MNI ASIA MARKETS ANALYSIS: Headline Sensitivity Evaporates

US TSYS: Early Headline Driven Moves Evaporate

• Early risk-on bid spurred by Russia foreign affairs minister Lavrov headlines: "If the West delivers long-range weapons to Kyiv, geographical objectives in Ukraine will be advanced even further .. from just the Donetsk and Luhansk People's Republics to a number of other territories". Brief rally saw 30YY fall 3.1066% low just tapped 3.1856%.
• Markets gradually reversed course through the first half, however, as Russia's Nord Stream 1 pipeline drew attn for the second day. Russia has no pretext for not resuming gas supplies to Germany via the Nord Stream 1 pipeline in coming days, EU Commission President Ursula von der Leyen said Wed as maintenance on the NS1 turbine, the original Russian excuse for the shutdown, is now ‘in transit’ back from Siemens Canada where the work was bring done.
• Limited react to early sales of U.S. existing homes: down for a fifth straight month in June, declining 5.4% from May to a 5.12M seasonally adjusted annual rate and below market expectations of 5.4M.
• Thursday focus: weekly claims (240k est), Continuing Claims (1.340M est) and Philadelphia Fed Business Outlook (0.8) at 0830ET, Leading Index (-0.6%) at 1000ET.

SHORT TERM RATES

US DOLLAR LIBOR: Latest settlements

• O/N +0.00700 to 1.56914% (+0.00400/wk)
• 1M +0.05200 to 2.21357% (+0.09328/wk)
• 3M +0.02729 to 2.75900% (+0.02143/wk) * / **
• 6M +0.03500 to 3.33386% (+0.02257/wk)
• 12M +0.02343 to 3.89300% (-0.00343/wk)
• * Record Low 0.11413% on 9/12/21; ** New 3Y high: 2.75900% on 7/20/22

• Daily Effective Fed Funds Rate: 1.58% volume: $90B
• Daily Overnight Bank Funding Rate: 1.57% volume: $274B

• Secured Overnight Financing Rate (SOFR): 1.54%, $933B
• Broad General Collateral Rate (BGCR): 1.51%, $372B
• Tri-Party General Collateral Rate (TGCR): 1.51%, $360B
• (rate, volume levels reflect prior session)

FED Reverse Repo Operation

NY Fed reverse repo usage climbs to $2,240.204B w/ 100 counterparties vs. $2,211.821B prior session. Record high still stands at $2,329.743B from Thursday June 30.

EURODOLLAR/SOFR/TREASURY OPTIONS SUMMARY

• A large limited downside protection for year end hikes via SOFR options had paper buy over +17,000 SFRZ2 95.00/95.50/96.00 put flys, 4.0 ref 97.015. Prior put skew buy block: +5,000 SFRZ2 95.75/96.00/96.25 put flys even over the SFRZ2 97.25/97.50 call spds. Muted Eurodollar option flow included +8,500 Dec 99.00/99.62 put spds and 5,000 Sep 99.50/99.75 put spds.

• Update, +17,000 SFRZ2 95.00/95.50/96.00 put flys, 4.0 ref 97.015
• Block, 5,000 SFRZ2 95.75/96.00/96.25 put flys vs. SFRZ2 97.25/97.50 call spds, 0.0

• 8,500 Dec 99.00/99.62 put spds
• 5,000 Sep 99.50/99.75 put spds

• 2,800 TYU 115.5/117/118.5 put flys, 21
• total 11,500 TYU 119 calls, 49-53
• 1,000 TYU 114/115.5/118 2x3x1 put flys
• 5,500 USU 130/134 put spds, 22

EGBs-GILTS CASH CLOSE: BTPs Steal The Show Pre-ECB

BTP spreads finished sharply wider Wednesday, reversing earlier tightening as the fate of the Draghi gov't was set to be decided after market close.

• 10Y BTP/Bund spreads hit a high of 218.6bp (up 8+bp on the day) after falling to under 194bp at one point early as it appeared PM Draghi would stay on. The confidence vote is due around 1845CET.
• Bunds outperformed Gilts through the 5Y segment; but vice-versa further down.
• The ECB decision will take focus Thursday: markets pulled back 50bp hike pricing slightly as the events in Rome developed, but show about a 60/40% split between 25bp/50bp.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany:

• Germany: The 2-Yr yield is down 3bps at 0.607%, 5-Yr is down 0.4bps at 1.011%, 10-Yr is down 2bps at 1.257%, and 30-Yr is down 1.5bps at 1.454%.
• UK: The 2-Yr yield is up 2.8bps at 2.069%, 5-Yr is up 0.9bps at 1.916%, 10-Yr is down 4.1bps at 2.139%, and 30-Yr is down 2.7bps at 2.66%.
• Italian BTP spread up 8.3bps at 213.4bps / Spanish up 2.3bps at 122.7bps

FOREX: Euro Headwinds Re-Emerge Amid Italian Political Turmoil

• Renewed Euro positivity, largely stemming from the likely return of Nordstream 1 gas flows and a potentially more hawkish ECB, was dealt a blow on Wednesday. Fresh headwinds have emerged relating to developments in Italy and the probable collapse of the current government.
• Despite EURUSD sitting marginally in the red for much of the US session, late weakness saw gradual but consistent selling through the intra-day lows of 1.0174. While there has not been significant follow through, the pair continues to trade with an offered tone around the 1.0160 mark.
• Overnight vols are very high for EURUSD, the highest since the depths of the covid crash, pointing to a potentially turbulent session on Thursday. Initial tech support resides at 1.0120, Tuesday’s intra-day low.
• The late single currency weakness has naturally lent support to the USD index (+0.5%), which has reversed the majority of yesterday’s downtick. With key central bank event risk upcoming, other G10 major currencies held much narrower ranges on Wednesday with USDJPY registering a notable 47 point range, well below the most recent average.
• The Bank of Japan takes focus for the upcoming APAC session. The BoJ will leave policy settings unchanged at its July meeting, however, markets should expect a markup in the Bank’s immediate CPI forecast and a moderation in its immediate GDP growth forecast.
• The ECB decision will be the focus for global markets on Thursday: markets pulled back 50bp hike pricing slightly as Italian political noise developed, but show about a 60/40% split between 25bp/50bp.
• Jobless Claims and Philly Fed Manufacturing data highlight the US docket.

FX: Expiries for Jul21 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0000(E1.2bln), $1.0200-10(E1.8bln)
• NZD/USD: $0.6300(N$500mln)
• USD/CAD: C$1.2900($885mln)

EQUITIES: Late Equity Roundup, Waiting on Earnings From Tesla, Alcoa, UAL

Stock firming up after the FI close: SPX eminis currently trading +32.75 (0.83%) at 3970.5; DJIA +88.5 (0.28%) at 31916.91; Nasdaq +202.1 (1.7%) at 11915.72.

• Waiting on post-close earning's annc's from: Tesla (TSLA) $1.711, Alcoa (AA) $2.392, Discover (DFS) $3.798, United Airlines (UAL) $1.884.
• Positive pre-open earnings from: Abbott Labs (ABT) $1.43 vs. $1.119, Elevance Health (ELV) $8.04 vs. $7.771 est, M&T Bank $310 vs. $2.854, MarketAxess (MKTX) $1.78 vs. $1.718, Biogen (BIIB) $5.25 vs. $4.102, Nasdaq (NDAQ) $2.07 vs. $1.909.
• SPX leading/lagging sectors: Consumer Discretionary +1.83%, Information Technology (+1.65%), Energy (+1.22%) and Communication Services (+1.17%). Laggers: Utilities (-1.22%), Health Care (-0.95%) and Consumer Staples (-0.58%) .
• Dow Industrials Leaders/Laggers: Salesforce.com (CRM) +8.61 at 182.36, Disney (DIS) +4.00 at 103.61, Home Depot (HD) +3.15 at 302.98, Microsoft (MSFT) +2.69 at 262.22. Laggers: United Health (UNH) -16.02 at 517.43, Procter and Gamble (PG) -2.58 at 141.46, Merck (MRK) -2.84 at 89.52.

E-MINI S&P (U2): New Monthly High - Briefly

• RES 4: 4308.50 High Apr 28
• RES 3: 4204.75 High May 31 and a key resistance
• RES 2: 3964.25 High Jul 20
• RES 1: 3950.34 50-day EMA
• PRICE: 3929.00 @ 12:15 BST Jul 20
• SUP 1: 3723.75/3639.00 Low Jul 14 / Low Jun 17 and a bear trigger
• SUP 2: 3578.27 0.618 proj of the Mar 29 - May 20 - 31 price swing
• SUP 3: 3500.00 Round number support
• SUP 4: 3384.75 0.764 proj of the Mar 29 - May 20 - 31 price swing

S&P E-Minis traded well early Wednesday, briefly piercing the 50-day EMA and touching a new monthly high in the process. Nonetheless, prices are lower on the day into the cash open, keeping most nearby resistance levels intact. This confirms short-term gains remain considered corrective. A clear breach and close above the 50-day EMA would strengthen a bullish case. On the downside, a resumption of weakness and a break of 3923.75 low, would instead open key support at 3639.00, Jun 17 low.

COMMODITIES: Oil Ultimately Dips With Soft US Gasoline Demand

• A mixed session for crude oil, currently sitting lower after equities reversed earlier gains that had been providing a counterbalance to US gasoline inventories growing much faster than expected (which in turn had offset a smaller unexpected draw for headline crude inventories).
• WTI (CLU2) is -1.3% at $99.44 having earlier briefly cleared resistance at the 20-day EMA of $100.53 before prompt reversal. Next resistance is eyed at the 50-day EMA of $102.29, with clearance required to suggest scope for a stronger recovery.
• Most active strikes in the CLU2 have been $90/bbl calls but volumes are muted.
• Gold meanwhile slipped -0.6% to $1071.86, with a step down coming later in the session with the US dollar firming, moving closer to support eyed at $1697.7 (Jul 14 high), clearance of which opens $1690.6 (Aug 9, 2021 low).
• European natural gas (TTF) edged +0.4% higher with Putin signalling that Nord Stream 1 flows will resume tomorrow but that flows will be tightly restricted. That compares to UK gas prices surging 24% as forecasts of falling wind generation further ramped up pressure.

Thursday Data Calendar

Date	GMT/Local	Impact	Flag	Country	Event
21/07/2022	0600/0700	***		UK	Public Sector Finances
21/07/2022	0645/0845	**		FR	Manufacturing Sentiment
21/07/2022	0800/0900			UK	BOE Pill Intro at BOE & ECB Conference
21/07/2022	0900/1000	**		UK	Gilt Outright Auction Result
21/07/2022	1215/1415	***		EU	ECB Deposit Rate
21/07/2022	1215/1415	***		EU	ECB Main Refi Rate
21/07/2022	1215/1415	***		EU	ECB Marginal Lending Rate
21/07/2022	1230/0830	**		US	Jobless Claims
21/07/2022	1230/0830	**		US	Philadelphia Fed Manufacturing Index
21/07/2022	1230/0830	**		US	WASDE Weekly Import/Export
21/07/2022	1245/1445			EU	ECB Press Conference
21/07/2022	1430/1030	**		US	Natural Gas Stocks
21/07/2022	1515/1715			EU	ECB Lagarde Presents Policy Decision via Podcast
21/07/2022	1530/1130	*		US	US Bill 08 Week Treasury Auction Result
21/07/2022	1530/1130	**		US	US Bill 04 Week Treasury Auction Result
21/07/2022	1700/1300	**		US	US Treasury Auction Result for TIPS 10 Year Note