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Stronger In a Range


Weaker In A Range


Ending The Week On A Soft Note


Bearish Risk Growing


Stronger, But Still Vulnerable


SP500 PE Ratio vs. CPI Inflation

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  • US 10y yield ebbs to new lows
  • Alltime highs in ES1 already under pressure
  • Data schedule light, UMich sentiment the sole highlight

US TSYS SUMMARY: Pullback From Fresh Highs Overnight

Tsy yields plumbed fresh multi-month lows in the European morning before edging back higher, and are merely a little stronger on the session Friday. Overall, a consolidating feel to price action post-CPI and pre-FOMC, with a quiet schedule ahead.

  • Sep 10-Yr futures (TY) up 4.5/32 at 133-2.5, within narrow ranges (L: 133-01 / H: 133-06.5).
  • The 10-Yr is underperforming, following on from Thursday's outperformance (though the low today was 1.4266%, lowest since Mar 3): The 2-Yr yield is flat at 0.143%, 5-Yr is up 0.3bps at 0.7147%, 10-Yr is up 0.5bps at 1.4367%, and 30-Yr is up 0.3bps at 2.1297%.
  • Still on track for the largest weekly drop in 10Y yields since Jun 2020 (11+bp).
  • 1000ET sees the end of the week's data (and the last until Tuesday): Prelim UMich Jun sentiment, which is expected to rise.
  • With no supply / speakers (ahead of the FOMC meeting next week of course), the NY Fed's operational purchase schedule update at 1500ET forms the only other item on the docket. Today, NY Fed buys ~$1.425B of 10-22.5Y Tsys.

EGB/GILT SUMMARY: Holding On To Gains

European sovereign bonds have rallied with curves bull flattening alongside gains of equities and G10 FX losses against the USD.

  • Gilts opened stronger and trading firmer through the morning. Cash yields are 1-5bp lower with the curve 3-4bp flatter.
  • German bonds have similarly posted gains, while falling short of the gilt rally. The bund curve is 3bp flatter on the day.
  • The long-end of the OAT curve outperformed with yields 3bp lower.
  • BTPs trade in line with gilts. Yields are down 1-5bp.
  • UK GDP increased y 2.3% M/M in April, a touch below consensus (2.4%) but marking the fastest pace of expansion since last July.
  • The UK DMO earlier sold GBP3bn of 1/3/6-month bills.


RXQ1 172/170ps vs 174/175cs bought in 25k and sells 25k
RXN1 Bund 171 P (vs 172.86) paying 10.5/11/11.5

DUQ1 112.30/112.20/112.00 broken p fly, bought for 2.5 in 5k

2RH2 10025/10037^^ bought for 13.5/13.75 in 4k

0LZ1 99.75/87/00c fly 1x3x2 call fly for 1.5 (37.5k x112k x 75k)

FOREX: Greenback Firmer Despite Soggy US Yields

  • The US yield curve remains under pressure early Friday, with the 10y yield narrowing in on the 1.42%, a level not crossed since early March. Despite soft yields, the greenback is modestly firmer ahead of NY hours, keeping most major pairs under pressure. GBP/USD has rolled off of overnight highs of 1.4185, with EUR/USD also now below pre-ECB levels.
  • The resumption of the broad uptrend in US equities has filtered through to European markets this morning, helping underpin sentiment and buoy the likes of AUD, NZD across G10.
  • This modest risk-on sentiment has resulted in lower JPY, although USD/JPY remains well below the Thursday high of 109.80.
  • NOK is sliding for a second session despite the rebound in oil prices, as markets continue to pre-position ahead of next Thursday's Norges decision. Weak inflation numbers this week have prompted traders to price out the likelihood of a firm signal that rate hikes could come as soon as this September. USD/NOK is higher, but remains below 50-dma resistance of 8.3318.
  • The data slate is light Friday, with Prelim University of Michigan sentiment numbers the highlight.

FX OPTIONS: Expiries for Jun11 NY cut 1000ET (Source DTCC)

  • EUR/USD: $1.2100(E2.2bln), $1.2150-55(E2.3bln), $1.2175-90(E817mln), $1.2200(E1.8bln-EUR puts)
  • USD/JPY: Y108.90-109.10($2.3bln-USD puts), Y109.75-80($1.2bln-USD puts), Y110.00($1.6bln), Y110.50-60($1.0bln)
  • AUD/USD: $0.7740-55(A$1.2bln-AUD puts), $0.7800(A$557mln-AUD puts)
  • NZD/USD: $0.7325-30(N$528mln)
  • USD/CAD: C$1.2035($550mln-USD puts), C$1.2080-90($2.9bln-USD puts), C$1.2150($1.3bln-USD puts)
  • USD/CNY: Cny6.3700($950mln), Cny6.4000-10($815mln), Cny6.45($830mln)

Price Signal Summary - Bunds And Gilts Head North

  • In the equity space, the E-mini S&P (U1) broader uptrend has resumed, with new all time highs printed Thursday. The break confirms a resumption of the broader uptrend and opens, 4264.41, a Fibonacci projection. Further out, the break higher also exposes 4300.00 next. Initial firm support is at 4155.00, Jun 3 low. The broader medium-term trend support is at 4020.00, May 13 low.
  • In the FX space, EURUSD still appears vulnerable. The focus is on 1.2111, the 50-day EMA and 1.2104, Jun 4 low. This zone represents a key short-term support. GBPUSD recovered Thursday however the pair remains in a range. Key support lies at the May 13 low at 1.4006 while the 50-day EMA is just above at 1.4034. The outlook remains bullish while these levels hold. Recent USDJPY weakness resulted in a probe of support at 109.33, Jun 1 low. The pair is consolidating, however a clear break lower would threaten the recent uptrend and expose 108.56, May 25 low. 110.33, Jun 4 high is the bull trigger.
  • On the commodity front, Gold key short-term directional triggers are unchanged. These are; $1916.6, the Jun 1 high and bull trigger and $1856.2, the Jun 4 low. Trend conditions in oil remain bullish and price has traded higher this week. Brent (Q1) gains have opened $73.00 next, a round number resistance. WTI (N1) is holding onto recent highs. The focus is on $70.92, 2.764 projection of Mar 23 - 30 - Apr 5 price swing
  • Within FI, Bunds (U1) have this week topped the 50-day EMA at 172.00 and trend structures appear bullish. The contract is trading higher today and the focus is on 173.32 next, 76.4% of the Mar 25 - May 19 sell-off. Gilts (U1) traded higher Wednesday and cleared 127.74/82, the highs between Apr 20 and May 26. This opens 128.50, 1.00 projection of the May 13 - 26 - Jun 3 price swing.

EQUITIES: Europe Follows US Higher as Uptrend Resumes

  • Following the US CPI release Thursday, equities marched higher, resulting in the S&P 500 cash and futures markets hitting fresh alltime highs. This has filtered through to European stocks this morning, which sit uniformly higher. UK's FTSE-100 is the leader, higher by 0.6%, while Italy's FTSE-MIB sits just above flat.
  • The materials and consumer discretionary sectors are leading the way higher, while real estate and financials are the sole laggards.
  • In US futures space, markets are indicating a higher open on Wall Street, with the Dow Jones future outperforming, while the tech-led lags very slightly.

COMMODITIES: WTI, Brent Buoyed as Equity Outlook Improves

  • Oil markets trade well early Friday, extending the recovery from the Thursday low, after an initial dip was inspired by erroneous reports that the US had lifted sanctions targeting current Iranian oil officials. The march higher is extending ahead of NY hours, but the week's highs remain intact at $70.65/bbl for WTI and $72.93/bbl or Brent futures.
  • Gold key short-term directional triggers are unchanged at; $1916.6, the Jun 1 and bull trigger and $1856.2, the Jun 4 low. University of Michigan sentiment data is the highlight of a quiet US schedule.