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HIGHLIGHTS:

  • Treasuries edge lower ahead of retail sales
  • Retail sales seen declining for a second month
  • ECB's Rehn talks down prospect of near-term rate hikes

US TSYS SUMMARY: Weakness Resumes Ahead Of Jobless Claims And Retail Sales

Treasuries have traded weaker in the European morning Thursday, with the unwind from the post-CPI rally resuming. Jobless claims and retail sales data in focus.

  • Modest bear steepening in the curve: 2-Yr yield is up 0.4bps at 0.2152%, 5-Yr is up 1.1bps at 0.808%, 10-Yr is up 1.4bps at 1.3124%, and 30-Yr is up 1.7bps at 1.876%.
  • Dec 10-Yr futures (TY) down 3/32 at 133-09.5 (L: 133-08.5 / H: 133-14.5), briefly moving below Wednesday's low (133-09) albeit weak volumes overall (~225k traded).
  • Modest safe-haven outperformance incl Tsys in Asia-Pac trading with weaker trade in regional equities (China Evergrande woes weighing). Not much headline / macro driving headlines in the European session, but heavy EGB supply probably helped bias global FI lower.
  • Large set of data out at 0830ET: Aug retail sales and weekly jobless claims, along with Philly Fed business outlook. Business inventories follow at 1000ET, with TIC flows at 1600ET.
  • Supply today is $45B combined 4-/8-week bill auction at 1130ET.
  • NY Fed buys ~$2.025B of 22.5-30Y Tsys.

EGB/GILT SUMMARY: ECB's Rehn Argues Inflation Surge Is Temporary

It has been another relatively mixed session for European government bonds this morning while equities have pushed higher and the dollar has gained ground against G10 FX.

  • Gilts have traded weaker with cash yields 1-2bp higher across the curve.
  • Bunds and OATs have firmed slightly across much of the curve, although the very long end has weakened a touch.
  • BTPs have firmed and the curve has marginally bull flattened with the 2s30s spread 1bp narrower.
  • The ECB's Olli Rehn today argued that although euro area growth is robust, monetary policy is still needed to maintain favourable financing conditions and that the recent rise in inflation was the result of temporary factors.
  • Supply this morning came from France (OATs, EUR8.998bn & Linkers, EUR1.862bn), Spain (EUR5.19bn), Ireland (IRTBs, EUR0.75bn). Austria is also issuing a 15-year RAGB via syndication today.
  • The European data slate is light today.

EUROPE ISSUANCE UPDATE: 

Spain sells:
E1.39bln 0% May-24 Bono, Avg yield -0.51% (Prev. -0.55%), Bid-to-cover 1.91x (Prev. 2.27x)
E1.75bln 0% Jan-26 Bono, Avg yield -0.37% (Prev. -0.44%), Bid-to-cover 2.55x (Prev. 1.57x)
E2.05bln 0.50% Oct-31 Obli, Avg yield 0.33% (Prev. 0.31%), Bid-to-cover 1.41x (Prev. 1.69x)

France sells OATs & Linkers:
E3.138bln 2.25% May-24 OAT, Avg yield -0.66%, Bid-to-cover 3.21x
E2.652bln 0.25% Nov-26 OAT, Avg yield -0.48% (Prev. -0.38%), Bid-to-cover 2.27x (Prev. 1.50x)
E3.208bln 0% Feb-27 OAT, Avg yield -0.42% (Prev. -0.30%), Bid-to-cover 2.51x (Prev. 2.26x)

E988mln 0.10% Mar-26 OATei, Avg yield -2.18% (Prev. -1.77%), Bid-to-cover 2.03x (Prev. 2.18x)
E541mln 0.10% Jul-31 OATei, Avg yield -1.68% (Prev. -1.43%), Bid-to-cover 2.40x (Prev. 2.21x)
E333mln 1.80% Jul-40 OATei, Avg yield -1.29%, Bid-to-cover 2.15x

EGB SYNDICATION: Austria 15-year syndication: Launched
Final spread set earlier at MS-3bp. Initial guidance was at MS-1bp area
Maturity: 20 October 2036
Deal size set at E5bln - Total issued including E500mln of issuer retention
Books closed > E41bn (incl E2bln JLM)

EUROPE OPTION FLOW SUMMARY:

Eurozone:
3RH2 100.25/100.12/100p fly, bought for 2.5 in 3k

UK: Unchanged UK rate for the first quarter of 2022, the dominant trade to note.
SFIH2 99.90/99.95/100.00 call fly, bought for 1 again in 10k (bought for 70k total in 2 days)

US:
TYV1 134.25 call, bought for 3 in 10k

FOREX: Greenback Improving Ahead of Retail Sales

  • The greenback trades better bid ahead of the Thursday NY crossover, putting EUR/USD in range of next support at 1.1770 - the Sep13 low. A break south of here opens the 61.8% Fib at 1.1758. Market turnover is ahead of average, with EUR futures pointing to volumes around 50% ahead of average for this time of day.
  • NZD, JPY are among the only currencies outperforming the greenback at this juncture, with the former trading well after a better-than-expected GDP read. Q2 growth across New Zealand came in over double expectations at 2.9% vs. Exp. 1.1%. This pushed the Y/Y figure to an impressive 17.4%. This puts EUR/NZD within range of the September lows at 1.6533. A break below here marks the lowest rate since March.
  • Scandi FX is underperforming ahead of the Riksbank, Norges Bank rate decisions due next week. USD/SEK eyes the 50-dma at 8.6477.
  • Focus turns to weekly US jobless claims and the August retail sales report. Retail sales are expected to have slipped by 0.7% across the month, a slightly improvement on the July turn out. ECB's Lagarde is due to speak in Paris at 1300BST/0800ET.

FX OPTIONS: Expiries for Sep16 NY cut 1000ET (Source DTCC)

  • EUR/USD: $1.1720-25(E1.3bln), $1.1750(E635mln), $1.1850(E574mln)
  • USD/JPY: Y109.30-40($673mln), Y109.70-80($1.3bln), Y110.50-65($1.7bln)
  • EUR/GBP: Gbp0.8525-45(E580mln)
  • AUD/USD: $0.7360(A$514mln)
  • USD/CAD: C$1.2550-75($1.9bln)
  • USD/CNY: Cny6.40($1bln), Cny6.45($995mln)

Europe Shrugs Off Weak Asia Performance

  • Asian markets closed weaker, with Japan's NIKKEI down 188.37 pts or -0.62% at 30323.34 and the TOPIX down 6.23 pts or -0.3% at 2090.16. China's SHANGHAI closed down 49.131 pts or -1.34% at 3607.092 and the HANG SENG ended 365.36 pts lower or -1.46% at 24667.85.
  • European stocks are higher, with the German Dax up 88.37 pts or +0.57% at 15703.95, FTSE 100 up 37.68 pts or +0.54% at 7054.68, CAC 40 up 48.97 pts or +0.74% at 6632.69 and Euro Stoxx 50 up 32.43 pts or +0.78% at 4178.3.
  • U.S. futures are flat/lower, with the Dow Jones mini up 1 pts or +0% at 34820, S&P 500 mini down 2.25 pts or -0.05% at 4479.5, NASDAQ mini down 20 pts or -0.13% at 15484.

COMMODITIES: Crude Holds Gains While Metals Retreat

  • WTI Crude up $0.08 or +0.11% at $72.7
  • Natural Gas down $0.07 or -1.28% at $5.382
  • Gold spot down $9.99 or -0.56% at $1784.16
  • Copper down $8.1 or -1.84% at $432.3
  • Silver down $0.27 or -1.13% at $23.5705
  • Platinum down $6.79 or -0.71% at $943.11