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MNI US MARKETS ANALYSIS - Volumes Fading Into Year End

HIGHLIGHTS:

  • Price action muted, with volume likely to evaporate into early close
  • CNH an outlier, rallying against all others in G10
  • European energy prices slump further as US LNG heads to the continent

US TSYS: Treasuries Start NYE On A Whimper

  • Cash Tsys have been subdued since reopening after no Tokyo session.
  • 2Y yields are -0.4bps at 0.720%, 5Y unch at 1.263%, 10Y unch at 1.508% and 30Y +0.2bps at 1.919%.
  • TYH2 is up +0-01+ at 130-14+ on very low volumes (60k) as it slowly continues to retrace Wednesday’s sell-off. Initial support could be seen at 130-03 (Dec 29 low) before a firmer 129-31 (Dec 8 low). Initial resistance is 130-23+ (Dec 29 high).
  • Nothing of note scheduled for today’s shortened session (futures close 1300ET, cash Tsys 1400ET).
  • Normal service will resume on Monday with the Markit PMI for Dec plus a resumption of bill NY Fed buy-ops and bill issuance, although volumes will be lower with the London bank holiday.

BONDS: Euribor futures underperforming SONIA futures as European bonds closed

With European and Japanese bond markets closed, there have only been limited moves in gilts and Treasuries (both a little higher on the day).

  • A more interesting dynamic is seen in STIR markets, however, with the Euribor strip moving up to 3 ticks lower through the Greens and Blues. This is in contrast to the 2.0-2.5 tick increase in the same maturity for SONIA futures. There's no real reason for the outperformance of SONIA, other than yesterday's story that the UK government may delay some of the expected rise in consumer energy prices that is pencilled in for April - however that story broke yesterday so it more seems to be illiquid markets exaggerating moves.
  • TY1 futures are up 0-1 today at 130-14 with 10y UST yields up 0.5bp at 1.516% and 2y yields unch at 0.727%.
  • Gilt futures are up 0.12 today at 124.90 with 10y yields down -0.2bp at 0.973% and 2y yields down -0.3bp at 0.663%.

FOREX: Dollar Dipping Into Year End

  • The greenback trades generally softer headed into the final US trading session of the year, but the USD Index still looks to secure a 7% rally across 2021. This puts the greenback just behind the CAD as the best performers of the year - with JPY, SEK and the EUR at the other end of the table.
  • In intraday trade, CNH is one of the early standouts in the European morning, with USD/CNH lurching lower and through the 6.3660 support. Pair now trades at lowest levels since Dec9, and now sits around 0.4% above major support at the 2021 low at 6.3305.
  • EUR/CNH taking a similar step lower, edging through 7.20, but still holds above key support at 7.1509. Macro data out of China has been few and far between so far today, but markets possibly playing catch up with yesterday's moves in US equity space, which saw Chinese companies US-listed ADRs surge sharply. The NASDAQ Golden Dragon China Index rose over 9% (biggest daily rise for over a decade).
  • Data and macro events are few and far between Friday, with the early floor close in the US likely to crimp volumes and price action ahead of the close. Most European fixed income markets are also closed.

FX OPTIONS: Expiries for Dec31 NY cut 1000ET (Source DTCC)

  • EUR/USD: $1.1506(E840mln)
  • AUD/USD: $0.7300(A$565mln)

EQUITIES: European / US indices not following China's lead higher

  • China's SHANGHAI closed up 20.586 pts or +0.57% at 3639.775 and the HANG SENG ended 285.66 pts higher or +1.24% at 23397.67
  • FTSE 100 down 26.54 pts or -0.36% at 7376.53, CAC 40 down 23.31 pts or -0.33% at 7150.12 and Euro Stoxx 50 down 7.06 pts or -0.16% at 4299.23.
  • Dow Jones mini down 33 pts or -0.09% at 36256, S&P 500 mini down 4.25 pts or -0.09% at 4768.25, NASDAQ mini down 22.75 pts or -0.14% at 16409.25.

COMMODITIES: European natgas continues to fall with big LNG deliveries due

  • WTI Crude down $0.45 or -0.58% at $76.52
  • Natural Gas (NYM) up $0.1 or +2.67% at $3.657
  • Natural Gas (ICE Dutch TTF) down $10.06 or -11.51% at $77.3
  • Gold spot up $3.42 or +0.19% at $1817.98
  • Copper up $5.05 or +1.15% at $444.3
  • Silver up $0.09 or +0.41% at $23.1345
  • Platinum down $6.18 or -0.64% at $958.87

MNI London Bureau | +44 203-865-3809 | edward.hardy@marketnews.com
MNI London Bureau | +44 203-865-3809 | edward.hardy@marketnews.com

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