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Bonds Pull Back and Dollar Gains As US Data Shows Continued Economic Resilience
EURUSD Extends Below 1.11 Amid Softer Eurozone Inflation Data
Crude Rallies, Gold Trades Near Record High
US PCE, Eurozone Inflation Data Take Focus Friday
US TSYS: Light Bear Steepening As Economic Data Remains Resilient
The Treasury curve bear steepened slightly Thursday, with US macroeconomic data resilience remaining a key theme.
After a constructive overnight session helped by softer-than-expected German inflation data, Treasuries pulled back sharply after today's 0830ET data round.
Weekly jobless claims saw a second consecutive week extremely close to consensus (231k, cons 232k), ruling out a further additional deterioration in labor conditions. The second reading of Q2 GDP brought a slight upside surprise on the overall growth reading, at 3.0% Q/Q SAAR vs 2.8% in the 1st reading/expected.
In supply, the 7Y Note auction tailed by 1.0bp, on a high yield of 3.770% vs a 3.760% when-issued yield. Initial Treasury market reaction was slightly negative but the knee-jerk move fully reversed - perhaps because peripheral auction stats were better than the tail suggested.
Looking ahead to a busy data session Friday, we get MNI Chicago MNI, final UMichigan sentiment, and the July PCE report - MNI's preview here (PDF).
Latest cash yield levels: The 2-Yr yield is up 2.9bps at 3.8939%, 5-Yr is up 2.8bps at 3.6716%, 10-Yr is up 3.4bps at 3.8691%, and 30-Yr is up 3bps at 4.1546%.
US TSYS/SUPPLY: Review 7Y Note Auction
The August 7Y Note auction tailed by 1.0bp, on a high yield of 3.770% vs a 3.760% when-issued yield. Initial Treasury market reaction was slightly negative but the knee-jerk move has fully reversed.
This was the first tail for the 7Y in 3 months and just the 2nd in the last 7, and came with mixed peripheral statistics. On the less encouraging side, dealers took down 13.7%, above the 5-auction average of 12.9% and a sizeable jump from 8.9% in July, with the bid/cover of 2.50x below the 2.55x average.
However it was interesting to see an impressive indirect takeup for the 2nd consecutive day: at 75.1%, it carried on from 74.4% in July and for the highest since August 2023. As we noted for the 5Y Wednesday, which saw its highest indirect takeup since December 2023, this is a potential indication of solid foreign demand ahead of the Fed's easing cycle.
SOFR FIXES AND PRIOR SESSION REFERENCE RATES
US: SOFR FIX - 29/08/24 - Source BBG/CME
1M 5.20055
3M 5.01569
6M 4.69822
12M 4.19705
REPO REFERENCE RATES (rate, change from prev. day, volume):
Secured Overnight Financing Rate (SOFR): 5.35%, no change, $2030B
Broad General Collateral Rate (BGCR): 5.34%, no change, $778B
Tri-Party General Collateral Rate (TGCR): 5.34%, no change, $752B
SOFR holds steady at 5.35% after the recent increases from 5.31%, within recent ranges.
Effective Fed Funds Rate: New York Fed EFFR for prior session (rate, chg from prev day):
Daily Effective Fed Funds Rate: 5.33%, no change, volume: $95B
Daily Overnight Bank Funding Rate: 5.33%, no change, volume: $245B
Reverse Repo: Marginal Dip In RRP Usage
RRP uptake dipped just $5bn to $383bn as it held most of yesterday’s $45bn increase away from levels closer to $300bn.
The number of counterparties fell back from 74 to 69.
US SOFR / Treasury Options Roundup
Thursday's US SOFR Options flow included:
SFRU4 95.37/95.50cs, bought for 0.25 in 35k total.
SFRU4 95.25/95.37/95.43c fly, bought for 1 in 5k.
SFRU4 95.12/95.06/94.93p fly, bought for flat in 5k.
SFRV4 96.00/96.12cs sold at 1.75 in 5k.
SFRV4 95.68/95.50/95.25 broken p fly, traded 4.25 in 6.5k.
SFRV4 95.87/96.00cs, traded for 3.25 in 4k.
SFRX4 95.18/94.87ps, bough for half in 15k.
SFRH5 96.50/97.00cs traded for 22 in 7k.
0QU4 96.37/96.62/96.87c fly, traded for 7 in 4k.
0QV4 96.374p, traded for 3.5 in 3k.
2QU4 96.50/96.75/97.25/97.50c condor, traded for 20 in 7k.
Treasury options:
TY 113.50p, bought for '1 in ~20k
TYV4 114/112.25ps 1x2, sold athe 1 at 24 in ~2.5k.
EGBs-GILTS CASH CLOSE: Early Inflation Data-Led Rally Reverses
European curves steepened Thursday, with the German short-end outperforming as inflation data came in weaker than expected.
EGBs rallied sharply in morning trade as German and Spanish flash August inflation data printed below consensus, spurring analysts to lower their expectations for Friday's Eurozone-wide HICP print (now seen closer to 2.1% Y/Y vs the 2.2% consensus prior to today).
Global core FI reversed lower in the afternoon as US data showed an upward revision to GDP and steady jobless claims.
The German and UK curves twist steepened, with Bunds outperforming Gilts.
Periphery EGB spreads narrowed slightly, as equities rose solidly.
Friday's calendar includes the aforementioned Eurozone inflation print (as well as Italy and France), Euro unemployment, ECB speakers including Schnabel, and the UK's DMO releasing its quarterly issuance schedule.
Closing Yields / 10-Yr Periphery EGB Spreads To Germany
Germany: The 2-Yr yield is down 2.8bps at 2.357%, 5-Yr is down 0.9bps at 2.156%, 10-Yr is up 1.3bps at 2.274%, and 30-Yr is up 2.1bps at 2.524%.
UK: The 2-Yr yield is down 0.2bps at 4.112%, 5-Yr is up 0.5bps at 3.919%, 10-Yr is up 1.8bps at 4.019%, and 30-Yr is up 2.5bps at 4.544%.
Italian BTP spread down 0.6bps at 138bps / Spanish down 0.7bps at 82.4bps
EUROPE OPTIONS: Mixed Euro Rates Trade Thursday After Soft Inflation Data
Thursday's Europe rates/bond options flow included:
ERU4 96.75c, bought for 1 in 5k
ERU4 96.50/96.37ps sold at 0.75 in 4k
ERV4 96.875p vs ERZ4 96.75p, bought the Oct for 0.75 in 6k
ERZ4 96.625/96.75cs sold at 11.5 in 10k
ERZ4 96.50 puts paper paid 0.5 on 5K
ERZ4 97.125/97.375/97.625 1x2x0.5 call fly, bought for 1.5 in 10k
FOREX: EURUSD Extends Below 1.11 Amid Softer Eurozone Inflation Data
Softer-than-expected inflation prints in both Germany and Spain have weighed on the Euro on Thursday, with the single currency extending on the prior session losses and EURUSD slipping below the 1.11 handle in the process.
Today’s price action saw a narrowing of the gap to support at the 20-day EMA, which intersects at 1.1044. However, dips remain corrective at this juncture with a bullish technical theme remaining intact.
Last week’s appreciation reinforces a bullish set-up and note that moving average studies are in a bull-mode position too, highlighting a rising trend. Sights are on 1.1234 next, a Fibonacci projection.
Single currency weakness has been broad based, with the likes of EURAUD and EURNZD underperforming, reflective of the strong bounce for equities throughout the session. Furthermore, considerably stronger than expected New Zealand data overnight underpinned the sharp bout of NZD strength. As a reminder, business confidence jumped to a 10-year high in August, alongside the activity outlook rising to 37.1 from 16.3, according to the latest ANZ survey.
EURGBP has also fallen 0.29%, and a negative close today would extend the losing streak to seven sessions, with the cross revisiting the lows seen across July below the 0.8400 mark. Importantly, we are approaching trendline support drawn from the 2022 low, which intersects at 0.8392 today, just ahead of 0.8383, the July 17 and a key support. A break below these levels amid the continued sterling outperformance would signal scope for a move towards 0.8340, the Aug 2 ’22 low and 0.8311, 3.00 projection of the Aug 8 - 13 - 14 price swing.
Eurozone HICP inflation headlines the docket on Friday, followed by Canadian GDP and the data highlight of monthly US PCE for July.
FX OPTIONS: Expiries for Aug30 NY cut 1000ET (Source DTCC)
EQUITY TECHS: E-MINI S&P: (U4) Trend Needle Points North
RES 4: 5821.25 1.00 proj of the Apr 19 - Jul 16 - Aug 5 price swing
RES 3: 5800.00 Round number resistance
RES 2: 5721.25 High Jul 16 and Key resistance
RES 1: 5669.00 High Aug 26
PRICE: 5633.50 @ 14:38 BST Aug 29
SUP 1: 5561.25/5508.99 Intraday low / 50-day EMA
SUP 2: 5438.75/5319.50 Low Aug 14 / 9
SUP 3: 5182.00 Low Aug 8
SUP 4: 5120.00 Low Aug 5 and the bear trigger
A bullish theme S&P E-Minis is intact and the contract traded to a fresh cycle high Monday. Price has recently cleared 5600.75, Aug 1 high, signalling scope for an extension towards key resistance and the bull trigger at 5721.25, the Jul 16 high. A break would resume the primary uptrend. Support to watch lies at 5508.99, the 50-day EMA. A clear breach of it is required to instead highlight a potential bearish threat. The latest move lower appears corrective.
COMMODITIES: Crude Rallies, Gold Trades Near Record High
Crude futures have rallied above yesterday’s high as Iraq plans to cut oil output in September, adding to current supply concern due to curtailed Libyan production.
WTI Oct 24 is up by 1.6% at $75.7/bbl.
Around 0.7m b/d of Libyan production was offline on Aug 29, Reuters said, while Iraq plans to trim output to 3.85m-3.9m b/d in September, part of its compensation for exceeding its 4m b/d OPEC quota.
For WTI futures, attention is on key resistance at $78.54, the Aug 12 high. Clearance of this level would highlight a stronger bullish reversal.
Spot gold has risen by 0.8% to $2,525/oz today, leaving the yellow metal just below last week’s record high at $2,531.75.
Trend conditions in gold are unchanged and remain bullish, with focus on $2,536.4 next, a Fibonacci projection. Initial support to watch lies at $2,479.9, the 20-day EMA.
Meanwhile, copper has edged up by 0.2% on Thursday to $422/lb, following yesterday’s 2%+ decline.
From a technical perspective, a bear cycle in copper futures remains intact. A resumption of weakness would open $396.45, the Aug 7 low.
On the upside, a clear break of the 50-day EMA at $423.73 would signal scope for stronger gains towards 444.30, the Jul 18 high.
Date
GMT/Local
Impact
Country
Event
30/08/2024
2330/0830
**
JP
Tokyo CPI
30/08/2024
2330/0830
*
JP
Labor Force Survey
30/08/2024
2350/0850
*
JP
Retail Sales (p)
30/08/2024
2350/0850
**
JP
Industrial Production
30/08/2024
0030/1030
**
AU
Retail Trade
30/08/2024
0600/0800
**
DE
Import/Export Prices
30/08/2024
0630/0730
GB
UK DMO to release FQ3 issuance calendar
30/08/2024
0645/0845
***
FR
HICP (p)
30/08/2024
0645/0845
**
FR
PPI
30/08/2024
0645/0845
***
FR
GDP (f)
30/08/2024
0645/0845
**
FR
Consumer Spending
30/08/2024
0700/0900
**
CH
KOF Economic Barometer
30/08/2024
0705/0905
EU
ECB's Schnabel at Ragnar Nurkse Lecture
30/08/2024
0735/0935
EU
ECB's Schnabel in panel at Ragnar Nurkse
30/08/2024
0755/0955
**
DE
Unemployment
30/08/2024
0800/1000
**
IT
ISTAT Business Confidence
30/08/2024
0800/1000
**
IT
ISTAT Consumer Confidence
30/08/2024
0830/0930
**
GB
BOE M4
30/08/2024
0830/0930
**
GB
BOE Lending to Individuals
30/08/2024
0900/1100
***
EU
HICP (p)
30/08/2024
0900/1100
**
EU
Unemployment
30/08/2024
1230/0830
***
US
Personal Income and Consumption
30/08/2024
1230/0830
***
CA
GDP - Canadian Economic Accounts
30/08/2024
1230/0830
***
CA
Gross Domestic Product by Industry
30/08/2024
1230/0830
***
CA
CA GDP by Industry and GDP Canadian Economic Accounts Combined
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.
Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
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