MNI ASIA MARKETS ANALYSIS: Core CPI Miss Kicked Off Volatile Day

US TSY SUMMARY: Core CPI Miss Spurred Early Vol

• Tsy futures surged after CPI Core miss (0.3% vs. 0.4% est), but just as quickly reverse (CPI MoM in-line with forecasted 0.5%) -- trading back near late overnight session lows. Volume surged on two-way flow, TYU >515k, yield curves bear steepened early.
• Tsys reversed losses/surged higher after particularly strong 10Y Note auction stopped through just over 3.0bp through WI at auction cutoff with 1.340% high yield. Tsy 10Y yields fell to session low of 1.3000% before late session bounce to 1.3202%. 2.65x bid-to-cover well above five auction avg: 2.43x while indirect take-up surged to 77.25% vs. 61.16% 5M avg.
• Fed speak was decidedly hawkish: Fed's George says 'Substantial Progress' already made; Dallas Fed Kaplan on CNBC (uber-hawk but non-voter) likes annc plan to taper at Sep FOMC, begin in October.
• The 2-Yr yield is down 2bps at 0.2186%, 5-Yr is down 1.4bps at 0.8115%, 10-Yr is down 0.9bps at 1.3405%, and 30-Yr is up 0.6bps at 2.0048%.

SHORT TERM RATES

US DOLLAR LIBOR: Latest Settles

• O/N +0.00000 at 0.07863% (+0.00012/wk)
• 1 Month +0.00013 to 0.09663% (+0.00138/wk)
• 3 Month -0.00150 to 0.12125% (-0.00713/wk) ** (Record Low: 0.11800% on 6/14)
• 6 Month +0.00113 to 0.15738% (+0.00688/wk)
• 1 Year +0.00325 to 0.24288% (+0.00550/wk)

• Daily Effective Fed Funds Rate: 0.10% volume: $69B
• Daily Overnight Bank Funding Rate: 0.08% volume: $251B

• Secured Overnight Financing Rate (SOFR): 0.05%, $865B
• Broad General Collateral Rate (BGCR): 0.05%, $363B
• Tri-Party General Collateral Rate (TGCR): 0.05%, $345B
• (rate, volume levels reflect prior session)

• Tsy 22.5Y-30Y, $2.001B accepted vs. $5.200B submission
• Next scheduled purchase
• Thu 8/12 1010-1030ET: TIPS 1Y-7.5Y, appr $2.025B
• Thu 8/12 1500ET Update NY Fed Operational Purchase Schedule

FED: Reverse Repo Operations, Over $1T Again, But No New High - Yet

NY Fed reverse repo usage climbs to $1,000.460B from 70 counterparties vs. $998.654B on Tuesday. Compares to record high of $1,039.394B on Friday, July 30.

EURODOLLAR/TREASURY OPTIONS SUMMARY

• +10,000 Blue Oct 99.00/99.25 call spds, 1.75
• +15,000 Blue Mar 99.50 calls, 2.0
• -15,000 Green Oct 98.93 puts, 11.5
• +3,000 Blue Dec 97.87/98.12 put spds, 3.25
• +5,000 Mar 100 calls, 1.0
• -4,000 Red Dec'22 99.25 puts, 9.0
• +10,000 Blue Sep 98.25/98.37/98.50/98.75 broken call condors, 2.0
• Overnight trade
• 6,500 Jun 100 calls, 1.0
• 2,500 Green Dec 98.75/99.00 put spds
• 4,500 Green Oct 99.12 puts
• +5,000 Blue Dec 97.87/98.12 put spds, 3.5
• +4,000 Blue Mar 99.50 calls, 2.0

• 10,000 TYU 133 puts, 14 last on wide range, total volume over 54,000
• +3,000 TYU 133.75/134.25 1x2 call spds, 1
• -9,000 TYV 131/134.5 strangles, 32
• Overnight trade
• -20,000 (10k blocked) FVU 123.25/123.75 put spds, 11
• 8,500 FVU 124.5 calls, 3-3.5
• 4,000 FVU 124.25 puts, 6
• +25,000 TYU 131.75/132.75 put spds, 13-15
• +10,000 TYV 130/132 put spds, 27-29
• Block, +7,500 TYV 130 puts, 11

EGBs-GILTS CASH CLOSE: Gilts Bull Steepen

Core European FI had a constructive session, reversing morning losses in the afternoon on a weaker-than-expected US core inflation print.

• Gilts outperformed, with the UK short end rallying sharply (2Y -3bp in a bull steepening move).
• Peripheries couldn't keep pace, with Italian spreads widening and underperforming peers.
• Very little in the way of market-moving data (CPI finals). UK sold GBP0.7bln of linkers, German E4bln of Bund.
• Bond supply is done for the week, and there are no scheduled central bank speakers. Thursday's highlight is set to be UK GDP, first thing.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is unchanged at -0.748%, 5-Yr is down 0.5bps at -0.728%, 10-Yr is down 0.7bps at -0.464%, and 30-Yr is up 0.1bps at -0.009%.
• UK: The 2-Yr yield is down 3bps at 0.123%, 5-Yr is down 2.2bps at 0.274%, 10-Yr is down 1.8bps at 0.571%, and 30-Yr is down 0.8bps at 0.946%.
• Italian BTP spread up 2.5bps at 103.1bps / Spanish up 1.5bps at 70.1bps

OPTIONS/Plenty Of Schatz And Bund Structures

Wednesday's European rate/bond options flow included:

• DUU1 112.30 put, bought for 3.5 in 8k
• DUU1 112.30/112.20/112.10p fly, sold at 2 in 1.5k
• RXU1 176/175/174p fly 1x1.5x0.5, bought for 11.5 in 8k
• RXU1 176.50/176/175/172.5p condor, bought for 6 in 2k
• RXU1 174.50 put, bought for 11 in 1.6k
• 3RZ1 100.25p vs 0RZ1 100.50^, bought the 3yr for half in 4k

FOREX: US Core CPI Miss Halts Greenback Momentum

• A small miss in monthly U.S. Core CPI weighed on the greenback on Wednesday. The dollar index looks set to end a three-day winning streak, after briefly matching the July highs at 93.19.
• EURUSD fell just two pips shy of key 1.1704 support before the data and ends the day a quarter of a percent higher around 1.1750. While less than 50 pips away, this level marks an important support and potential inflection point, bolstered by 1.1685 just below, which represents the 38.2% Fibonacci for the 2020 - 2021 rally. Importantly, little resistance is seen until the 1.19 highs, matching closely with the 50-day EMA at 1.1899.
• Overall dollar weakness aided gains across the entire G10 space with notable gains for AUD and NZD, rising 0.4% and 0.6% respectively, following a second consecutive day of gains for broad commodity indices. For NZDUSD, multiple highs between 0.7090-7105 will prove the next resistance.
• The Norwegian Krone outperformed, rising 0.72% against the dollar, bolstered by a strong rebound in oil prices following the DOE inventories data.
• A strong US 10-yr auction precipitated some additional marginal dollar weakness, however G10 ranges overall remain unimpressive. The following sessions may be significant in determining the medium-term direction in which we will see PPI, jobless claims and sentiment data. Next week, retail sales and the FOMC minutes will be released.
• Thursday will see the UK report their preliminary Q2 GDP data at 0700BST.

FX/Expiries for Aug12 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.1650-60(E2.4bln), $1.1700-05(E1.7bln), $1.1785-00(E2.2bln), $1.1810-15(E1.6bln)
• USD/JPY: Y109.40-50($712mln), Y110.00-10($618mln), Y110.30-50($1.3bln), Y110.95-00($881mln)
• GBP/USD: $1.3840-60(Gbp906mln)
• EUR/GBP: Gbp0.8500(E570mln)
• AUD/USD: $0.7300(A$697mln), $0.7440(A$678mln)
• USD/CAD: C$1.2495-00($1.0bln), C$1.2540($585mln), C$1.2655($555mln)
• USD/CNY: Cny6.4620($960mln)

PIPELINE: Issuance Slows After $35B Issued Mon-Tue

• Date $MM Issuer (Priced *, Launch #)
• 08/11 $1B #Air Lease Corp $500M 3Y +60, $500M 7Y +125
• 08/11 $1B Royal Caribbean 5NC 5.5%a
• 08/11 $1B #Equifax 10Y +105
• 08/11 $800M #Public Service Co Oklahoma $400M 10Y +90, $400M 30Y +115
• 08/11 $500M #Ventas Realty 10Y +120
• 08/11 $400M *Sichuan Development 5Y 2.8%

EQUITIES: Stocks Inch Higher Still, With Cyclicals Gaining Over Tech

• Wall Street was mixed after the slightly slower-than-expected core CPI release, with cyclicals outperforming tech, leading the e-mini S&P to trade at a new alltime high.
• Weakness across tech names resulted in the NASDAQ being the sole index to trade lower, with semiconductors particularly weak.
• The outlook for ES1 remains bullish as evidence of dip buying remains solid on intraday pullbacks. Recent gains have confirmed a resumption of the uptrend and signal scope for a continuation near-term. The sell-off Jul 14 - 19 resulted in a break of 4279.25, Jul 8 low. However the contract found support at the 50-day EMA - this EMA represents an important support and the bounce from it is bullish. The focus is on 4481.75 next, a Fibonacci projection. Key support is 4224.00, Jul 19 low.
• European indices finished uniformly higher, with Italy's FTSE-MIB the outperformer to close with gains of 1%. Germany's DAX lagged slightly, but still finished with upside of 0.4% or so. Europe's industrials and energy sectors outperformed, countering the losses across tech, reflecting a similar divergence in US indices.

COMMODITIES: Oil Caught Offguard as US Calls for OPEC+ to Open Taps

• Conflicting factors helped stabilise oil benchmarks into the Wednesday close, with early pressure hitting WTI and Brent futures after the US issued a statement appealing to OPEC+ to open the output taps and relieve oil prices in the face of a slowing post-COVID recovery. This pressured WTI futures to back below $67/bbl before prices bounced on the DoE inventories release.
• The weekly release saw an unexpected draw of 448,000 barrels against an forecast of a build, with implied demand data also proving supportive.
• To resume any incline in Brent futures, bulls need to again take out $74.47, the 76.4% retracement of the Jul 6 - 20 downleg. A break and close back above here opens key resistance at $76.80, Jul 6 high.
• Gold extended the recovery of the week's dramatic low, but to reinforce any upside argument, bulls need to regain $1834.1, Jul 15 high, ahead of $1853.3, a Fibonacci retracement.