MNI US MARKETS ANALYSIS - European Bond Rout Extends

US TSYS SUMMARY: Treasuries Muted As They Consolidate Y'day Cheapening

• A relatively muted European session for Tsys where the focus has been on EGBs seeing a growth positive tilt. Cash Tsys cheapen slightly on the day across most of the curve but still sit a little off yesterday’s lows seen after a strong US ISM and a hawkish BOC at the same time.
• Barkin, Bullard and Daly all pushed back on recession fears yesterday and data releases come thick and fast to continue testing that, including ADP employment as well as finalised ULCs/productivity for Q1 and durable goods orders for April before tomorrow’s nonfarm payrolls and service ISM for May.
• In yield space, 2YY +1.0bps at 2.652%, 5YY +1.2bps at 2.928%, 10YY +0.7bps at 2.913% and 30YY +0.1bps at 3.057%.
• TYU2 sits 3+ ticks higher at 118-24 on soft volumes with the UK bank holiday. It’s trading at this week’s lows, with support eyed at 118-16+ (May 23 low) after which it could open a key support at 118-01+ (May 18 low).
• Fedspeak: Brainard, Logan and Mester all speak today.
• Bill issuance: US Tsy $35B 4W, $30B 8W bill auctions (1130ET).

STIR FUTURES: Brainard, Logan (Incoming Dallas Fed Pres) and Mester Ahead

• FOMC-dated Fed Funds implied hikes see little change overnight and especially through the London session with the UK bank holiday.
• They consolidate yesterday’s post-ISM gains with 51bp for Jun and 101bps for Jul. Further out, the rise to 143bp for Sep and 197bp to year-end has unwound the fall from last week’s collection of US PMI miss and new home sales slumping but remains within the post-May FOMC range having seen a peak of 202bps to year-end.
• Fedspeak: Adding Vice Chair Brainard with a CNBC interview at ~1010ET to Logan (soon to be Dallas Fed president with a ’23 voter role) giving closing remarks at 1200ET before Mester (’22) discusses the economic outlook at 1300ET.

Source: Bloomberg

EGB/GILT SUMMARY: Growth Positive Tilt On Potential Saudi Oil Supply

European government bonds have traded weaker this morning alongside gains for stocks and FX vs the US dollar.

• Saudi Arabia is reportedly prepared to increase oil production should global supplies falter amid the embargoes on Russian oil. The report has fueled weaker trading in oil and underpinned the growth-positive move in stocks and equities.
• Bunds traded lower early in the session with yields now up 1-3bp and the curve bear flattening.
• OATs have moved in a similar fashion with yields up 1-3bp across much of the curve.
• BTPs have underperformed core EGBs with yields up 1-7bp and the short-end of the curve leading the way.
• Supply this morning came from France (OATs, EUR10.499bn) and Spain (Bonos/Oblis, EUR4.762bn).
• UK markets are closed today and Friday owing to the Queen's Jubilee public holidays.
• The European data calendar was light this morning. Focus now shifts to US ADP employment data, initial jobless claims and durable goods orders later today.

EUROPE ISSUANCE UPDATE

France sells 10/15/30-year OATs:

• E6.114bln 0% May-32 OAT, Avg yield 1.72% (Prev. 1.51%), Bid-to-cover 2.02x (Prev. 1.78x)
• E2.588bln 1.25% May-36 OAT, Avg yield 1.98% (Prev. 0.42%), Bid-to-cover 1.54x (Prev. 2.45x)
• E1.797bln 0.75% May-52 OAT, Avg yield 2.270% (Prev. 0.930%), Bid-to-cover 2.07x (Prev. 2.25x)

EUROPE OPTION FLOW SUMMARY

Euribor options have made up the bulk of the activity, has seen mostly downside play ahead of the ECB next week:

ERN2 99.75/99.62/99.25 broken p fly, bought for flat in 1k
ERN2 with ERQ2 99.62/99.50/99.37p fly strip, bought for 5.5 in 2k
ERN2 99.50/99.37ps, bough for 2.25 in 5k (ref 60, 14 del)
ERN2 99.50/99.375/99.25 put ladder, bought for 1.5 in 6k
ERU2 99.50/99.37ps, bought for 3.5 in 10k
ERH3 99.00/98.75ps vs 99.50c, bought for 8 in 1k

FOREX: EUR is on the front foot

• All the action is in Govies, with Futures in Germany and Europe plummeting, pushing Yields at multi year highs. Early mover in FX, was the CHF, after the Swiss CPI beat.
• CHF went bid across G10, but the currency has since pared some gains, led by the EUR.
• EUR is mostly on the front foot against G10s, after Bund collapsed, and German Yields spiked to multi year highs. The EUR leads versus the CAD and USD, up ~0.39%.
• EURUSD resistance is seen at 1.0697 (printed 1.0695 high).
• EURCAD has pared half of yesterday's losses, and small initial resistance moves down to 1.35471.
• Risk On tone has kept the USD in the red, after a mixed start on the European Govie open. Best performers versus the USD are the SEK, GBP and the EUR.
• Looking ahead, data include US ADP and Factory orders. US Durable goods will be final reading.
• Speakers, sees Riksbank's Jansson speaking on rising interest rates, Riksbank's Ohlsson on Economy, Monetary Policy.
• BoC Paul Beaudry gives press conference. ECB de Cos speaks in Paris, while Fed speakers include Logan and Mester.

Expiries for Jun02 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0500(E1.8bln), $1.0555(E767mln), $1.0650-60(E723mln), $1.0700(E939mln), $1.0725-45(E3.9bln), $1.0800(E683mln)
• USD/JPY: Y129.50-60($565mln), Y132.00($1.1bln)
• AUD/USD: $0.7300(A$507mln)
• USD/CAD: C$1.2595($540mln)
• USD/CNY: Cny6.6900($600mln)

Price Signal Summary - Fresh Cycle Low In Bunds

• In the equity space, S&P E-Minis remain firm following recent gains and despite the latest pullback. The contract has this week briefly traded above the 50-day EMA, currently at 4184.74. A clear break of this average would allow for a stronger recovery and open key resistance at 4303.50, the Apr 26/28 high. Gains are still considered corrective and the primary trend direction is down. First support is 3960.50, May 26 low. The short-term outlook in EUROSTOXX 50 futures remains bullish following recent gains and the break above the 50-day EMA. Attention is on resistance at 3883.00, Apr 21 high and the key resistance at 3944.00, Mar 29 high. A break of the latter would strengthen bullish conditions. S/T support has been defined at 3576.00, May 19 low.
• In FX, EURUSD continues to trade below resistance at 1.0786, the top of a bear channel drawn from the Feb 10 high. The channel top marks a key short-term resistance where a break would highlight a stronger short-term outlook. A reversal lower would open 1.0533 initially, the May 20 low. GBPUSD maintains a firmer short-term tone and the current corrective bull cycle is still in play, despite the latest retracement. Attention is on the 50-day EMA at 1.2710. Initial firm support is at 1.2438, May 20 low. USDJPY has recovered from its recent lows and short-term bullish conditions have improved. The focus is on a climb towards 131.35, May 9 high and the bull trigger. Key short-term support has been defined at 126.36, May 24 low and the 50-day EMA.
• On the commodity front, Gold remains below $1869.7, the May 24 high. Key resistance, at the 50-day EMA, intersects at $1877.0 today. A break of the 50-day average is required to suggest scope for a stronger recovery. On the downside, a reversal lower would refocus attention on the key support and bear trigger at $1787.0, May 16 low. In the Oil space, WTI futures earlier this week breached resistance at $116.43, the Mar 7 high and the former contract high. This confirms a resumption of the underlying uptrend and opens the $120.00 handle, and potentially beyond. Initial firm support is seen at $109.47, the 20-day EMA.
• In the FI space, Bund futures continue to weaken. The contract has traded below support at 150.49, May 9 low and a bear trigger. This signals a resumption of the primary downtrend and a continuation lower would open 150.15, 0.764 projection of the Mar 7 - 29 - Apr 4 price swing. A move lower would also expose the psychological 150.00 handle. Initial firm resistance is at 153.21, the 20-day EMA.