MNI US MARKET ANALYSIS - EGBs Dip in Final Full Pre-Holiday Session

US TSYS SUMMARY: Treasuries Start Today's Shorter Session Softer

• In a repeat of yesterday morning before reversing in the afternoon, cash Tsys have sold off ~2bps in a subdued risk-on environment.
• 2Y yields are +1.7bps at 0.678%, 5Y +1.8bps at 1.235%, 10Y +2.2bps at 1.474% and 30Y +1.9bps at 1.868%.
• The US lags Europe on the day again, with Gilts +4.5bps and Bunds +3.1bps.
• TYH2 futures have sold off to a low of 130-19 on very low volumes. It hovers a little above initial support of 130-17 (Dec 21 low), clearance of which could open 130-07+ (Dec 13,15 lows).
• Data highlights today are PCE/incomes for Nov, durable goods for Nov and less so weekly initial claims (all 0830ET). The core PCE deflator is seen at 0.4% M/M, the same pace as in Oct.
• Issuance confined to bills today: US Tsy $50B 4W, $40B 8W bill auctions (1130ET).
• Early close to US bond markets (futures 1300ET, cash 1400ET) before full closure tomorrow.

EGB/GILT SUMMARY: Weaker in Final Full Trading Session

Global fixed income is trading decisively weaker Thursday, on the last pre-holiday trading session for US fixed income (early close today too) and most European bonds.

• Gilts are leading the way lower alongside a stronger GBP, with the UK gov't set to avoid announcing lockdown restrictions ahead of Christmas, with the latest health studies also suggesting a smaller hospitalization threat from the omicron variant relative to the previous delta wave.
• Elsewhere, in Bunds and Treasuries, a bit of bear steepening. BTPs bucking the risk-on trend, underperforming both Bunds and the rest of the periphery.
• Not much in the way of market-moving headlines in the morning, but a fairly heavy US data slate ahead of Friday's holiday: jobless claims, durable goods and PCE among them.

EUROPE OPTION FLOW SUMMARY

Eurozone:
OEG2 133.25/133ps bought in 1.5k vs selling 500 lots of the 134.25c, traded for flat

DUG2 112.20c bought for 6.5 in 5k
DUG2 112.10^ sold at 16.5 in 4k

2RH2 10012/100ps, sold at 7 in ~1.5k
ERH3 100.125/99.875 ps bought for 5 in 2k
ERZ2 100.25/100.00ps bought for 4.5 in 2k (ref 100.35)

FOREX: Pound outperforms

• Most of the action has been in FX this morning, albeit in lower turnovers, and mainly in the Pound.
• Cable traded through the December high and now look to test next resistance at at 1.3414 50-day EMA.
• The British Pound has been underpinned as Boris is set to save Christmas from any restrictions, and will wait until next week for further hospitalisation data to give a clearer picture.
• Elsewhere it has been a more subdued, range bound session across FX pairs.
• USD is mixed in G10, down 0.37% against the GBP, and up 0.35% versus the SEK.
• EURUSD remains in a 31 pips range with some focus on large option expiry at 1.1300 for today in the tone of 1.41bn.
• Looking ahead, last set of data in focus come from the US, with PCE core deflator and prelim Durable goods,
• Note for the US exchange markets close today is at 13.00ET/18.00GMT and US are closed tomorrow.

Price Signal Summary - S&P E-Minis Climb Exposes The ATH

• In the equity space, S&P E-minis futures bounced this week from Monday’s low of 4520.25. The contract traded higher again yesterday and is holding onto this week’s gains. Note too that the price is above the 50-day EMA, 4595.14. This is a bullish short-term development and suggests scope for an extension higher. The key resistance and bull trigger is 4743.23, the all-time high from Dec 16. EUROSTOXX 50 futures are trading at this week’s highs and short-term bullish conditions have improved following yesterday’s gains through the 50-day EMA. The continuation opens resistance at 4234.00, the Dec 16 high and a firmer resistance at 4270.00, Dec 8 high.
• In FX, EURUSD is still trading sideways. The pair remains below resistance at 1.1383, Nov 30 high where a break is required to signal potential for a stronger recovery. Support to watch lies at 1.1222, Dec 15 low and 1.1186, Nov 24 low. The latter is a key support and the bear trigger. GBPUSD is firmer this morning. The rally Wednesday has eased recent bearish pressure and today’s break of resistance at 1.3374, the Dec 16 high suggests potential for an extension of current gains. The focus is on the 50-day EMA at 1.3414. The USDJPY traded higher Wednesday and the pair breached resistance at last Weds/Thurs' 114.25/26 highs. A clear break of this hurdle would strengthen bullish conditions and open 114.38, the 61.8% Fibonacci retracement of the Nov 24 - 30 downleg and also signal potential for a stronger rally. The 76.4% level is at 114.81.
• On the commodity front, last week’s channel break in Gold appears to have been a false one and the strong recovery from the Dec 15 low of $1753.7, suggests the yellow metal is reversing its recent downtrend. Watch resistance at $1815.6, the Nov 26 high. A breach would strengthen bullish conditions. Support is at $1773.1, the channel base. WTI futures have recovered from Monday’s low of $66.12 and once again traded higher yesterday. The contract has probed key near-term resistance at $73.13, the Dec 9 high. A clear break of this hurdle would remove the recent bearish threat and instead suggest scope for a stronger recovery towards $74.54 initially, 61.8% of the Oct - Dec sell-off.
• In the FI space, Bund futures have breached support at 173.40, the Dec 8 low. This also means that the price is trading back below the 20-day EMA. The break suggests scope for a deeper short-term pullback and has opened 172.70 next, the Nov 26 low. Gilts yesterday breached support at 125.44, Nov 26 low. This opens 124.94 next, the Nov 25 high and gap low on the daily chart.

FX OPTION EXPIRIES

• EURUSD: 1.1225 (1.97bn), 1.1255 (774mln), 1.1270 (209mln), 1.1300 (1.41bn), 1.1330 (354mln), 1.1360 (650mln)
• USDJPY: 113.70 (370mln), 113.75 (733mln), 114 (320mln), 114.10 (587mln), 114.50 (276mln)
• USDCAD: 1.2775 (305mln), 1.2880 (360mln)
• AUDUSD: 0.7200 (208mln)

EQUITIES: Broad Gains

• Asian stocks closed higher: Japan's NIKKEI closed up 236.16 pts or +0.83% at 28798.37 and the TOPIX ended 17.92 pts higher or +0.91% at 1989.43. China's SHANGHAI closed up 20.721 pts or +0.57% at 3643.339 and the HANG SENG ended 91.31 pts higher or +0.4% at 23193.64
• European equities are a little stronger, with the German Dax up 69.14 pts or +0.44% at 15661.72, FTSE 100 up 17.52 pts or +0.24% at 7357.79, CAC 40 up 15.8 pts or +0.22% at 7064.52 and Euro Stoxx 50 up 21.12 pts or +0.5% at 4238.3.
• U.S. futures are pointing higher, with the Dow Jones mini up 68 pts or +0.19% at 35700, S&P 500 mini up 7.5 pts or +0.16% at 4693.5, NASDAQ mini up 11 pts or +0.07% at 16180.75.

COMMODITIES: Industrial Commodities Dip; Precious Metals Edge Higher

• WTI Crude down $0.08 or -0.11% at $72.69
• Natural Gas down $0.08 or -1.96% at $3.898
• Gold spot up $3.05 or +0.17% at $1806.77
• Copper down $2.45 or -0.56% at $436.65
• Silver up $0.04 or +0.16% at $22.85
• Platinum up $5.1 or +0.53% at $973.33