MNI US MARKETS ANALYSIS - Relief Evident as European Energy Costs Dip

US TSYS SUMMARY: Modest Rebound on German Inflation Figures

• Tsys back near the middle of Monday's wide range, 30YY currently 3.1987% (-0.0412) vs. 3.1887% low while yield curves give back portion of Mon's steepening (2s10s -2.497 at -34.986). Light volumes on last day of Sep futures trade, Dec takes lead quarterly position Wednesday.
• Stocks firmer (ESU2 +34.0 at 4065.25), Crude softer (WTI -1.91 at 95.10).
• Pick up in US data ahead (prior, est): FHFA House Price Index MoM (1.4%, 0.8%); QoQ (4.6%, --) and S&P CoreLogic CS 20-City MoM SA (1.32%, 0.75%) at 0900ET; Conf. Board Consumer Confidence (95.7, 97.4 est) and JOLTS Job Openings (10.698M, 10.300M) at 1000ET.
  
• Fed speakers ahead: Richmond Fed Barkin discusses eco-outlook at 0800ET, NY Fed Williams economic outlook at 1100ET. Incidentally, late Monday MN Fed Kashkari headlines ‘Happy’ to See the Market’s Reaction to Jackson Hole, Bbg: The Minneapolis Fed president sees the selloff as evidence that the market is taking the central bank’s inflation fight seriously.
• Currently, 2-Yr yield is down 2bps at 3.4028%, 5-Yr is down 4.3bps at 3.2102%, 10-Yr is down 4.3bps at 3.0596%, and 30-Yr is down 4.3bps at 3.1971%.

STIR FUTURES: Euribor continues to reverse some of yesterday's sell-off

• Euribor futures have led the way higher this morning, reversing around 40% of yesterday's moves lower. The moves were initially triggered by some German state CPI data looking on the soft side. However, our data team now calculate that the national CPI print due at 13:00BST / 8:00ET will come in at +0.38%M/M (Bloomberg median +0.35%) and the Y/Y print at +7.94%Y/Y (median 7.8%) - so a little higher than expected for both. Jun-23 Euribor futures are now up 8.0 ticks on the day, but down 11.0 ticks since Friday's close. Markets now price 62bp for the ECB's September meeting (in line with Friday's close but down from 65bp at yesterday's close), 155bp by year-end (from 146bp on Friday and 165bp yesterday) and 216bp in a year's time.
• Eurodollar futures have drifted higher this morning, too, led by Euribor but moves are more limited - up 3.0-4.5 ticks for Whites/Reds and 5.5 ticks through most of the rest of the strip.
• SONIA futures were closed yesterday and have been catching up with yesterday's moves. Whites are up to 4.5 ticks lower, Reds 3-6 ticks lower and Greens/Blues 8.5-10.5 ticks lower on the day.

EGB/GILT SUMMARY: EZ FI Firms As Gilts Catch Down To Monday Move Lower In EGBs

Euro area government bonds have rallied this morning while gilts have sold off sharply. Equities are broadly higher while the dollar is on the back foot against most G10 FX.

• Coming off the UK public holiday yesterday, gilts have caught down with the move lower in EGBs on Monday. Gilt yields are now up 10-12bp.
• ECB Chief Economist Philip Lane has stated that interest rates need to keep rising 'step by step'.
• Regional German CPI data released this morning show an acceleration on the previous month of 0.1-0.4pp in Y/Y terms. The preliminary headline print will be published at 1300 London time.
• Bunds have firmed with yields down 3-5bp on the day and with the belly of the curve marginally outperforming.
• The OAT curve has bull steepened with cash yields down 1-6bp and the 2s30s spread widening 4bp.
• BTP yields are down 2-7bp.
• Spanish inflation printed in line with expectations at 10.3% Y/Y in August, down from 10.7% the previous month.
• Supply this morning came from Italy (BTPs/CCTeu, EUR8bn).

EUROPE ISSUANCE UPDATE

Italy auction results

• E3.25bln of the 2.65% Dec-27 BTP. Avg yield 3.09% (bid-to-cover 1.45x)
• E1.25bln of the 3.50% Mar-30 BTP. Avg yield 3.3% (bid-to-cover 1.8x)
• E2.25bln of the 2.50% Dec-32 BTP. Avg yield 3.76% (bid-to-cover 1.54x)
• E1.25bln of the 0.75% Oct-30 CCTeu. Avg yield 1.04% (bid-to-cover 1.71x).

FOREX: Relief for Gas Futures Underpins Brighter Risk Backdrop

• Antipodean currencies outperform in early Tuesday trade, with AUD and NZD among the strongest FX in G10. Commodity- and growth-tied currencies are re-coupling with equities, which also sit stronger ahead of the NY crossover. The somewhat more buoyant risk backdrop stems from the EU's pledge to get energy costs under control on the continent, with an EU ministers meeting slated for September 9th.
• Measures are speculated to include a market infrastructure overhaul, and potentially measures including price caps for energy. The pledges have knocked benchmark European gas futures lower by ~10%, helping relieve some of the recent market stress.
• CHF and USD are among the poorest performers on the day, with EUR/CHF printing a higher high for a sixth consecutive session and putting the cross on track to test the 0.9819 50-dma.
• USD/JPY has been unable to maintain the strength seen across the Monday session, with yesterday's Y139.00 still in tact. This represents a key upside level going forward, and a break above here would open July's Y139.39 and beyond.
• Looking ahead, focus turns to the national German inflation print, with the regional releases so far supporting the consensus view of an uptick for the Y/Y release, and a slowing in the M/M figure. The central bank speakers slate will likely take more focus, with ECB's Vasle, Holzmann, Stournaras, Wunsch and Muller all set to appear. Fed's Barkin and Williams are also on the docket.

FOREX: Currency Volumes Picking Up Ahead of NY Crossover

• EUR futures volumes ~22% ahead of average for this time of day
• GBP futures ~3% ahead of average
• AUD futures ~15% ahead of average

Price Signal Summary - USD Trend Direction Remains Up

• In the equity space, the short-term trend condition in the S&P E-Minis remains bearish. This follows Friday’s strong sell-off that resulted in a break of the 50-day EMA. The average intersects at 4086.25. Scope is seen for a move towards 3983.25 next, 50% retracement of the Jun 17 - Aug 16 upleg. The EUROSTOXX 50 contract sold off sharply too on Friday, resuming the current bearish cycle. The break signals potential for a move lower towards 3526.00, 61.8% of the Jul 5 - Aug 17 rally.
• In FX, the EURUSD trend direction remains down, following the recent breach of key support at 0.9952, Jul 14 low. This confirmed a resumption of the primary downtrend and the focus is on 0.9883 next, 1.764 projection of the Jun 9 - 15 - 27 price swing. Friday’s 1.0090 is the first resistance. The GBPUSD trend needle still points south and Monday’s move lower confirms a resumption of the downtrend. The focus is on the 1.1600 handle. USDJPY short-term conditions remain bullish. Monday’s climb resulted in a breach of resistance at 137.71, the Aug 22 high. The break opens 139.39, the Jul 14 high. Clearance of this hurdle would confirm a resumption of the primary uptrend and open 140.00.
• On the commodity front, Gold remains in a clear short-term downtrend and Monday’s move lower reinforces a bearish condition. Support at $1727.8, Aug 22 low has been breached. This opens $1711.0, 76.4% retracement of the Jul 21 - Aug 10 upleg. In the {7I} Oil space, the WTI futures short-term outlook remains bullish and yesterday’s strong rally reinforces a positive outlook. A continuation higher would open $99.75, the Jul 29 high. Initial firm support has been defined at $91.08, the Aug 26 low.
• In the FI space, Bund futures started the week on a softer note, gapping lower Monday. The contract is trading closer to recent lows and further weakness is likely near-term. Attention is on 146.50, the Jun 30 low. Gilts remain vulnerable and sights are set on the 108.00 handle next.

EQUITIES: Energy Price Relief Feeds Through into Higher Stocks

Cash markets across Europe trade higher, with outperformance noted in Germany's DAX, benefiting from the drop in energy prices since the beginning of the week. Europe's tech and consumer discretionary sectors are the strongest so far, mirrored in higher US futures - indicating a positive open on Wall Street later today.

• Japan's NIKKEI 225 closed up 316.62 pts or +1.14% at 28195.58 and the TOPIX ended 24.28 pts higher or +1.25% at 1968.38.
• China's SHANGHAI closed down 13.508 pts or -0.42% at 3227.22 and the HANG SENG ended 74.19 pts lower or -0.37% at 19949.03.with the German DAX up 188.18 pts or +1.46% at 13081.28, FTSE 100 up 41.21 pts or +0.55% at 7467.53, CAC 40 up 68.59 pts or +1.1% at 6291.67 and Euro Stoxx 50 up 49.46 pts or +1.39% at 3620.55.
• Dow Jones mini up 244 pts or +0.76% at 32320, S&P 500 mini up 34.25 pts or +0.85% at 4070.5, NASDAQ mini up 143 pts or +1.14% at 12635.

COMMODITIES: Pullback in European Energy Prices Dents Industrial Metals

• WTI Crude up $0.03 or +0.03% at $97.03
  
• Natural Gas down $0.15 or -1.59% at $9.188
  
• Gold spot down $1.76 or -0.1% at $1735.3
  
• Copper down $1.65 or -0.46% at $359.4
  
• Silver down $0.01 or -0.03% at $18.7582
  
• Platinum down $1.28 or -0.15% at $865.84