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Pullback Considered Corrective


Holding Above Recent Lows


BLOCK, Large 3Y Midcurve Put Condor

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T-Notes little changed at the re-open, last -0-01+ at 134-13+, after finishing a little shy of best levels on Tuesday. E-minis have failed to rally in wake of strong headline earning releases from the likes of Apple, Alphabet & Microsoft, with questions surrounding the market being priced for perfection and earnings guidance noted.

  • To recap, the cash curve bull flattened on Tuesday, with the long end richening by ~5.0bp come the close. The space received some tailwinds from the sharp sell-off in the Chinese equity sphere, with softer than expected durable goods data also aiding the bid (although that was accompanied by positive revisions to the previous month).
  • A solid round of 5-Year supply fed into the broader narrative. In terms of pricing, the auction stopped on the screws, with dealer takedown holding just below the recent averages and the cover ratio holding steady.
  • An early NY block buy of UXYU1 futures dominated on the flow side (+6,197), representing an ~$825K DV01 equivalent.
  • Australia's Q2 CPI data headlines the Asia-Pac docket, although the gyrations in the Chinese equity space will likely garner most of the attention. The latest FOMC monetary policy decision will headline the docket during NY hours. The FOMC will use the July meeting to debate its strategy to taper asset purchases (including timing, pace, and composition). The December FOMC looks like the most likely meeting for a formal announcement. The risks to the July Statement lean hawkish, but the mood could swiftly change with Powell delivering a relatively dovish press conference. Moves in yields since the June FOMC suggest increasing market concerns over the growth outlook, but it's unlikely this will persuade the Fed to change course at this stage.