MNI ASIA MARKETS ANALYSIS: Dovish Side of Balanced Fed Speak

US TSYS: Tsys Near Highs, Projected Rate Hike Holds Steady

• Tsy futures drifting near session highs over the last couple hours after headlines from Fed Daly, Mester and Barr leaned toward the dovish side of balanced: Barr "more work to do but close to the end" earlier while Daly said "risks becoming less unbalanced, fed decisions getting harder, more data reliant".
• Curves mixed but generally steeper after the bell, 2s10s currently +2.823 at -86.228, despite over 20,000 TUU3 block sales at various prices this morning.
• Currently, Sep'23 10Y futures are +15.5 at 111-05 vs. 111-08 high, initial technical resistance at 111-15, July 6 high.
• Projected rate hike expectations holding slightly higher to this mornings levels: July 26 FOMC is 89% w/ implied rate of +22.2bp to 5.298%. September fully pricing hike w/ cumulative of +29bp at 5.365%, November cumulative of 34.4bp at 5.42%, December cumulative 29bp at 5.366%. Fed terminal holding at 5.415% in Nov'23.
• Little in the way of data and scheduled Fed speakers Tuesday, focus remains on Wednesday's CPI release.

SHORT TERM RATES

SOFR Benchmark Settlements:

• 1M +0.01685 to 5.19386 (+.03623 total last wk)
• 3M +0.00103 to 5.29950 (+.03011 total last wk)
• 6M -0.01161 to 5.40339 (+.03354 total last wk)
• 12M -0.04585 to 5.40860 (+.05763 total last wk)

• Daily Effective Fed Funds Rate: 5.08% volume: $127B
• Daily Overnight Bank Funding Rate: 5.07% volume: $268B

• Secured Overnight Financing Rate (SOFR): 5.06%, $1.547T
• Broad General Collateral Rate (BGCR): 5.04%, $590B
• Tri-Party General Collateral Rate (TGCR): 5.04%, $578B
• (rate, volume levels reflect prior session)

FED Reverse Repo Operation

Latest operation shows $1,811.981B, lowest since early May'22, w/ 102 counterparties, compared to $1,822.303B in the prior session. The high for 2023 stands at $2,375.171B on Friday March 31, 2023; all-time record high of $2,553.716B reached December 30, 2022.

SOFR/TEASURY OPTION SUMMARY

Better put trade drove option volume Monday after more mixed trade overnight. Overall volumes, however, were muted as underlying futures see-sawed higher in narrow range. Puts picked up after a mixed open, accounts fading the modest rally in underlying futures through the second half.

• SOFR Options:
  • Block, 8,000 SFRZ3 94.37/94.50 put spds, 6.5 vs. 94.615/0.10%
  • Update, over 19,000 SFRU3 94.00 puts, 0.5 last ref 94.59
  • +6,000 SFRH4 94.25/95.00 2x1 put spds, 26.0
  • Block, 5,000 SFRU3 94.37/94.50/94.62, 4.0 ref 94.59
  • -10,000 SFRU3 94.75/95.00/95.25 put flys, 1.0
  • Block, 5,500 SFRH4 96.00/96.75/97.50 call flys, 3.5 net ref 94.86
    
  • Block, 5,000 SFRH4 95.50/96.00/96.37 broken call flys, 3.5 net ref 94.845
  • 2,000 SFRU3 94.00 puts, 0.5
    
  • 2,500 SFRU3 94.50 puts
  • 1,000 2QU3 96.75/97.00 call spds ref 96.205
• Treasury Options:
  • over 30,000 wk2 10Y 111.75/112.75 call spds, 11 net ref 111-05.5
  • 4,000 FVQ3 105.25 puts, 4.5 ref 106-21.25
  • 2,500 TYV3 109/114 strangles ref 111-22
  • +2,000 TYQ3 108 puts, 3 ref 110-28/0.08%
  • over 9,800 TYQ3 110.5 puts, 41 last ref 110-19.5
  • 2,700 USU3 116/117/120/121 put condors ref 123-02
  • 3,300 FVV3 108 calls
  • 5,000 TYQ3 109.75/110.5 put spds vs. TYQ3 111.25 calls, even net ref 110-15
  • 1,650 TYQ3 108.5/109 put spds, 4
  • 1,500 TYQ3 108 puts, 4
  • 1,000 USU3 125/128/131 call flys

EGBs-GILTS CASH CLOSE: Greece Spread Widening Stands Out

Gilts easily outperformed Bunds to start the week, with cheapening Greek paper representing the most notable move in the EGB space Monday.

• Germany's curve twist flattened with Schatz yields 4+bp wider on the day as ECB terminal hike pricing likewise firmed 4bp (peak depo rates seen at 4.05%, within 1bp of June's high) after Villeroy's comments over the weekend that he saw policy rates higher for longer.
• Conversely the UK curve leaned bull steeper, with few catalysts on the day - BoE Gov Bailey's Mansion House speech brought little new, and Gilts/terminal BoE pricing remained steady.
• News of a Greek 15Y bond syndication (alongside a switch/tender offer) induced a sharp selloff in GGBs that saw the spread close nearly 11bp wider, and well off the tights below 120bp seen last month.
• Tuesday morning kicks off with UK jobs data and final German inflation.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is up 4.3bps at 3.296%, 5-Yr is up 1.8bps at 2.757%, 10-Yr is up 0.1bps at 2.638%, and 30-Yr is down 0.3bps at 2.644%.
• UK: The 2-Yr yield is down 2.3bps at 5.37%, 5-Yr is down 0.6bps at 4.845%, 10-Yr is down 1.2bps at 4.638%, and 30-Yr is down 1.1bps at 4.676%.
• Italian BTP spread up 2.8bps at 174.7bps / Greek up 10.7bps at 144.5bps

EGB Options: Mixed Trade Leans Toward Upside To Start The Week

Monday's Europe rates / bond options flow included:

• RXU3 136/137 call spread, 3K given at 10
• RXU3 129.50/133.50 combo paper paid 29 on 4.3K (buying the puts vs. selling the calls).
• 0RU3 96.75/97.25 call spread bought for up to 5.75 in 8k total
• ERU3 96.125/96.25/96.375 call fly paper paid 1.25 on 6K

FOREX: Greenback Maintains Downward Bias, NOK Tops G10 Leaderboard

• Markets latched on to the latest US inflation headlines to continue selling the greenback on Monday. Used-car prices in the US fell 4.2% in June, their biggest monthly drop since the early days of the pandemic, bolstering hopes for further downside surprises this week in the June US CPI figures. Despite registering early moderate gains on Monday, the USD index has declined 0.25% across the session, hovering just above the 102 mark as we approach the APAC crossover.
• NOK tops the G10 FX table following higher-than-expected CPI for June: core CPI accelerated sharply to 7.0% vs. Exp. 6.6% to print another cycle high and provide another headache for the Norges Bank, who likely now have to consider faster policy action at the August rate decision. USD/NOK has dropped over 1% and looks set to test the June lows at 10.4682.
• The Japanese Yen has posted an impressive reversal amid the downtick for US yields, with USDJPY declining around 160 pips from the early 143.01 highs. The move extends the sharp move lower seen late last week after the pair met strong pivot resistance around the 145 handle. The pair now looks set to close below 142.24, the former bull channel top. A sustained break would signal scope for a deeper correction and opens 140.30, the 50-day EMA.
• Price action for cable has been reinforcing bullish trend conditions and following the strong 100 pip bounce of today’s lows, attention is once again on key resistance at 1.2849, a Fibonacci projection and Friday’s intraday high. A clear break of this level would confirm a resumption of the uptrend and open 1.2877, the Apr 25 2022 high.
• Tuesday morning kicks off with UK jobs data, final German inflation and German ZEW figures. The focus will then quickly turn to a busy Wednesday which includes US CPI data, the Bank of Canada and RBNZ rate decisions.

FX Expiries for Jul11 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0780-00(E1.9bln), $1.0890-00(E1.1bln)
• USD/CNY: Cny7.2500($525mln)

Late Equity Roundup: Modest Gains, Eying Amazon Online Sales Event

• Stocks are holding near midmorning highs, Nasdaq joing the bounce in the second half. Currently, DJIA is up 176.14 points (0.52%) at 33910.91, S&P E-Mini Future up 5.5 points (0.12%) at 4439.75, Nasdaq up 15.4 points (0.1%) at 13676.28.
• Traders will be watching how well Amazon's Prime Day 48 hour sales event that kicks off Tuesday performs.
• Leading gainers: Industrials, Health Care and and Energy sectors outperformed after midday. Commercial and professional services shares lead the former with Paycom Software +3.25%, ADP +2.4% and Paychex +2.25%. Energy shares quietly gained momentum in the second half, oil and gas outpacing energy equipment and services.
• Laggers: Communication Services, Information Technology and Utilities underperformed, telecom services weighing on the former with Verizon -1.8%, ATT -1.7% and Fox Corp -0.85%.
• The technical/bull theme in S&P E-minis bull theme remains intact and last week's pullback appears to be a correction - for now. Attention is on the first support 4411.98, the 20-day EMA. Clearance of this level would strengthen a bearish threat and expose 4368.50, the Jun 26 low and a key support.
• The bull trigger is at 4498.00, the Jun 16 high. A clear breach of this level would confirm a resumption of the uptrend and open 4532.08, a Fibonacci projection.

E-MINI S&P TECHS: (U3) Pullback Considered Corrective

• RES 4: 4562.88 Bull channel top drawn from the Mar 13 low
• RES 3: 4556.71 2.382 projection of the May 4 - 19 - 24 price swing
• RES 2: 4532.08 2.236 projection of the May 4 - 19 - 24 price swing
• RES 1: 4498.00 High Jun 30
• PRICE: 4433.50 @ 13:35 BST Jul 10
• SUP 1: 4411.98/4368.50 20-day EMA / Low Jun 26 and a key support
• SUP 2: 4326.23 50-day EMA
• SUP 3: 4316.29 Bull channel base drawn from the Mar 13 low
• SUP 4: 4269.50 Low Jun 2

A bull theme in S&P E-minis remains intact and the pullback last week appears to be a correction - for now. Attention is on the first support 4411.98, the 20-day EMA. Clearance of this level would strengthen a bearish threat and expose 4368.50, the Jun 26 low and a key support. The bull trigger is at 4498.00, the Jun 16 high. A clear breach of this level would confirm a resumption of the uptrend and open 4532.08, a Fibonacci projection.

COMMODITIES: Technical Factors Come To The Fore For Crude

• Crude has pulled back after failing to stay above key technical resistance for Brent, in a volatile trading session this afternoon amidst lighter summer volumes.
• Prices could not find a clear direction with economic concerns weighing on Chinese and US crude oil demand expectations, while Saudi Arabia’s extension to its pledged output cut and Russia’s planned export cuts for August are offering support.
• Earlier, IEA Chief Birol flagged potential tightness in 2H23, seeing demand from China and developing countries set to be strong.
• WTI is -1.1% at $73.04 off a high of $74.15 which forms new resistance after which lies the key level of $75.70 (Jun 5 high).
• Brent is -0.9% at $77.74, with a high of $78.77 piercing resistance at $78.47 (Jun 5 high). A clear break is required to open scope for a climb towards $79.94 (Fibo retracement).
• Gold is +0.05% at $1926.05 with little boost from a softer USD and lower Treasury yields. It hasn’t troubled resistance at $1945.1 (50-day EMA) or support at $1893.1 (Jun 29 low).

TUESDAY DATA CALENDAR

Date	GMT/Local	Impact	Flag	Country	Event
11/07/2023	2301/0001	*		UK	BRC-KPMG Shop Sales Monitor
11/07/2023	0600/0800	***		DE	HICP (f)
11/07/2023	0600/0700	***		UK	Labour Market Survey
11/07/2023	0800/1000	*		IT	Industrial Production
11/07/2023	0900/1100	***		DE	ZEW Current Conditions Index
11/07/2023	0900/1100	***		DE	ZEW Current Expectations Index
11/07/2023	1000/0600	**		US	NFIB Small Business Optimism Index
11/07/2023	1255/0855	**		US	Redbook Retail Sales Index
11/07/2023	1400/1000	**		US	IBD/TIPP Optimism Index
11/07/2023	1500/1100			US	New York Fed's John Williams
11/07/2023	1530/1130	*		US	US Treasury Auction Result for Cash Management Bill
11/07/2023	1530/1130	**		US	US Treasury Auction Result for 52 Week Bill
11/07/2023	1700/1300	***		US	US Note 03 Year Treasury Auction Result