MNI ASIA MARKETS ANALYSIS: Volatile First Half

US TSYS: Policy Heads, Data, Geopol Risk Triggers Early Volatility

Tsys weaker after the bell, near middle of session range after volatile first half. Whippy price action after extending past overnight lows in early NY trade from nearly testing highs and now extending lows w/ 30YY tapping 3.2577% high. Several factors at play include policy headlines, geopol risk and data both domestic and foreign:

• Tsys pared early gains as Richmond Fed Barkin discussed economic outlook, "RECESSION IS RISK IN GETTING INFLATION UNDER CONTROL .. DOESN'T EXPECT INFLATION TO COME DOWN IMMEDIATELY, Bbg.
• Additional selling across the board on ECB'S KNOT comments/headlines: NOT CONVINCED THAT GOING BACK TO NEUTRAL ENOUGH .. MARKET PRICING OF RATE HIKE IN SEPT NOT UNWISE .. LEANING TOWARDS 75 BPS BUT OPEN TO DISCUSSION, Bbg.
• Meanwhile, UK Gilt yields climbing to mid-2014 levels, 10Y 2.75%, 30Y 3.03% as Goldman Sachs analysts warn "UK inflation could top 22% next year if natural gas prices remain elevated in the coming months", Bbg.
• Fast risk-off bid (that also spurred lows in stocks at the time on uptick in China/Taiwan tensions for risk-off move: headlines re: Taiwan fired warning shots at China drone spotted near an offshore island.
• Midmorning JOLTs number surprised by 864k to the upside - that's the fourth largest upside surprise of the past decade (only beaten in April 2021, May 2020 and July 2021). Data likely to give the Fed confidence at their upcoming policy meeting for a large move, particularly if backed up by strong Aug employment read this Friday (+300k est vs. +528k prior).
• Reminder, ADP will release it's retooled private-sector employment report early Wednesday (0815ET) after pausing the report back on June 30

SHORT TERM RATES

US DOLLAR LIBOR: Settlements resume

• O/N -0.00085 to 2.30829% (-0.01200 total last wk)
• 1M +0.04014 to 2.56400% (+0.09858 total lastwk)
• 3M +0.01257 to 3.08214% (+0.11186 total lastwk) * / **
• 6M +0.02900 to 3.59543% (+0.01886 total lastwk)
• 12M +0.03657 to 4.15986% (+0.10473 total lastwk)
• * Record Low 0.11413% on 9/12/21; ** New 14Y high: 3.08214% on 8/30/22

• Daily Effective Fed Funds Rate: 2.33% volume: $89B
• Daily Overnight Bank Funding Rate: 2.32% volume: $265B

• Secured Overnight Financing Rate (SOFR): 2.28%, $963B
• Broad General Collateral Rate (BGCR): 2.26%, $393B
• Tri-Party General Collateral Rate (TGCR): 2.26%, $383B
• (rate, volume levels reflect prior session)

FED Reverse Repo Operation

NY Fed reverse repo usages recedes to $2,188.975B w/ 101 counterparties vs. $2,205.188B prior session. Record high still stands at $2,329.743B from Thursday June 30.

EURODOLLAR/SOFR/TREASURY OPTIONS SUMMARY

• SOFR Options:
  • -10,000 SFRZ2 96.50/97.00 call spds, 6.75
  • -10,000 SFRV2 96.12/96.25 put spds 5.5 vs. 96.225/0.12%
  • Block, 2,500 short Mar SOFR 96.75/short Sep'23 97.00 put spds, 15.0
  • 4,500 SFRH3 93.00/94.00/95.00 put flys
  • +10,000 SFRM3 95.62/95.75/96.00 put flys, 5.5
  • +7,500 SFRZ2 96.87/97.00 call spds, 1.0
• Eurodollar Options:
  • Block -10,000 Red Dec'23 97.00/98.00 put spds, 77.0 vs. 96.245/0.15%
  • +5,000 Red Sep'23 95.25/95.50/96.00 put flys, 12.25
  • 2,300 Green Sep 97.25/98.25 call spds
  • 4,500 Green Dec 95.50/96.00 put spds
  • -4,000 short Sep 96.00/96.12 put spds, 5.75
  • 5,000 short Sep 96.25/96.50 1x2 call spds
• Treasury Options:
  • 2,000 TYX 114/120.5 strangles
  • 5,000 TYV 113/114 put spds, 3
  • -5,000 FVZ 111.5 puts 130-129
  • 2,125 TYZ 114/117 3x2 put spds , 3net
  • 2,000 FVZ 111 puts, 110
  • +3,000 TYX 120 calls, 28-27
  • 2,000 TYX 120.5 calls, 21
  • 9,000 TYV 120 calls, 10-9
  • +1,500 TYV 117.5 straddles, 159
  • 3,000 TYZ 122/123 call spds, 5
  • 2,000 TYV 113/115.25 put spds
  • 2,000 TYV 115.75/117.25 put spds vs. 118.5 calls
  • 1,000 FVV 109/110/111 put flys

FOREX: Greenback Claws Back Losses As Equities Sink, EUR Outperforms

• Further relief for gas futures in Europe set a positive early tone for risk in the first half of Tuesday’s session which placed initial pressure on the greenback. However, a sharp turnaround for major equity benchmarks and a set of stronger US data (above estimate consumer confidence and JOLTS figures) altered market sentiment which allowed the USD to trade back to flat for the day.
• The weaker risk sentiment along with sharp moves to the downside for crude futures weighed on the likes of AUD, CAD and NOK. CHF was also 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.
• Outperforming on Tuesday was the Euro amid several more ECB governing board members hinting at the inevitable discussion of increasing the hiking pace at next week’s meeting. While this has already been alluded to since Friday, the ongoing rhetoric continues to bolster the single currency, alongside the retreating gas prices.
  • In turn, Euro crosses continue their bounce with EURAUD now an impressive 2.3% higher than Friday’s lows.
• In emerging markets, the Hungarian Forint rallied 1.5% following the NBH rate decision and its commitment to a “decisive continuation” of its monetary tightening cycle. On the contrary, a weaker risk backdrop weighed on LatAm FX with USDMXN bouncing close to 1.5% from intra-day lows back to ~20.20.
• Chinese Manufacturing PMI data is due overnight before the Eurozone HICP Flash Estimate for August, expected to rise to 9.0%. New methodology for US ADP will be released tomorrow before the MNI Chicago Business Barometer. The focus remains on Friday’s US employment report for August.

Expiries for Aug31 NY cut 1000ET (Source DTCC)

• EUR/USD: $0.9925(E1.2bln), $1.0000(E1.6bln), $1.0100(E1.8bln), $1.0150-62(E1.2bln)
• USD/JPY: Y136.00($1.5bln), Y137.50($695mln), Y138.00($753mln), Y139.90-00($1.3bln)
• AUD/USD: $0.6785(A$719mln). $0.7089-00(A$1.1bln)
• NZD/USD: $0.6400(N$706mln)
• USD/CNY: Cny6.70($1.2bln), Cny6.80-81($1.1bln), Cny6.90($1.5bln), Cny6.9250($920mln)

Late Equity Roundup, Energy, Consumer Disc, Materials Weighing

Stocks weaker in late FI trade, near session lows as Energy, Consumer Discretionary and Materials sectors continue to underperform. Currently, SPX eminis trade -52.75 (-1.31%) at 3978.75; DJIA -355.96 (-1.11%) at 31755.75; Nasdaq -175.7 (-1.5%) at 11835.87.

• Technicals: S&P E-Minis weakened further Monday, taking out the Monday low and resuming the recent bearish activity. This reinforces bearish conditions, with prices now well below the 50-day EMA at 4086.25. The breach of this pivot support strengthens the case for bears and signals scope for 3902.01 next, a Fibonacci retracement. On the upside, initial firm resistance has been defined at 4217.25. A break would ease the current bearish pressure.
• SPX leading/lagging sectors: Financials -0.64%, followed by Health Care -0.77% and Consumer Staples -0.97%. Laggers: Tracking strong gains in Crude Monday, Energy sector recedes -3.73% (West Texas Crude -5.35 at 91.66), followed by Materials -1.67%, Consumer Discretionary (-1.66%) weighed by auto, and Industrials -1.56%.
• Dow Industrials Leaders/Laggers: Nike (NKE) -0.16 at 107.72, JP Morgan (JPM) -0.21 at 114.18 and American Express (AXP) -0.25 at 154.29. Laggers: United Health (UNH) extends losses by -7.81 at 521.96, Caterpillar (CAT) -5.33 at 186.45, Chevron (CVX) -4.59 at 160.04.

E-MINI S&P (U2): Undermines Monday Stability

• RES 4: 4327.50 High Aug 16 and the bull trigger
• RES 3: 4288.00 High Aug 19
• RES 2: 4217.25 High AUg 26
• RES 1: 4110.75 Low Aug 24
• PRICE: 3990.50 @ 17:25 BST Aug 30
• SUP 1: 3968.50 Low Aug 30
• SUP 2: 3902.01 61.8% retracement of the Jun 17 - Aug 16 upleg
• SUP 3: 3834.00 Low Jul 19
• SUP 4: 3801.49 76.4% retracement of the Jun 17 - Aug 16 upleg

S&P E-Minis weakened further Monday, taking out the Monday low and resuming the recent bearish activity. This reinforces bearish conditions, with prices now well below the 50-day EMA at 4086.25. The breach of this pivot support strengthens the case for bears and signals scope for 3902.01 next, a Fibonacci retracement. On the upside, initial firm resistance has been defined at 4217.25. A break would ease the current bearish pressure.

COMMODITIES

• WTI Crude Oil (front-month) down $5.19 (-5.35%) at $91.75
• Gold is down $11.46 (-0.66%) at $1725.65

Wednesday Data Calendar

Date	GMT/Local	Impact	Flag	Country	Event
31/08/2022	2301/0001	*		UK	BRC Monthly Shop Price Index
31/08/2022	0130/1130	***		AU	Quarterly construction work done
31/08/2022	0645/0845	***		FR	HICP (p)
31/08/2022	0645/0845	**		FR	PPI
31/08/2022	0645/0845	***		FR	GDP (f)
31/08/2022	0645/0845	**		FR	Consumer Spending
31/08/2022	0755/0955	**		DE	Unemployment
31/08/2022	0900/1100	***		IT	HICP (p)
31/08/2022	0900/1100	***		EU	HICP (p)
31/08/2022	1100/0700	**		US	MBA Weekly Applications Index
31/08/2022	1200/0800			US	Cleveland Fed's Loretta Mester
31/08/2022	1215/0815	***		US	ADP Employment Report
31/08/2022	1230/0830	***		CA	CA GDP by Industry and GDP Canadian Economic Accounts Combined
31/08/2022	1345/0945	**		US	MNI Chicago PMI
31/08/2022	1430/1030	**		US	DOE weekly crude oil stocks
31/08/2022	2200/1800			US	Dallas Fed's Lorie Logan
31/08/2022	2230/1830			US	Atlanta Fed's Raphael Bostic