MNI US MARKETS ANALYSIS - Greenback Ebbs as Risk Mood Improves

US TSYS SUMMARY: Treasuries Bull Steepen With Risk On

• Cash Tsys have largely moved lower since the late open with a Japanese holiday as part of risk on moves with S&P e-minis continuing Friday’s move higher although with another wave of earnings reports potential triggers ahead.
• Relatively more restrained commentary from Fed officials leaning towards 75bps rather than 100bps next week has seen a modest bear steepening, doing little to change the recent inversion with 2s10s hovering only just above -20bps.
• 2YY +2.7bps at 3.147%, 5YY +3.6bps at 2.0732%, 10YY +3.9bps at 2.954% and 30YY +3.5bps at 3.110%.
• TYU2 trades 5+ ticks lower at 118-15 at the low end of Friday’s range on volumes still lagging after the Japanese holiday. There is a bullish focus, with resistance eyed at 119-06 (Jul 13 high) after which sits the bull trigger at 120-16+ (Jul 6 high).
• Data: Limited to NAHB housing market with a modest cooling expected before TIC flows late on.
• Bill issuance: US Tsy $54B 13W, $42B 26W bill auctions – 1130ET

STIR FUTURES: Latest WSJ Steer Has Little Impact

• Little impact so far from the latest steer from WSJ’s Timiraos over the weekend that Fed officials are preparing to hike 75bps on Jul 27, with hikes implied by Fed Funds futures unchanged from after Friday’s U.Mich 5-10Y inflation expectations surprisingly dipping from 3.1% to 2.8% in the preliminary July print.
• Sitting at 80bps for next week, 143bps for Sep and 195bps for Dec (four meetings). That’s on the way to 199bp of hikes to a current peak of 3.57% at the Feb 1 FOMC with 55bps of cuts to end-2023.

Source: Bloomberg

EGB/GILT SUMMARY: Risk-On Start To The Week

Markets have shifted to a distinctly more risk-on posture at the start of the week with European sovereign yields pushing higher, equities and commodities rallying, and G10 FX posting gains against the dollar.

• Gilts have had a relatively choppy session and currently trade below Friday's close with cash yields 3-4bp higher.
• Bunds have sold off through the morning with yields up 6-8bp.
• OATs have similarly pushed steadily lower with yields up 6-9bp.
• BTPs have underperformed core EGBs, particularly in the belly of the curve with yields pushing up 5-11bp.
• Focus this week will be on the ECB meeting this Thursday. A 25bp hike is firmly penciled in, with markets looking for guidance on the rate path from September onward and a new anti-fragmentation tool.
• Following a testy televised debate on Sunday among the main candidates to replace UK PM Boris Johnson, Conservative MPs will vote today to eliminate one more candidate and reduce the shortlist to four. Sky News has reported that it will cancel tomorrow's planned televised debate after Rishi Sunak and Liz Truss pulled out.
• Supply this morning came from Germany (Bubills, EUR2.6302bn allotted), the Netherlands (DTCs, EUR2.04bn) and Belgium (OLOs, EUR3.652bn). Later today France will offer EUR4.7-6.3bn of BTFs.
• The European data slate was light this morning with no tier one releases.

EUROPE ISSUANCE UPDATE

Belgian auction results

• E931mln of the 0% Oct-27 OLO. Avg yield 1.208% (bid-to-cover 2.06x)
• E1.604bln of the 0.35% Jun-32 OLO. Avg yield 1.854% (bid-to-cover 2.08x)
• E1.117bln of the 1.40% Jul-53 OLO. Avg yield 2.532% (bid-to-cover 1.65x)

FOREX: Greenback Softer While Equity Picture Improves

• The greenback trades lower early Monday, extending the downtick off last week's highs. Early dollar weakness is accompanied general strength in equities at the European open, with cash markets on the continent universally higher, while US stock futures indicate a positive open later today.
• Greenback weakness has put the USD Index well through last Wednesday's lows to extend the pullback from the Thursday high to around 1.75%.
• The main beneficiaries so far have been GBP (ahead of key political and data risks later this week) and the single currency. EUR/USD now trades just shy of 1.0150 and the 20-day EMA at 1.0270. A break here would highlight the possibility of a short-term correction from the base of the bear channel. This makes Thursday's ECB rate decision key going forward, with any hawkish turn from the central bank likely to prompt a sharp upside move in the currency.
• GBP's outperformance today marks an extension of the corrective bounce in the pair, but markets need to top 1.2049, the 20-day EMA to secure any further move higher. For now, however, the outlook remains bearish, with the downtrend still initially targeting 1.1673, the 1.00 proj of the May 27 - Jun 14 - 16 price swing.
• Data releases are few and far between Monday, with the central bank speaker slate similarly quiet. Both the ECB and the Fed have entered their pre-decision media purdah, which could mute volatility headed into both their respective rate announcements this week and the next.

FX OPTIONS: Expiries for Jul18 NY cut 1000ET (Source DTCC)

• EUR/USD: $0.9975(E689mln), $1.0000(E1.1bln), $1.0150-60(E1.1bln)
• USD/CNY: Cny6.7750($1.7bln)

Price Signal Summary - S&P E-Minis Starts The Week On A Firmer Note

• In the equity space, S&P E-Minis have started the week on a firmer note and the contract is extending Friday’s gains and is approaching two key resistance points; 3950.00, the Jun 28 high and the 50-day EMA at 3956.84. Clearance of this resistance zone would strengthen a bullish case and signal scope for a stronger recovery. Key short-term support to watch is 3723.75, the Jul 14 low. A break would be bearish. EUROSTOXX 50 futures have also started the week on a firmer note and today’s climb has resulted in a break of resistance at 3504.00, the Jul 8 high. The breach exposes the 50-day EMA at 3555.80 and 3584.00, the Jun 27 high. A break of this zone is required to suggest scope for a stronger short-term recovery. On the downside, the key support and bear trigger is unchanged at 3343.00, the Jul 5 low.
• In FX, EURUSD is trading higher this morning and the pair has moved above initial resistance at 1.0122, the Jul 13 high. This is potentially an early sign that the pair has entered a corrective cycle, allowing for a recovery within the range of the bear channel. The channel is drawn from the Feb 10 high. Attention is on 1.0191 next, the Jul 8 high. Key support has been defined at 0.9952, the Jul 14 low. GBPUSD remains vulnerable but is also trading higher. Short-term gains are considered corrective and firm resistance is seen at 1.2049, the 20-day EMA. A break would signal scope for a stronger short-term climb. Key support has been defined at 1.1760, the Jul 14 low. USDJPY remains in an uptrend. Sights are on 139.48, 1.00 projection of the Jun 16 - 22 - 23 price swing and the 140.00 psychological handle.
• On the commodity front, Gold remains in a downtrend and last week’s trend lows reinforce bearish conditions. This has opened $1690.6 next, the Aug 9 2021 low. Firm resistance is seen at $1769.7, the 20-day EMA. In the Oil space, WTI futures remain in a downtrend, however the recovery from last Thursday’s low highlights a potential short-term base. In pattern terms, Jul 14 is a hammer candle pattern - a short-term reversal signal. $100.00 has been tested, further gains would open $105.04, the 50-day EMA.
• In the FI space, a short-term bull cycle in Bund futures remains in play. The focus is on the 154.00 handle. Trend conditions in Gilts remain bullish and scope is seen for a climb to 117.48, 1.236 projection of the Jun 16 - 24 - 29 price swing. Initial firm support to watch lies at 114.08, the Jul 8 low.

EQUITIES: Europe Rebounding On Cyclical Gains

• China / Hong Kong markets closed higher: SHANGHAI closed up 50.042 pts or +1.55% at 3278.103 and the HANG SENG ended 548.46 pts higher or +2.7% at 20846.18. (Japanese markets were closed for holidays.)
• European equities are stronger across the board, with the pro-cyclical Energy, Materials, and Consumer Discretionary categories leading: German Dax up 183.39 pts or +1.43% at 12653.8, FTSE 100 up 102.72 pts or +1.43% at 7138.78, CAC 40 up 81.25 pts or +1.35% at 5957.96 and Euro Stoxx 50 up 50.93 pts or +1.46% at 3425.01.
• U.S. futures are higher, with the Dow Jones mini up 305 pts or +0.98% at 31552, S&P 500 mini up 42.25 pts or +1.09% at 3907.25, NASDAQ mini up 158 pts or +1.32% at 12165.5.

COMMODITIES: Broad Rally Led By Energy And Copper

• WTI Crude up $2.2 or +2.25% at $98.24
• Natural Gas up $0.17 or +2.45% at $6.737
• Gold spot up $11.04 or +0.65% at $1726.17
• Copper up $10.3 or +3.18% at $324.5
• Silver up $0.24 or +1.29% at $18.6795
• Platinum up $17.12 or +2.01% at $851.23