USDCAD TECHS: Correction Higher Extends

Looking a little more broadly than the spread to Bunds, the mid-January richening for French paper on the 10-Year SPGB/OAT/PGB butterfly has seemingly stalled.

• This suggests that the latest leg of tightening seen in OAT/Bunds (since the middle of last week) has been more of a broad EGB spread tightening move, as opposed to an OAT-driven move.
• The structure last trades at -45.2bp vs. a January closing high of -44bp, with the December closing high at -41.6bp remaining intact.
• Relative Spanish & Portuguese credit rating trajectories and fiscal situations (outside of short-term Spanish spending on flood relief) will likely prevent meaningful OAT outperformance on the structure as long as French fiscal and political risks remain evident.

Fig. 1: 10-Year SPGB/OAT/PGB Butterfly (bp)

Source: MNI - Market News/Bloomberg

US Equity futures have ran out of steam in the last few hour, the NQH5 has managed to bounce 3.18%, and the Emini 2.1% from Yesterday's low to their printed high today.

Looking at Cash Indices, SPX should see a small upside gap, but the NDX should be quite short of Yesterday's best level.

• Calls: SPX: 6,029.0 (+0.3%); DJIA: 44,750 (+0.1%/+36pts); NDX: 21,174.6 (+0.2%).

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