MNI US MARKETS ANALYSIS - USD on Backfoot as Curve Bull Flattens

US TSYS SUMMARY: Bull Flatter, With PMIs And Powell Ahead

Treasuries have traded within Thursday's ranges for the most part overnight, with 10 and 30Y yields retracing from recent highs. The curve is a little flatter, with short-end yields anchored.

• A few catalysts weighed in Asia-Pac hours (incl Evergrande paying a US$ bond coupon that had been missed), but headlines were mainly risk-off (Sino-US tensions over Taiwan, equity weakness, poor UK retail sales data). European PMIs were mixed.
• The 2-Yr yield is down 0.1bps at 0.4534%, 5-Yr is down 0.6bps at 1.2336%, 10-Yr is down 1.9bps at 1.6819%, and 30-Yr is down 2.8bps at 2.1199%.
• Dec 10-Yr futures (TY) down 3/32 at 130-03 (L: 129-31.5 / H: 130-07.5)
• Fed Chair Powell speaks on a panel at 1100ET - he's the last scheduled FOMC speaker before the pre-Nov meeting blackout, so it bears watching for any final guidance ahead of a very likely taper announcement in two weeks' time.
• We also hear from SF Fed Pres Daly at 1000ET (on climate change risks).
• The data highlight is US October prelim PMIs at 0945ET.
• NY Fed buys ~$6.025B of 4.5-7Y Tsys.

EGB/GILT SUMMARY: Divergence

EGBs have traded weaker this morning while gilts has firmed alongside broad gains for equities and FX vs the dollar.

• Preliminary European PMI data for October were mixed relative to expectations, though continuing to point towards sustained expansion in economic activity. There was a notable surprise for the UK series with the services print coming in at 58.0 vs 54.5 expected.
• UK retail sales for September disappointed with the ex Auto Fuel series down 0.6% M/M vs expected growth of 0.3% and marking the fifth straight month of contraction.
• The gilt curve has bull steepened with the 2s30s spread 2bp wider.
• Bunds have traded lower with cash yields broadly 1-2bp higher on the day and the belly of the curve underperforming.
• It is a similar story for OATs where yields in the belly of the curve have pushed up 2bp.
• BTPs yields are also 1-2bp higher across the curve.
• Supply this morning came from the UK (UKTBs, GBP2bn).

EUROPE OPTION FLOW SUMMARY

Eurozone:
ERU3 100.00/99.875 put spread sold at 3 in 10k
0RH2 100.50 calls bought for 0.75 in 3k
2RZ1 100.25/100.50 call spread bought for 1.5 in 2k (vs 100.02 10d)

UK:
SFIH2 99.35/99.55/99.60 call ladder bought for 3.25 in 4k

FOREX: EUR Off Overnight Lows on Better Manufacturing Data

• Following an unimpressive open for the EUR, the single currency picked up some steam on the release of better-than-expected Eurozone PMI data, with strong activity seen across manufacturing in particular. This prompted a minor spell in strength for the currency up toward 1.1650 before fading.
• UK data has been more mixed, with stronger PMI numbers countered by a poor set of retail sales data, which is keeping GBP toward the bottom-end of the G10 table.
• The greenback trades poorly with the USD index now just above the week's lows of 93.496. Weakness through here would open losses back toward the 50-dma at 93.2894.
• Antipodean currencies are resuming the strength seen earlier in the week, with AUD, NZD trading well alongside commodities. This keeps AUD/USD within range of key resistance at the 0.7564 200-dma.
• Canada's August retail sales release takes focus going forward, with prelim October US PMI data also due. Fed's Daly is due to speak later today, as well as the Fed Chair Powell who appears alongside the SARB governor Kganyago on a BIS panel.

FX OPTIONS: Expiries for Oct22 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.1600(E788mln), $1.1650(E648mln)
• USD/JPY: Y113.50($500mln), Y114.25-45($1.6bln)
• GBP/USD: $1.3700(Gbp558mln)

Price Signal Summary - USDJPY Dips Considered Corrective

• In the equity space, S&P E-minis continued to appreciate yesterday and registered a fresh all-time high print of 4543.25. This confirms a resumption of the broader uptrend and opens 4591.25, the 1.00 projection of the Jul 19 - Aug 16 - Aug 19 price swing. EUROSTOXX 50 futures have broken out of their recent range and resumed the current upleg. The focus is on 4200.50, the Sep 24 high.
• In FX, EURUSD is consolidating. This week's break of the 20-day EMA signals scope for a stronger short-term corrective bounce. A resumption of strength would open the 50-day EMA that intersects at 1.1696. Key short-term support is unchanged at 1.1572, Oct 18 low. GBPUSD is consolidating. The pair has this week traded above resistance at 1.3795, 76.4% of the Sep 14 -29 downleg. Attention is on 1.3913, Sep 14 high. USDJPY maintains a bullish tone and traded to a fresh trend high Wednesday. Scope is seen for a climb towards 114.99, 1.50 projection of the Apr 23 - Jul 2 - Aug 4 price swing. Dips are considered corrective.
• On the commodity front, Gold maintains this week's firmer tone. However, the yellow metal remains below recent highs. The sharp reversal lower on Oct 15 continues to highlight a potential bearish threat. Short-term resistance has been defined at $1800.6, the Oct 14 high. Support to watch is at $1746.0, Oct 6 low. These levels represent key short-term directional triggers. WTI trend conditions remain bullish with sights on $85.01, 1.00 projection of the Sep 21 - Oct 6 - 7 price swing.
• In the FI space, trend conditions remain bearish. Bund futures have once again traded to a fresh trend low and confirmed a resumption of the underlying downtrend. This has exposed 167.79, 2.50 projection of the Sep 9 - 17 - 21 price swing. Key resistance is at 169.92, Oct 14 high. Gilt futures have also traded to a fresh trend low. The resumption of the downtrend opens 123.27, 2.00 projection of the Aug 31 - Sep 17 - 21 price swing. Key resistance is unchanged at 125.27, the Oct 14 high.

EQUITIES: Nasdaq Underperforming, S&P Futs Off Record Highs

• Asian markets closed mostly higher, with Japan's NIKKEI up 96.27 pts or +0.34% at 28804.85 and the TOPIX up 1.42 pts or +0.07% at 2002.23. China's SHANGHAI closed down 12.179 pts or -0.34% at 3582.604 and the HANG SENG ended 109.4 pts higher or +0.42% at 26126.93.
• European equities are gaining, with the German Dax up 95.84 pts or +0.62% at 15564.16, FTSE 100 up 29.76 pts or +0.41% at 7220.26, CAC 40 up 71.83 pts or +1.07% at 6759.97 and Euro Stoxx 50 up 42.61 pts or +1.03% at 4197.15.
• U. S. futures are flat/lower, with tech underperforming (though off lows) following disappointing after-hours earnings reports Thursday: Dow Jones mini up 19 pts or +0.05% at 35499, S&P 500 mini down 2.25 pts or -0.05% at 4539.5, NASDAQ mini down 50.75 pts or -0.33% at 15428.

COMMODITIES: Energy Gaining

• WTI Crude up $0.29 or +0.35% at $82.75
• Natural Gas up $0.08 or +1.54% at $5.188
• Gold spot up $9.44 or +0.53% at $1791.83
• Copper up $1.2 or +0.26% at $457.6
• Silver up $0.17 or +0.71% at $24.3211
• Platinum up $8.64 or +0.82% at $1060.78