MNI US MARKETS ANALYSIS - Equities Off Lows, But Still Fragile

US TSYS SUMMARY: Bear Steepening Upon Return From Long Weekend

Cash Treasuries are a little weaker in the return from the long weekend, with bear steepening evident in the curve (following a similar move in European bonds Monday).

• The 2-Yr yield is up 2.6bps at 3.2048%, 5-Yr is up 3bps at 3.3722%, 10-Yr is up 4.7bps at 3.273%, and 30-Yr is up 6.2bps at 3.3416%.
• Following comments over the weekend from Bullard and Waller, FOMC speakers continue to be rolled out: Richmond's Barkin at 1100ET, and 1530ET, and Cleveland's Mester at 1200ET.
• Chair Powell's 2-day congressional testimony begins Wednesday.
• Two points of May data out this morning, with the Chicago Fed National Activity Index at 0830ET, and Existing Home Sales at 1000ET.

EGB/GILT SUMMARY: Digesting French Political Stability & UK National Strike

European government bonds have traded mixed this morning while regional equities have pushed higher and the dollar has lost ground against most DM currencies.

• The largest rail strike in 30 years gets underway in the UK, further compounding existing transport and logistical challenges arising from the pandemic. Given that both the RMT union and the government have so far refused to back down, there is a risk of frequent, or rolling, paralysis of public transport at a time when economic growth has faltered.
• Gilts have sold off and the curve has bear steepened. Cash yields are 2-8bp higher on the day.
• Christian Jacob, head of Les Republicains, has stated that his party will not join in coalition with President Emmanuel Macron's Ensemble party, which suffered heavy losses at the National Assembly elections last weekend. Although Jacob indicated that Macron had not asked him to enter coalition, his refusal to consider an alliance highlights the difficulties the French president will have in finding parliamentary support.
• The Elysee Palace earlier confirmed that Prime Minister Elisabeth Borne offered her resignation, but that this was refused by President Macron.
• The OAT curve has twist steepened with the 2s30s spread widening 3bp.
• Bunds have lacked clear direction this morning and currently trade marginally below yesterday's closing levels across much of the curve.
• BTPs have rallied across much of the curve with yields 2-7bp lower on the day, although the very long-end has traded weaker.
• Supply this morning came from Austria (ATBs, EUR1.378bn allotted) and the ESM (Bills, EUR1.026bn). In addition, syndicated auctions are underway for the 1.125% Oct-73 Gilt, a 25-year Green EU bond

EUROPE ISSUANCE UPDATE

GILT SYNDICATION: 1.125% Oct-73 gilt: Final terms

• Spread set earlier at 1.625% Oct-71 gilt -3.5 bps
• Size: GBP5.5bln (MNI had expected GBP6-7bln)

EUROZONE SYNDICATION: 25y Green EU: Spread set

• Size set previously: E5bln (no grow) (in line with MNI's expectations)
• Spread set at MS +28bps (guidance was MS +30bps area)
• Books in excess of E34bln (excl JLM)

German Q3 Funding Plans

• No changes to bubill issuance.
• Capital markets auction issuance remains at E53.5bln but with the following changes:
  • 10 August: 30y 1.25% Aug-48 Bund auction size increased to E1.5bln (instead of E1.0bln).
  • 14 September: 2.50% Jul-44 Bund will be reopened for E1.0bln (instead of 0% Aug-52 Bund for E1.5bln).
• The coupon for the Aug-32 Bund (to be launched on 6 July) has been set at 1.70%.
• "The volume of the inflation-linked Federal bond maturing on 15 April 2046 will be increased by E0.5bln with effect from 1 July 2022 in order to be able to meet any demand flexibly in addition to regular auctions."

FOREX: USD/JPY Cycle Highs Back in Sight

• USD/JPY continues to test the upper-end of the recent range, with the cycle highs at Y135.59 back in sight as equities find some more stable footing to put Wall Street on track for a solidly positive open later today.
• This gives markets a somewhat positive backdrop after the US holiday on Monday, with the greenback among the poorest performing currencies so far Tuesday.
• Commodity-tied currencies also sit higher, with NOK and CAD recouping recent lost ground and putting USD/CAD back toward the C$1.2900 level at the NY crossover.
• The EUR is also trading favourably, putting EUR/USD on course to test the key upside level at the 1.0622 50-dma. ECB speakers so far this morning have talked up the likelihood of tighter policy be year-end, with ECB's Rehn favouring a rate hike of more than 25bps at the September meeting.
• US Chicago Fed National Activity Index data and existing home sales are the focus for the session going forward, with Canadian retail sales also on the docket. Central bank speakers include Fed's Barkin and Mester.

FX OPTIONS: Expiries for Jun21 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0470-80(E824mln), $1.0575-85(E990mln)
• USD/JPY: Y134.00($1.4bln), Y134.35-50($785mln)
• GBP/USD: $1.2100(Gbp505mln)
• AUD/USD: $0.7000-15(A$1.9bln)
• NZD/USD: $0.6300(N$998mln)
• USD/CNY: Cny6.80($990mln)

Price Signal Summary - USDJPY Trend Needle Still Points North

• In the equity space, S&P E-Minis are trading above recent lows - short-term gains are considered corrective. The trend direction remains down and the focus is on 3600.00. Initial resistance is at 3843.00, the Jun 15 high. EUROSTOXX 50 futures remain vulnerable despite recent gains. Recent weakness reinforced bearish conditions and attention is on the 3300.00 handle next. 3567.00 is first resistance, Jun 16 high.
• In FX, EURUSD continues to trade above last week’s low. Short-term gains are still considered corrective and the primary trend direction remains down. A resumption of weakness would open 1.0350, the May 13 low and bear trigger. Initial firm resistance is at 1.0601, the Jun 16 high. GBPUSD remains in a corrective cycle and continues to trade above last week’s low. The primary trend is down and attention is on 1.1934, Jun 14 low and the short-term bear trigger. Resistance to watch is at 1.2406, the Jun 16 high. USDJPY traded higher Friday and a short-term key support has been defined at 131.50, Jun 16 low. The outlook remains bullish with the bull trigger at 135.59, Jun 15 high. Clearance of this hurdle would confirm a resumption of the uptrend and open 136.04, 1.382 projection of the Feb 24 - Mar 28 - 31 price swing.
• On the commodity front, Gold is unchanged and remains vulnerable. The focus is on $1787.0, May 16 low where a break would resume the downtrend. Key trendline resistance to watch is at $1884.1. The trendline is drawn from the Mar 8 high and a breach would instead highlight a bullish development. In the Oil space, WTI futures traded sharply lower on Friday, resulting in a break of the 20-day EMA. The move lower also resulted in a print below the 50-day EMA - currently at $109.50. Friday’s low of $108.25 represents a key short-term support where a break would signal scope for a deeper pullback this week. For bulls, the broader trend remains up and the bull trigger is at 123.68, the Jun 14 high.
• In the FI space, the Bund futures primary direction remains down and the focus is on the 140.00 psychological handle. Gilts remain bearish despite the bounce from last Thursday’s low. A resumption of weakness would refocus attention 109.89, Jun 16 low and the near-term bear trigger.

EQUITIES: Stocks Stronger, Cyclicals Leading

• Asian stocks closed mostly higher: Japan's NIKKEI closed up 475.09 pts or +1.84% at 26246.31 and the TOPIX ended 37.26 pts higher or +2.05% at 1856.2. China's SHANGHAI closed down 8.711 pts or -0.26% at 3306.719 and the HANG SENG ended 395.68 pts higher or +1.87% at 21559.59.
• European stocks are stronger, with the German Dax up 150.17 pts or +1.13% at 13265.6, FTSE 100 up 41.69 pts or +0.59% at 7121.81, CAC 40 up 88.55 pts or +1.5% at 5920.09 and Euro Stoxx 50 up 45.06 pts or +1.3% at 3469.83.
• U.S. futures are higher, led by tech: Dow Jones mini up 486 pts or +1.63% at 30355, S&P 500 mini up 67.5 pts or +1.84% at 3743.25, NASDAQ mini up 224.25 pts or +1.99% at 11521.

COMMODITIES: Copper And Oil Regain Some Ground

• WTI Crude up $2.29 or +2.09% at $110.27
• Natural Gas down $0.23 or -3.27% at $6.694
• Gold spot down $3.31 or -0.18% at $1838.83
• Copper up $4.95 or +1.23% at $402.25
• Silver down $0.09 or -0.42% at $21.609
• Platinum up $11.59 or +1.24% at $935.11