBPUSD has moved through its 50-day EMA as the uptrend that started Sep 29, extends. The next resistance is at 1.3751, Sep 23 high. USDJPY remains firm following the recent strong impulsive rally. The pair has breached 113.41, a multi-year trendline drawn from the Dec 1975 high. This reinforces bullish conditions and opens a vol band resistance at 114.26.
- On the commodity front, Gold rallied yesterday and in the process cleared a number of short-term resistance levels. Attention turns to $1808.7, Sep 14 high. WTI trend conditions remain bullish. The focus is on $82.89 - 1.764 projection of the Aug 23 - Sep 2 - Sep 9 price swing.
- In the FI space, the primary trend is unchanged and remains down. Short-term gains are considered corrective. Recent Bund weakness has exposed 167.98, 2.382 projection of the Sep 9 - 17 - 21 price swing.
- Gilt futures remain in a downtrend and this week's recovery is considered corrective. A resumption of weakness would refocus attention on 123.27, 2.00 projection of the Aug 31 - Sep 17 - 21 price swing. Resistance is at 125.52, the 20-day EMA.
- European indices are higher by 0.8-1.2% at pixel time, with tech and energy names adding to the broad strength in headline stocks. The core EuroStoxx50 outperforms thanks to solid contributions from the likes of Iberdrola, ASML Holding and Siemens.
- US futures are similarly higher, with the e-mini S&P around 70 points off the week's lows. Markets need to top the 4407.75 mark to make any further progress toward the 50-dma of 4430.
- Earnings season picks up today, with a few more key reports - mainly from the financials sector. Highlights today include Bank of America, Wells Fargo, Morgan Stanley and Citigroup. Full schedule with timings and expectations here: https://marketnews.com/mni-us-earnings-schedule-ba...
- WTI and Brent crude futures both hold in positive territory, with front-month WTI within range of the cycle highs printed on Oct11 at $81.18/bbl. Clearance here would put markets on track to test $82.89, a Fibonacci projection.
- Focus turns to today's crude oil inventories release - a day delayed due to the Columbus Day holidays on Monday. Markets expect a build of around 500k barrels for headline crude, while distillate inventories are seen seeing a draw of a similar magnitude.
- Gold rallied sharply higher yesterday. The yellow metal has breached the 50-day EMA and resistance at $1787.4, the Sep 22 high. The resumption of strength reinforces short-term bullish conditions and the bullish engulfing candle pattern that signalled a potential reversal on Sep 3. The focus is on $1808.7 next, Sep 14 high. Initial firm support is at $1746.0, Oct 6 low. A break is required to undermine a bullish tone.