MNI ASIA MARKETS ANALYSIS: Yld Surge on Mnth End Rebalancing

Tsy Yield Surge on Late Month End Rebalancing, Data, Hawkish Fed Ahead?

Month end portfolio rebalancing/position extensions added to session volatility Wednesday, Bonds extending well past pre-NY session lows after the close, 30YY tapping 3.2926% high compared to 3.2063% midmorning low.

• Perhaps markets also reacted to late MNI Fed podcast the Federal Reserve is likely to deliver another aggressive 75 basis point rate hike in September to catch up with an inflation problem that officials failed to foresee, ex-Dallas Fed economist Joseph Haslag told MNI’s FedSpeak podcast.
• That kind of move is needed “just to get to the path that almost everybody agrees they’re going have to get to," Haslag said. "So why hold off – that’s going to be the essential driving force around the table.”
• Tsys blipped off lows after latest ADP came out lower than expected (+132k vs. +300k est) - quickly discounted, however, as Tsys reverse move back to pre-release levels.
• That was followed by Chicago Business Barometer: PMI 52.2, in-line w/ market estimate, stocks taking the over 50.0 expansionary read positively, ESU2 +27.5 at 4015.0 in early trade.
• Meanwhile, Equities extended session lows by the bell as well, ESU2 -30.0 at 3957.5, Crude weaker (WTI -2.64 ay 89.0), Gold weaker -13.82 at 1710.20.
• Focus turns to Thursday's Weekly Claims, Unit Labor Costs, ISMs ahead Friday's headline August employment data (+300k est).
• Currently, 2-Yr yield is up 3.7bps at 3.4786%, 5-Yr is up 6bps at 3.325%, 10-Yr is up 7.1bps at 3.1738%, and 30-Yr is up 6.6bps at 3.2815%.

SHORT TERM RATES

US DOLLAR LIBOR: Settlements resume

• O/N +0.00800 to 2.31629% (+0.00715/wk)
• 1M -0.01057 to 2.55343% (+0.02957/wk)
• 3M +0.01757 to 3.09971% (+0.03014/wk) * / **
• 6M +0.06514 to 3.66057% (+0.09414/wk)
• 12M +0.06328 to 4.22314% (+0.09985/wk)
• * 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: $90B
• Daily Overnight Bank Funding Rate: 2.32% volume: $266B

• Secured Overnight Financing Rate (SOFR): 2.29%, $948B
• Broad General Collateral Rate (BGCR): 2.26%, $387B
• Tri-Party General Collateral Rate (TGCR): 2.26%, $377B
• (rate, volume levels reflect prior session)

FED Reverse Repo Operation

NY Fed reverse repo usages recedes to $2,251.025B w/ 108 counterparties vs. $2,188.975B prior session. Record high still stands at $2,329.743B from Thursday June 30.

EURODOLLAR/SOFR/TREASURY OPTIONS SUMMARY

• SOFR Options:
  • 5,000 SFRU 96.87/97.00 call spds
  • Block, +3,500 SFRH3 96.25/96.50 put spds 3.5 over 96.75 calls
• Eurodollar Options:
  • 7,000 short Mar 98.00/98.75 put spds
  • 30,000 Dec 99.00/99.25 put spds
  • +30,000 Dec 99.00/99.75 put spds, 77.0
  • 30,000 Dec 99.00/99.62 put spds
  • -7,500 Red Dec'23 97.00/98.00 put spds, 77.0 vs. 96.245/0.15%
• Treasury Options:
  • 1,500 TYX 115/117 2x1 put spds, 8
  • 2,500 TYV 113/114 put spds, 5
  • 2,000 FVV 107/108/108.5/109.25 put condors
  • +3,000 TYZ 122.5 calls, 18
  • +2,500 FVV 110 puts, 21.5 ref 110-26.75

​3:04:19 08:33:34 SFRV2 60/57 ps ppr paid 3.75 on 5k

08:34:22 SFRZ2 71/73 cs ppr paid 0.75 on 3k
09:06:40 SFRU2 67+/67/66/65+ put condor ppr -3k @ 2.25
09:14:35 0QX2 60/55 ps vs 71 calls vs 52 34d ppr -6k @ 1.25 -calls
10:48:47 SFRH3 61^ vs 58p ppr -2k @ 44
11:08:28 SFRZ3 65/60 ps ppr paid 20.5 on 15k
12:51:25 0QZ2 70 calls ppr paid 15.5 on 20k
12:57:21 0QZ2 70 calls ppr paid 15.5 on 3k 0QZ2 72 calls paid 9.5 on 3k
13:01:21 SFRM4 68^ ppr paid 148.5 on 5k

EGBs-GILTS CASH CLOSE: Bear Flattening With 75bp Sept Hikes Eyed

Wednesday’s main development was continued pressure at the front end of European curves as near-term central bank hike pricing ratcheted higher. The UK and German curves bear flattened, with Gilts underperforming.

• Today’s catalysts were higher-than-expected Italian and Eurozone August inflation, with multiple analysts changing their calls for next week's meeting to reflect a 75bp hike (the market is now pricing in 67bp, vs 54bp last week). BoE currently 62bp for September.
• Plenty of attention on the monthly closes, with yields across the German and UK curves rising by their most in decades - 2s and 5s in both the UK and Germany saw their biggest monthly rises since at least the early 1990s. 2Y UK yields rose a total of 131bp in August.
• High-beta periphery instruments underperformed, with 10Y Italian and Greek spreads widening 3/4bp on the day.

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

• Germany: The 2-Yr yield is up 4.9bps at 1.202%, 5-Yr is up 5bps at 1.391%, 10-Yr is up 3bps at 1.541%, and 30-Yr is up 2.4bps at 1.627%.
• UK: The 2-Yr yield is up 10.1bps at 3.021%, 5-Yr is up 9.4bps at 2.764%, 10-Yr is up 9.7bps at 2.801%, and 30-Yr is up 9.9bps at 3.078%.
• Italian BTP spread up 3.2bps at 235.2bps / Greek up 4.2bps at 256.6bps

EGB Options: Multiple Bobl Put Spreads, Large Euribor Structures

Wednesday's Europe rates / bond options flow included:

• OEV2 123.50/122.00 put spread sold at 64 in 2k
• OEV2 122/120 put spds bought for 44 in 4k
• OEV2 121.0/119.5 put spd bought for 23.5-24.0 in 2k
• ERH3 98.375/98.125/98.00 put fly vs 99.625 call. Sells put fly at 8 in 5k
• ERV2 98.25/98.125/98.00/97.875 put condor vs ERZ2 99.00/99.125 call spread, bought for 2.25 in 8k (+condor, - call spread)
• ERZ2 98.12/97.87/97.62 put flys bought for 3.25 in 10k

FOREX: EURGBP Maintains Upward Trajectory, EURNOK Extends Gains To 1.5%

• The Euro maintained its more supportive price action that has seen some Euro crosses extend on impressive recoveries since Friday, following a slew of central bank speakers at and following the Jackson Hole Symposium.
• EURGBP stood out on Wednesday, having rallied to near two-month highs and extending the bounce to roughly 3% from last week’s lows. The cross has cleared a number of short-term resistance points, strengthening the current bullish outlook and attention now turns to 0.8679, the Jul 1 high and a key resistance.
• Price action coincided with a notable bounce in EURUSD approaching the WMR month-end fix, breaking a short-term downtrend in the process and trading within 10 pips of the post ECB sources high of 1.0090 from last Friday.
• NOK was the notable underperformer in G10 on Wednesday, following confirmation from the Norges Bank that they are to sell NOK 3.5bln per day across September (effectively buying more FX for the sovereign wealth fund). This is a notable uptick in FX activity from the August rate of NOK 1.5bln per day, as announced at end-July. EUR/NOK now through 9.90 and trading at highest levels since early-August, narrowing the gap with next key resistance at the 200-dma of 10.0076.
• The greenback continues to consolidate with the USD index broadly respecting the 108.50-1.09 range ahead of more significant employment data on Friday.
• On Thursday, Chinese Caixin Manufacturing PMI due overnight before German retail sales and Swiss inflation data. Final releases of European PMIs will also be published. In the US, jobless claims and ISM Manufacturing PMI data highlight the docket.

FX: Expiries for Sep01 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0000(E595mln)
• USD/JPY: Y137.75-80($550mln), Y138.10($740mln)
• AUD/USD: $0.6865-67(A$873mln)
• USD/CAD: C$1.2950($785mln)

Late Equity Roundup, Extending Lows into Month End

Stocks weaker in late trade, extending modest session lows as Materials, Information Technology and Consumer Discretionary sectors underperforming. Currently, SPX eminis trade -18 (-0.45%) at 3969.5; DJIA -171.49 (-0.54%) at 31625.45; Nasdaq -37 (-0.3%) at 11847.21. SPX move puts index back to late July levels after hitting the best levels since April in mid-August (4307.25).

• SPX leading/lagging sectors: Communication Services +0.63% (lead by media and entertainment w/ META +3.21%, Netflix +2.27%), followed by modest recovery in Energy (+0.09%) with Haliburton (HAL) +1.38%, Marathon Oil (MRO) +1.29% and Devon Energy (DVN) +1.18%. Laggers: Materials -0.92%, Information Technology -0.66% and Consumer Discretionary -0.65% (autos and consumer durables lagging). Note, Wards total vehicle sales reported throughout Thu's session, current est at 13.3m vs. 13.35m prior.
• Dow Industrials Leaders/Laggers: Amgen (AMGN) +1.66 at 240.78, Disney (DIS) +0.32 at 112.75, Walgreens Boots (WBA) +0.28 at 35.46.
• Laggers: Salesforce.Com (CRM) extends losses in the second half, now -3.32 at 156.35, Home Depot -3.29 at 289.91, Goldman Sachs -2.84 at 330.79.

E-MINI S&P (U2): Trend Remains Down

• 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 and key short-term resistance
• RES 1: 4110.75 Low Aug 24
• PRICE: 3972.00 @ 1430 ET Aug 31
• SUP 1: 3964.50 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 bearish activity Tuesday reinforces the current downtrend and price remains below the 50-day EMA at 4082.37. The recent break of this average- a pivot support - strengthens bearish conditions and attention is on 3902.01 next, a Fibonacci retracement. On the upside, initial firm resistance has been defined at 4217.25, the Aug 26 high. A break would ease the current bearish pressure.

COMMODITIES

• WTI Crude Oil (front-month) down $2.4 (-2.62%) at $89.16
• Gold is down $11.82 (-0.69%) at $1712.11

Thursday Data Calendar

Date	GMT/Local	Impact	Flag	Country	Event
01/09/2022	0030/0930	**		JP	IHS Markit Final Japan Manufacturing PMI
01/09/2022	0130/1130	*		AU	Private New Capex and Expected Expenditure
01/09/2022	0130/1130	**		AU	Lending Finance Details
01/09/2022	0145/0945	**		CN	IHS Markit Final China Manufacturing PMI
01/09/2022	0630/0830	***		CH	CPI
01/09/2022	0630/0830	**		CH	retail sales
01/09/2022	0715/0915	**		ES	IHS Markit Manufacturing PMI (f)
01/09/2022	0745/0945	**		IT	IHS Markit Manufacturing PMI (f)
01/09/2022	0750/0950	**		FR	IHS Markit Manufacturing PMI (f)
01/09/2022	0755/0955	**		DE	IHS Markit Manufacturing PMI (f)
01/09/2022	0800/1000	**		EU	IHS Markit Manufacturing PMI (f)
01/09/2022	0830/0930			UK	S&P Global Manufacturing PMI (f)
01/09/2022	0830/0930	**		UK	IHS Markit/CIPS Manufacturing PMI (Final)
01/09/2022	0830/0930			UK	BOE Decision Makers Panel
01/09/2022	0900/1000	**		UK	Gilt Outright Auction Result
01/09/2022	-	***		US	Domestic-Made Vehicle Sales
01/09/2022	1230/0830	*		CA	Building Permits
01/09/2022	1230/0830	**		US	Jobless Claims
01/09/2022	1230/0830	**		US	Non-Farm Productivity (f)
01/09/2022	1345/0945	***		US	IHS Markit Manufacturing Index (final)
01/09/2022	1400/1000	***		US	ISM Manufacturing Index
01/09/2022	1400/1000	*		US	Construction Spending
01/09/2022	1430/1030	**		US	Natural Gas Stocks
01/09/2022	1530/1130	*		US	US Bill 08 Week Treasury Auction Result
01/09/2022	1530/1130	**		US	US Bill 04 Week Treasury Auction Result
01/09/2022	1930/1530			US	Atlanta Fed's Raphael Bostic