MNI US MARKETS ANALYSIS - Dollar Starts NFP Week on Backfoot

US TSYS SUMMARY: Bonds Weaker, Focus on ISMs, Geopol Risks: Pelosi's Asia Tour

• Muted knock-on react to sub-50 PMIs for Italy, France, Germany, Eurozone in early London trade, focus turns to US data at midmorning:
• S&P Global US Manufacturing PMI (52.3 est) at 0945ET followed by Construction Spending MoM (0.3% est) and ISMs at 1000ET: Mfg (52.0 est) Prices Paid (73.5 est), New Orders (49.0 est), Employment (48.2 est).
  
• No scheduled Fed speakers at the moment does not preclude pop-up speaker interviews, op-eds (MN Fed Kashkari late Fri: "we are a long way away from" getting "inflation back down to 2 percent".
  
• No immediate react to CNN headline that US House speaker Pelosi "expected to visit Taiwan" on her whirlwind tour of Indo-Pacific countries: Malaysia, Japan, South Korea.
• Cross assets: spot Gold +6.50 at 1772.44, Crude weaker WTI -1.52 at 97.10, stocks weaker but off overnight lows: ESU2 -10.00 at 4123.50 after climbing to highest levels since June 9 last Fri. Earnings resume while most anncd after todays close.
  
• Currently, 2-Yr yield is up 1.4bps at 2.8985%, 5-Yr is up 1.3bps at 2.6894%, 10-Yr is up 1.1bps at 2.6595%, and 30-Yr is up 1.5bps at 3.0244%.

EGB/GILT SUMMARY: Mixed Start To The Week

European government bonds have had a mixed start to the week, while equities are broadly higher and G10 currencies have gained ground against the dollar.

• Gilts have traded lower across most of the curve, although the very long-end has twist flattened.
• The bund curve has steepened with the 2s30s spread widening 4bp.
• OATs have traded below the Friday close, but lack clear direction. Cash yields are up to 3bp higher on the day.
• BTPs have rallied with the curve bull steepening. Cash yields are 3-10bp lower on the day with the 2s30s spread widening 5bp.
• The SPGB curve has twist flattened with the 2s30s spread narrowing 3bp.
• The euro area final PMI reading for July came in a touch better than initially estimated, while still pointing to a broad contraction in economic activity.
• Supply this morning came from Germany (Bubills, EUR4.261bn allotted) and the Netherlands (DTCs, EUR2.62bn). France will offer EUR4.8-6.0bn of BTFs this afternoon.
• Focus turns to US ISM manufacturing data for July, which will be published later today.

CNN: US House Spkr Pelosi Expected To Make Taipei Trip-Officials

CNN reporting that according to Taiwanese and US officials, US Speaker of the House of Representatives Nancy Pelosi (D-CA) is expected to visit Taiwan as part of her CODEL visit to Asian allies. Trip has been seen as likely for some time, but this would appear to be the most serious indication so far that the visit is going ahead.

• Trip is still not part of Pelosi's official itinerary, and would likely cause a significant increase in tensions between Washington, D.C. and Beijing. The White House is believed to have attempted to dissuade Pelosi from visiting Taiwan, but this appears to have fallen on deaf ears.
• Pelosi in Singapore today. Set to also visit Malaysia, South Korea, and Japan.

FOREX: Greenback Starts Payrolls Week Poorly

• The greenback is softer to kick off the week, with EUR/USD extending gains on the break of the 1.0250 area - levels that the pair had struggled to top across the past two weeks. A break above 1.0278 is the next hurdle, and clearance here would mark a bullish development.
• Data this morning has been mixed, with Spanish and Italian PMIs missing expectations, but German and Eurozone-wide releases topping median expectations.
• GBP/USD is trading back above the 50-dma and at the best levels since late June. A close above this mark would be a bullish development and open the mid-June highs of 1.2406 and the 100-dma further out at 1.2518.
• Equity markets are mixed, with US futures lower, while European indices benefit from strong earnings. JPY is the firmest currency, extending the recent rally to put USD/JPY within range of the Y132.00 handle - a 5% pullback from the mid-July highs.
• July ISM Manufacturing data takes focus going forward, with markets expecting activity to slow to 52.0 from 53.0 for the headline. The employment component could take particular focus ahead of this Friday's payrolls release. There are no major central bank speeches due.

FX OPTIONS: Expiries for Aug01 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0100-25(E1.2bln), $1.0200-10(E692mln), $1.0250(E550mln), $1.0300(E842mln)
• GBP/USD: $1.2125(Gbp587mln)

Price Signal Summary – EUR/GBP Confirms Bearish Condition

• S&P E-Minis traded higher Friday, reinforcing bullish conditions and maintaining the current price sequence of higher highs and higher lows. Potential is for a climb towards 4145.75, the Jun 9 high. EUROSTOXX 50 futures traded higher once again Friday, reinforcing current bullish conditions. The contract has pierced the 76.4% retracement of the Jun 6 - Jul 5 downleg, at 3722.40.
• EURUSD is unchanged and remains in consolidation mode. The pair is trading above support at 1.0097, Jul 27 low, and attention is on immediate resistance at 1.0278, the Jul 21 high. The sharp drop in EURGBP last week, reinforces bearish conditions and puts the cross at new multi-month lows. The latest spell of weakness has also resulted in a print below 0.8367, the May 2 low. EURJPY is trading lower again and trend conditions remain bearish. This reinforces the current downward cycle and marks an extension of last week’s breach of support at 136.87, the Jul 8 low.
• Gold maintains a firmer tone and traded higher Friday. Current gains are considered corrective and attention is resistance at the 50-day EMA, which intersects at $1785.3. A break of this average would suggest potential for an extension and expose trendline resistance at $1812.0. WTI futures traded higher Friday and pierced the 50-day EMA. The contract however pulled back from the day high and remains below the average - the EMA intersects at $100.76.
• Bund futures maintain a bullish tone and last week’s gains reinforce current conditions. Fresh highs confirm 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 fresh highs last week reinforce this set-up. The move higher highlights an extension of the recent break of resistance at 117.09, Jul 6 high.

EQUITIES: European equities a little higher, but US futures lower

• Japan's NIKKEI up 191.71 pts or +0.69% at 27993.35 and the TOPIX up 19.8 pts or +1.02% at 1960.11.
• China's SHANGHAI closed up 6.72 pts or +0.21% at 3259.958 and the HANG SENG ended 9.33 pts higher or +0.05% at 20165.84.
• German Dax up 38.11 pts or +0.28% at 13518.73, FTSE 100 up 35.52 pts or +0.48% at 7457.85, CAC 40 up 23.43 pts or +0.36% at 6472.58 and Euro Stoxx 50 up 10 pts or +0.27% at 3717.2.
• Dow Jones mini down 64 pts or -0.2% at 32772, S&P 500 mini down 15.5 pts or -0.38% at 4117.75, NASDAQ mini down 56.5 pts or -0.44% at 12914.5.

COMMODITIES: Crude down 2% but European gas moving higher

• WTI Crude down $2.04 or -2.07% at $96.53
• Natural Gas (NYM) down $0.31 or -3.77% at $7.927
• Natural Gas (ICE Dutch TTF) up $9 or +4.71% at $198.5
• Gold spot up $0.28 or +0.02% at $1766.02
• Copper down $1.15 or -0.32% at $356.15
• Silver down $0.06 or -0.3% at $20.2985
• Platinum up $9.15 or +1.02% at $909.84