MNI US MARKETS ANALYSIS - USD Softer Amid Light Market Activity

US TSYS SUMMARY: Belly Led Sell-Off Amidst Soft Volumes, 3Y Auction Ahead

• After an extremely quiet Asia session, cash Treasuries have seen a growing bear steepening through European hours and with the US coming in, with the sell-off led by the belly with the implication of a stronger growth outlook contrary to the rolling in S&P E-minis.
• Lagging the sell-off in European sovereigns but underperforming Gilts in 10Y space on marginally dovish BoE comments, there are few clear drivers in what could just be a reversal of yesterday’s rally. The earlier NFIB survey, hitting at 0600ET with a small rise in optimism and moderation in the net share of businesses raising selling prices, might have lent support at the margin but not much more than that.
• 2YY +2.5bps at 3.230%, 5YY +4.3bps at 2.949%, 10YY +3.5bps at 2.792% and 30YY +2.9bps at 3.014%.
• TYU2 trades 9 ticks lower at 119-18+, it’s within yesterday’s range but moves closer to trendline support at 119-07+ (drawn from Jun 16 low) with the 50-day EMA of 119-06+ sitting just below. Volumes are below already low average levels.
• Data: Nonfarm productivity and ULC preliminary releases for Q2 – 0830ET
• Bond issuance: US Tsy $42B 3Y Note auction (91282CFE6) – 1300ET
• Bill issuance: US Tsy $34B 52W bill auction – 1130ET

STIR FUTURES: Fed Funds Awaiting Fresh Drivers

• Very little change in Fed Funds implied hikes overnight, with 69bp priced for the Sept FOMC before 121bps over the three meetings to year-end before squeezing out 128bp of hikes to an implied peak of 3.63% in Mar’23.
• The market continues to price 55bp of cuts to end-23, with Eurodollars implying further notable declines with EDZ3/EDZ4 largely keeping to yesterday’s slide to below -0.50 in new lows for the cycle.
• Next scheduled Fedspeak seen with 2023 voters in Evans and Kashkari after tomorrow’s CPI in a light calendar.

Cumulative hikes implied by FOMC-dated Fed Funds futures at specific meetingsSource: Bloomberg

EGB/GILT SUMMARY: Ramsden Urges Gilt Sales Even If BoE Were To Cut Rates

European government bonds have traded weaker this morning following yesterday's gains. Equities are also lower, while the dollar remains on the backfoot against G10 FX.

• The BoE's Dave Ramsden earlier stated in a Reuters interview that the central bank would sell gilts even if it were to cut the bank rate in the event of an economic slowdown.
• Gilts have edged lower with yields up 1-3bp on the day and the curve slightly bear flattening.
• Bunds have underperformed gilts with yields up 3-5bp.
• OATs have traced out a similar path with yields up 4-5bp.
• BTPs have underperformed core EGBs. Cash yields are now 4-7bp higher on the day.
• Supply this morning came from the UK (Gilt, GBP1.75bn), Germany (Schatz, EUR4.612bn allotted), Spain (Letras, EUR4.815bn), Belgium (TCs, EUR1.8bn) and Austria (RAGBs, EUR1.15bn).
• The European data calendar was light again this morning with no tier one releases to note.

EUROPE OPTION FLOW SUMMARY

Eurozone:
DUU2 110.70/110.90cs vs 110.00/109.80ps, sold the ps at 10 in 5k

SX5E (16th Sep) 3900c, bought for 29.00 in 16.1kSX5E (16th Sep) 3800c, bought for 68.50 in 10k
SX7E (17/03/23) 82.5^, trades 15.30 in 7k
SX7E (16th Dec), 110c, bought for 0.20 and 0.25 in 20k

US:
TYU2 119p, bought for 36 and 37 in 10k

EUROPE ISSUANCE UPDATE:

Gilt auction results:

• GBP1.75bln of the 1.25% Jul-51 Gilt. Avg yield 2.36% (bid-to-cover 2.52x, tail 0.2bp).

Austria auction results:

• E690mln (E600mln allotted) of the 0.90% Feb-32 RAGB. Avg yield 1.415% (bid-to-cover 1.74x)
• E460mln (E400mln allotted) of the 3.15% Jun-44 RAGB. Avg yield 1.743% (bid-to-cover 2.53x)

Germany auction results:

• E6bln (E4.612bln allotted) of the 0.40% Sep-24 Schatz. Avg yield 0.58% (bid-to-cover 0.99x).

FOREX: Greenback Fades Amid Light Market Participation

• The greenback trades lower in early Tuesday trade, putting EUR/USD north of 1.02 to reverse the entirety of the post-payrolls rally. This makes the USD the worst performing currency in G10, and comes despite a small uptick in the US 10y yield (higher by 3bps to 2.79% this morning) and rangebound trade in equities.
• Volumes and market activity are distinctly light across currency, equity and fixed income futures, suggesting that traders may be sitting on their hands ahead of the CPI release tomorrow.
• Outside of the greenback move, G10 currencies are quieter, with EUR benefiting from greenback weakness while GBP/USD narrows in on the Monday high at 1.2138 and GBP/JPY eyes 163.92 ahead of the 164.31 50-dma.
• NOK/SEK has staged a solid bounce off the Monday lows, extending the bounce to near 2% off the week's worst levels. Strength through 1.0462 opens the late July highs at 1.0576.
• The data slate is light Tuesday, with no tier 1 releases from across the US or Canada. Some attention may be paid to the nonfarm productivity and unit labor costs data, but focus still rests on tomorrow's inflation prints from China and the US.

FX OPTIONS

• EURUSD: 1.0185 (1.41bn), 1.0200 (876mln), 1.0205 (502mln), 1.0210 (310mln), 1.0230 (279mln), 1.0265 (269mln), 1.0300 (1.27bn)
• GBPUSD: 1.2000 (450mln), 1.2005 (385mln)
• USDJPY: 135 (895mln), 135.30 (1.19bn)
• USDCAD: 1.2875 (470mln), 1.2900 (1.17bn)
• USDCNY: 6.75 (1.39bn)

Price Signal Summary - Trendline Resistance In Gold Remains Exposed

• In the equity space, S&P E-Minis continue to consolidate. The short-term trend outlook remains bullish though. Fresh highs last week reinforced the current condition and this signals scope for a climb towards 4204.75 next, May 31 high and the next key resistance. Initial key support is 4003.69, the 50-day EMA. The short-term uptrend in EUROSTOXX 50 futures is intact. Last week’s high print reinforces this theme. The contract has cleared the 76.4% retracement of the Jun 6 - Jul 5 downleg, at 3722.40. The focus is on 3840.00, the Jun 6 high. Initial firm support to watch is 3603.40, the 50-day EMA.
• In FX, EURUSD short-term conditions are bullish as long as price continues to trade above support at 1.0097, the Jul 27 low. Potential is seen for an extension higher inside the bull channel drawn from the Feb 10 high - the top intersects at 1.0361 and this is a key short-term resistance. Weakness below 1.0097 would alter the picture. A bullish short-term theme in GBPUSD remains intact and last week’s pullback is considered corrective. Price has recently traded above the 50-day EMA and the next objective at 1.2332, the Jun 27 high. Potential is also seen for a climb towards 1.2406, the Jun 16 high and a key resistance. Initial support to watch lies at 1.2004, the Aug 5 low. USDJPY is holding on to its most recent gains. It is still possible that the latest bounce is a correction. The price levels to watch are; 137.11, the former bull channel support breached on Jul 28 plus a key resistance, and 130.41, last Tuesday’s low and a bear trigger.



• On the commodity front, Gold maintains a firmer tone and attention is the next key resistance at $1797.1. This is a trendline resistance drawn from the Mar 8 high. A breach of the line would represent an important technical break and highlight a stronger reversal of the 5-month downtrend. Initial firm support lies at $1754.4 the Aug 3 low. In the Oil space, WTI futures remain vulnerable following last week’s move lower. Price has breached support at $88.23, Jul 14 low and a key support. This has exposed $85.37, the Mar 15 low.



• In the FI space, a short-term bull cycle in Bund futures remains intact and the recent pullback is likely a correction. Scope is seen for a climb to 159.79 next, the Apr 4 high (cont). Initial firm support is 155.05, the 20-day EMA. The trend condition in Gilts remains bullish and pullbacks are considered corrective. Two support level to watch are:
  • 116.37, 50-day EMA.
  • 116.44 Trendline support drawn from the Jun 16 low.

EQUITIES: Energy Names Lead In Mixed Trade

• Asian markets closed mixed: Japan's NIKKEI closed down 249.28 pts or -0.88% at 27999.96 and the TOPIX ended 14.39 pts lower or -0.74% at 1937.02. China's SHANGHAI closed up 10.498 pts or +0.32% at 3247.432 and the HANG SENG ended 42.33 pts lower or -0.21% at 20003.44.
• European bourses are trading mostly weaker, with cyclical stocks (Tech, Materials) dragging and Energy / Financials in the green: the German Dax down 61.63 pts or -0.45% at 13632.63, FTSE 100 up 6.86 pts or +0.09% at 7470.07, CAC 40 up 2.86 pts or +0.04% at 6514.34 and Euro Stoxx 50 down 11.99 pts or -0.32% at 3748.87.
• U.S. futures are very slightly higher, with the Dow Jones mini up 48 pts or +0.15% at 32840, S&P 500 mini up 5.75 pts or +0.14% at 4147.5, NASDAQ mini up 9.25 pts or +0.07% at 13192.5.

COMMODITIES: WTI Dips Back Below $90

• WTI Crude down $1.15 or -1.27% at $89.69
• Natural Gas up $0.1 or +1.28% at $7.685
• Gold spot up $2.66 or +0.15% at $1773.38
• Copper up $1.85 or +0.52% at $360.35
• Silver down $0.03 or -0.15% at $20.6492
• Platinum down $3.07 or -0.33% at $946.26