MNI US MARKETS ANALYSIS - JPY Extends Hot Streak

US TSYS SUMMARY: Europe (Mostly) Positive Feedback

• This after rates and stocks rallied after Thursday's U.S. GDP contracted by 0.9% in the second quarter, far below analyst expectations for a 0.4% gain, driven by decreases in inventory investment, housing and government spending, according to Wed's advance est by Bureau of Economic Analysis.
• Tsys currently off recent overnight lows, curves steeper w/ bonds underperforming (30YY +.0401 at 3.0629%).
• Focus turns to Friday's data calendar w/ Personal Income (0.5% est), Personal Spending (0.9% est), ECI (1.2% est), Chicago PMI (55.0 est) and U-Mich (51.1 est.).
• Fed out of blackout but still no scheduled speakers as yet - but will most likely see some commentary on networks.
• Cross asset: spot Gold +6.54 at 1762.38, Crude higher WTI +2.07 at 98.50, stocks firmer ESU2 +32.0 at 4105.50.
• Currently, 2-Yr yield is up 0.8bps at 2.8703%, 5-Yr is up 1.7bps at 2.7147%, 10-Yr is up 2.7bps at 2.7029%, and 30-Yr is up 3.8bps at 3.0604%.

EGB/Gilt Summary: European Data Dump Leading Bond Futures Lower

• EGBs and Bund fell today after some European data beat expectations, Bund is down 130 ticks and Buxl 250 ticks at the time of typing.
• The aggregate euro area headline inflation surged a further 0.3pp to a fresh high of +8.9% y/y in the July flash.
• This follows decent upside surprises to German, French and Spanish HICP this morning.
• Only Italian HICP managed to edge down (by 0.1pp).
• The move in Bund initially pushed the Greek/Bund spread through the July low, and to its tightest level since mid April.
• Immediate support was seen at the April low 198.82, and the lowest level since February.
• This level held, and the spread reversed the tightening bias, as Greece caught up, and now trades at 210bps, 2.7bps wider.
• Gilt has traded in line with Europe, down 95 ticks at the time of typing, in turn keeping the Gilt/Bund spread flat so far today.
• T-notes were initially in the green on the European open, but have been drag into red territory, by the German Bund.
• Nonetheless, Treasuries are still outperforming, as desks position for more gradual hikes from the Fed, but all will be data dependent going forward.
• Looking ahead, out of the US, PCE core deflator (June), MNI Chicago PMI (July), Michigan will be final reading.
• And investors will also look for potential Month End flows later today.
• Extensions are small/average for the EU and US, but large for the UK.

EUROPE OPTION FLOW SUMMARY

• DUU2 109.5/109.3ps sold at 4.5 in 20k (closing)

GERMANY: Econ Min-Putting NS II Online Not An Option, Would Be Wrong

Wires carrying comments from German Economy Minister and Vice-Chancellor Robert Habeck stating that putting the non-operational Nord Stream II gas pipeline to work 'is not an option for me' adding that 'it would be wrong'.

• In recent weeks, Russian gov't officials including President Vladimir Putin have raised the possibility of bringing Nord Stream II online to ease gas supply pressures on Europe. German and other EU leaders have argued supply constraints are due to issues confected by Moscow rather than legitimate maintenance actions.
• Habeck's comments come as headlines emerged yesterday of municipalities already taking efforts to reduce energy consumption in expectation of a supply crunch come winter. In the city of Hanover, lights illuminating monuments and water pumps for public fountains have been turned off while there will be no heating in the showers at municipal swimming pools.

FOREX: JPY Extends Hot Streak to 5% Off July Lows

• Headed into the NY crossover, JPY is comfortably the strongest performer in G10, with JPY extending the week's outperformance and putting USD/JPY well through the 50-dma at 134.27. The pair now eyes 131.50 as the next key support, with rate differentials clearly remaining the primary driver. The shift lower in the front-end of the US yield curve continues to exert its influence, with USD/JPY now close to 5% off the multi-year highs printed in mid July.
• French and Italian GDP data surprised on the upside this morning, printing at 4.2% YoY (expected 3.7%) and 4.6% YoY (expected 3.7%) respectively. The EUR saw some brief support, trading to a high of 1.0254. Nonetheless, the push higher has now diminished, putting the pair broadly flat following July CPI data. EURUSD is still below the immediate resistance at 1.0278, the Jul 21 high. A break above this hurdle would once again resume short-term bullish conditions.
  Elsewhere, GBP is the poorest performer of the day, with GBP/USD erasing an early rally to trade in minor negative territory ahead of US hours. Data out this morning showed M4 money supply contracting at the fastest monthly pace since the pandemic this morning, with the Y/Y figure putting money supply growth at its slowest since 2019. Next support for GBP/USD crosses at yesterday's 1.2103 low as well as 1.2052, the 20-day EMA.
• Focus looking forward turns to MNI Chicago PMI for July, at which markets expect a moderation to 55.0 from 56.0 previously. The University of Michigan release also takes focus, with the final revision of the inflation expectations component eyed in particular. There are no central bank speakers of note.

FX OPTIONS: Expiries for Jul29 NY cut 1000ET (Source DTCC)

• EUR/USD: $0.9800(E948mln), $1.0050(E1.1bln), $1.0125(E658mln), $1.0200(E789mln), $1.0247-50(E3.0bln), $1.0300(E646mln)
• USD/JPY: Y132.50($1.2bln), Y135.00($539mln), Y135.95-00($991mln), Y140.00($1.3bln)
• GBP/USD: $1.2100(Gbp985mln)
• USD/CAD: C$1.2830($575mln), C$1.2920-30($1.2bln)
• USD/CNY: Cny6.8000($1.2bln)

Price Signal Summary – EURJPY Bearish Condition Strengthens

• S&P E-Minis traded higher Thursday, marking an extension of Wednesday's climb that resulted in a breach of 4016.25, the Jul 22 high. The break higher confirms a resumption of the current bull cycle and signals potential for a climb towards 4145.75, the Jun 9 high. EUROSTOXX 50 futures traded higher Thursday, marking an extension of Wednesday's gains that confirmed a bull flag on the daily chart and a resumption of the current uptrend.
• EURUSD support to watch is at 1.0097, Jul 27 low. The pair is still trading below immediate resistance at 1.0278, the Jul 21 high. A break above this hurdle would once again resume short-term bullish conditions and signal scope for an extension higher. The sharp drop in EURGBP continued Thursday, reinforcing bearish conditions and putting the cross at new multi-month lows. The latest spell of weakness puts prices through 0.8367, the May 2 low. EURJPY traded sharply lower Thursday and in the process, the cross breached support at 136.87, the Jul 8 low. Clearance of this level strengthens bearish conditions and paves the way for weakness towards 135.40 next, a Fibonacci retracement.
• Gold maintains a firmer tone and is trading higher today. Current gains are considered corrective and attention is resistance at the 50-day EMA, which intersects at $1786.1. WTI futures continue to trade above the most recent lows. The contract however is also trading below the 50-day EMA, at $100.84. Clearance of this average is required to strengthen bullish conditions and signal scope for a stronger reversal.
• Bund futures maintain a bullish tone and the contract traded higher once again on Thursday. This confirms a resumption of the uptrend and the break higher maintains the current bullish price sequence of higher highs and higher lows. The short-term outlook in Gilt futures remains bullish and the contract resumed its climb on Thursday. This highlights an extension of the recent breach of resistance at 117.09, the Jul 6 high.

EQUITIES: European / US stocks move higher

• Japan's NIKKEI down 13.84 pts or -0.05% at 27801.64 and the TOPIX down 8.54 pts or -0.44% at 1940.31.
• China's SHANGHAI closed down 29.338 pts or -0.89% at 3253.238 and the HANG SENG ended 466.17 pts lower or -2.26% at 20156.51.
• German Dax up 104.55 pts or +0.79% at 13384.27, FTSE 100 up 46.39 pts or +0.63% at 7387.48, CAC 40 up 86.39 pts or +1.36% at 6426.09 and Euro Stoxx 50 up 35.18 pts or +0.96% at 3687.6.
• Dow Jones mini up 57 pts or +0.18% at 32551, S&P 500 mini up 24.75 pts or +0.61% at 4098, NASDAQ mini up 136.5 pts or +1.07% at 12870.

COMMODITIES: Oil leads the way higher

• WTI Crude up $1.98 or +2.05% at $98.41
• Natural Gas (NYM) up $0.02 or +0.27% at $8.156
• Natural Gas (ICE Dutch TTF) up $0.79 or +0.4% at $199.75
• Gold spot up $7.31 or +0.42% at $1763.03
• Copper up $4.65 or +1.34% at $352.25
• Silver up $0.01 or +0.06% at $20.0154
• Platinum up $8.61 or +0.97% at $899.52