MNI US MARKETS ANALYSIS - WTI at 3year High as Iran Deal Falters

US TSYS SUMMARY: Soft Restart After Long Weekend With ISM In Focus

Tsys are a little weaker early Tuesday in the return from the long weekend, with the ISM manufacturing report in focus.

• Sep 10-Yr futures (TY) down 7.5/32 at 131-22.5 (L: 131-20 / H: 131-28), bottoming out in early Europe trade before ticking back up; ~420k traded as activity picks up after the long weekend.
• The 2-Yr yield is up 0.6bps at 0.1466%, 5-Yr is up 1.8bps at 0.8172%, 10-Yr is up 2.6bps at 1.6198%, and 30-Yr is up 1.5bps at 2.2975%.
• Equities are on the front foot (S&P eminis +0.5%), dollar flat.
• Data's the focus today: final May Manuf PMI at 0945ET is the appetizer before the May ISM Manufacturing report at 1000ET; we also get Apr construction spending at 1000ET. May Dallas Fed manufacturing at 1030ET.
• A couple of Fed Board of Governors members on the docket today: VC Quarles speaks at a Politico live event at 1000ET, while Gov Brainard attends an Econ Club of NY event at 1400ET.
• St Louis Fed Pres Bullard told the FT that the US jobs market is "tighter than it looks".
• In supply, a combined $111B in 13-/26-week bill auctions at 1130ET.
• NY Fed buys ~$8.425B of 2.25-4.5Y Tsys.

EGB/GILT SUMMARY: Steady Session for EGBs

A steady session for EGBs, as UK and the US return from a Bank Holiday weekend.

• Most of the price action is as expected on rolling positions into September ahead of expiry on the 8th June, but also expects for the majority to be done with all eyes on the US NFP Friday.
• Bund was initially under pressure, helped by the beat in Manufacturing PMIs across Europe.
• But the contract has since recovered to trade flat on the day.
• Peripherals are mixed, withe BTP the standout, to trade 1.3bps tighter.
• Gilts underperforms and the contract is down 20 ticks despite the PMI miss and concerns over a 3rd wave of infections, if the UK re-open too quickly by the end of June.
• Looking ahead sees US Manufacturing PMI as well as ISM
• Bund futures are up 0.07 today at 170.01 with 10y Bund yields unch at -0.188% and Schatz yields up 0.5bp at -0.664%
• BTP futures are up 0.33 today at 147.65 with 10y yields down -1.4bp at 0.894% and 2y yields down -0.9bp at -0.337%
• OAT futures are up 0.12 today at 160.55 with 10y yields down -0.3bp at 0.165% and 2y yields down -0.3bp at -0.653%.
• Gilt futures are down -0.20 today at 128.07 with 10y yields up 1.6bp at 0.810% and 2y yields up 0.3bp at 0.060%.

EUROPE ISSUANCE UPDATE: German Linkers

• E0.355bln 0.50% Apr-30 ILB, Avg yield -1.690% (Prev. -1.480%), Bid-to-cover 1.68x (Prev. 1.79x)
• E0.310bln 0.10% Apr-33 ILB, Avg yield -1.510% (Prev. -1.570%), Bid-to-cover 1.02x (Prev. 0.65x)

OPTIONS FLOW SUMMARY

Eurozone:
RXN1 169.5/168.5/167.5p fly, bought for 6 in 1k

UK:
0LZ1 99.62/99.37/99.12p fly vs 99.87c, bought the fly for 3 in 2k
3LU1 99.12/99.00/98.87/98.75p condor vs 99.50/99.62cs, bought the condor for 1.25 in 1k

FOREX: China FX Softer For Second Session

• GBP is the poorest performing currency in G10 so far Tuesday, with GBP/USD pressure below 1.42 as markets unwind the gains seen late Monday on month-end and fix-related buying. Eurozone inflation numbers came in just ahead of expectations, although core CPI was inline at 0.9% Y/Y.
• China FX is softer for a second session, snapping the extended winning streak that pressured USD/CNY to its lowest levels since 2018. Markets continue to react to the PBoC's policy tweak on Monday, in which they raised the FX RRR to 7% from 5%.
• NOKSEK trades either side of parity with the cross looking to have bottomed for now. NOK is the firmest currency in G10, while GBP and NZD are among the weakest.
• US ISM Manufacturing numbers take focus going forward, with markets watching closely for any clues ahead of Friday's payrolls release. Canadian GDP also crosses as well as speeches from BoE's Bailey, Fed's Brainard & Quarles.

FX OPTIONS: Expiries for Jun01 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.2125-30(E775mln), $1.2150-51(E2.0bln-EUR puts), $1.2195-05(E587mln), $1.2225-40(E1.1bln-EUR puts), $1.2275(E1.7bln-EUR puts), $1.2300(E901mln)
• USD/CNY: Cny6.3900($501mln)

Price Signal Summary - EUROSTOXX 50 Extends Gains

• In the equity space, S&P E-minis are pushing higher as liquidity returns to the market. Attention is on the key resistance at 4238.25, May 10 high. Key trend support is unchanged at 4029.25, May 13 low. The 20-day EMA represents initial support at 4163.05. EUROSTOXX 50 futures have reversed yesterday's move lower and confirmed a resumption of the underlying uptrend. The focus is on 4099.00,1.00 projection of the Mar - Jul - Oct 2020 price swing.
• In the FX space, EURUSD found support Friday below the 20-day EMA. The outlook is bullish and the focus is on 1.2285 next, Jan 8 high. Watch support at 1.2133, May 28 low. GBPUSD earlier today traded above resistance at 1.4237, Feb 24 high but has since pulled back. A clear break higher would confirm a resumption of the broader uptrend. Support to watch lies at 1.4092, May 27 low. USDJPY resumed its uptrend last week breaking above 109.79, May 13 high and the bull trigger. 110.15, 76.4% retracement of the Mar 31 - Apr 23 sell-off has also been probed. A clear break would strengthen the bullish case and open 110.97, Mar 31 high. Dips are considered corrective.
• On the commodity front, Gold remains bullish. And is trading higher today. The focus is on the Jan 8 high of $1917.6. The trend remains overbought and we are monitoring this technical warning sign. $1872.8, May 25 low is first support. Oil contracts are trading higher and have resumed their uptrends. Brent (Q1) key resistance at $69.90, May 18 high has been cleared. This opens $71.38, Mar 8 high (cont) next. WTI (N1) has traded through the May highs. Attention is on the $70.00 psychological level.
• Within FI, Bunds (M1) remains below the 50-day EMA at 170.42. While it holds, the outlook is bearish. A clear break higher is required to highlight scope for further gains. Support is at 169.02. May 24 low. Gilts (U1) faced selling pressure yesterday. A firm resistance exists at 127.74/82, high between Apr 20 and May 26.

EQUITIES: Stocks Start Well, ES1 Within 20 Points of ATH

• Equity markets trade well early Tuesday, with European indices uniformly higher and US futures pointing to a solidly positive open. German markets outperform, with the DAX seen higher by 1.4% while France's CAC-40 lags slightly, higher by 0.8%.
• Europe's energy names are outperforming as WTI crude futures cracked through the previous cycle high to print at the best levels since 2018. Materials also trade well, while consumer staples and communication services are higher, but still lag the broad headline strength.
• The e-mini S&P saw early gains through last week's highs to narrow the gap with the alltime highs posted mid-May at 4238.25.

COMMODITIES: Oil On The Up as Iran Deal Kicked Into Long Grass

• WTI crude futures cleared the 2021 highs early Tuesday, trading at the best levels since 2018 as markets priced in a more protracted period of negotiations that could stall Iran's re-entry to international oil markets.
• Late Monday, IAEA inspectors circulated a number of written reports suggesting Iran were far less willing to address their nuclear programme than initially believed - thereby dropping the likelihood of a near term supply deal with Tehran.
• Next resistance for WTI rests at $67.95/bbl, the Oct 29, 2018 high, while Brent eyes the 2021 best level of $71.38/bbl.