MNI ASIA MARKETS ANALYSIS: Early Risk Off Tempers Wed's Moves

US TSYS Off Early Highs, Short End Underperforms, Rate Cut Odds Still Supported

• Treasury futures look to finish mixed Thursday, well off early session highs with the short end mildly weaker after the bell. Curves unwound a portion of yesterday's steepening with 2s10s -3.763 at -18.867. Sep'24 10Y futures neared initial technical resistance of 111-13+ (July 16 high) before finishing at 110-26 (+4.5).
• Tsys climbed past yesterday's early highs on a variety of dovish/risk off factors (20bp medium-term lending facility rate cut by PBOC, soft EU data and carry-over weakness in global equities after Wed's rout). In turn, projected rate cut pricing into year end surged briefly with almost three 25bp cuts priced in by December.
• Treasuries pared gains after higher than expected GDP, weekly/continuing jobless slightly lower than expected, while durable goods orders decline. Real GDP growth: 2.84% annualized in Q2 (cons 2.0, Atlanta Fed’s GDPNow 2.7) after 1.4% in Q1 and the average 4.1% in 2H23. Initial jobless claims pulled back slightly more than expected to a seasonally adjusted 235k (cons 238k) in the week to Jul 20 after an upward revised 245k (initial 243k).
• Headline durable goods orders unexpectedly collapsed in June, falling the most (-6.6% M/M vs +0.3% expected, +0.1% prior) since the start of the Covid pandemic (April 2020 -20.0%). The seasonally-adjusted level of durable goods orders thus fell back to levels not seen since November 2021.
• Cross asset roundup: US$ receded, stocks bounced after Wednesday's rout, Gold sold off while crude prices rebounded.
• Focus turns to Friday's personal income & spending data and UofM inflation sentiment.

SOFR FIXES AND PRIOR SESSION REFERENCE RATES

SOFR Benchmark Settlements:

• 1M -0.00214 to 5.34712 (+0.00069/wk)
• 3M -0.01565 to 5.26356 (-0.01943/wk)
• 6M -0.03153 to 5.10750 (-0.02718/wk)
• 12M -0.04955 to 4.76862 (-0.03164/wk)

• Secured Overnight Financing Rate (SOFR): 5.34% (+0.00), volume: $2.083T
• Broad General Collateral Rate (BGCR): 5.33% (+0.01), volume: $799B
• Tri-Party General Collateral Rate (TGCR): 5.33% (+0.01), volume: $778B
• (rate, volume levels reflect prior session)

• Daily Effective Fed Funds Rate: 5.33% (+0.00), volume: $86B
• Daily Overnight Bank Funding Rate: 5.32% (+0.00), volume: $219B

FED Reverse Repo Operation

RRP usage recedes to $377.433B from $399.121B on Wednesday. Number of counterparties falls to 69 from 75 prior. Today's usage compares to $327.066B on Monday, April 15 -- the lowest level since mid-May 2021.

SOFR/TEASURY OPTION SUMMARY

Heavy SOFR and Treasury option flow leaned towards upside calls Thursday as underlying futures climb past yesterday's early highs on a variety of dovish/risk off factors (20bp medium-term lending facility rate cut by PBOC, soft EU data and carry-over weakness in global equities after Wed's rout). Highlight flow was a scale buyer of over 180,000 TYU4 112 calls from 25-30 on the day, strike corresponds to appr 4.08% 10Y yield vs. 4.2544% at the moment, on an appr of $77M. While futures scaled back support in late trade, projected rate cut pricing into year end scaled back from this morning's highs (*): July'24 at -6.5% w/ cumulative at -1.6bp (-2.6bp) at 5.313%, Sep'24 cumulative -27.8bp (-31.3bp), Nov'24 cumulative -43.9bp (-48.7bp), Dec'24 -66.2bp (-71.1bp). Salient flow includes:

• Treasury Options:
  • +10,000 FVU4 106.25/106.75/107.25 put trees
  • Block/screen over +180,000 TYU4 112 calls, 25-30 (open Interest only 77,595)
  • 4,000 TYU4 110.5/111.5/112.5 call flys, ref 110-31
  • Block, 1,500 TUQ4 102.37/102.5 put spds, 1.0 ref 102-20.88
  • 1,250 TUQ4 102.5/102.62 put spds
  • 5,000 TYQ4 111.5/112 call spds ref 111-04
  • 1,200 TUU4 102.25/102.5/102.75 call trees
  • 2,500 TYQ4 110.5 puts, 5 ref 111-02
  • 3,000 TYU4 109.5/112.5 strangles, 32
  • 3,000 FVU4 108/109/110 call flys
  • 6,500 FVQ4 107.75/108.25 call spds vs. wk1 FV 108/108.5 call spds
  • over 18,000 TYU4 111/112 call spds, 21 ref 110-26.5
  • `over 9,000 TYU4 109.5 puts, 15 last
• SOFR Options:
  • Block, 10,000 0QQ4 96.00 puts, 3.5 ref 96.21
  • -4,000 SFRU4 94.93/95.18 call spds 5.25 ref 95.375
  • -5,000 SFRZ4 94.68/95.00 put spds, 2.5 vs. 95.375/0.10%
  • +10,000 SFRU4 94.68/94.81/94.87/94.93 put condor 0.75-0.875 ref 94.95
  • +7,500 SFRZ4 96.00/96.25 call spds 1.5-1.625 ref 95.36
  • -10,000 SFRZ4 95.50/95.75 call spds 4.75, vs. 95.37/0.14%
  • +22,000 SFRZ4 95.43/95.87 1x2 call spds 2.0 ref 95.37
  • -5,000 0QU4 95.93/96.75 strangle 11.5 vs. 96.21/0.12%
  • 4,600 SFRU4 95.12/95.25 call spds ref 94.96
  • -10,000 SFRZ4 95.50/95.75 call spds, 4.75 vs. 95.37/0.14%
  • +7,000 SFRZ4 95.31/95.50/95.68 call trees 2.25-2.5 ref 95.37
  • Block, 5,000 SFRH5 95.00 puts, 3.5
  • 3,000 SFRQ4 95.00/95.12/95.25/95.37 call condors ref 94.98
  • Block, 3,000 SFRV4 95.25 straddles, 27.5 vs. 95.405/0.40%
  • 8,000 SFRU4 94.68 puts ref 94.98
  • over 7,700 SFRU4 94.75 puts, 1.0 last
  • over 7,800 SFRU4 94.87 puts
  • Block, 2,974 SFRZ5 96.50/97.50 call spds, 29.5 ref 96.345
  • 10,000 SFRV4 95.62 calls ref 95.405
  • 3,000 0QQ4 95.75 puts, 0.5
  • Block/screen 7,500 SFRQ4 94.93/95.06/95.18 put flys ref 94.965
  • 2,000 SFRU4 94.93/95.06/95.18 call flys ref 94.955
  • 3,000 SFRQ4 95.06/95.25 call spds ref 94.965
  • 2,200 SFRU4 95.12/95.25 call spds ref 94.965
  • 7,000 SFRZ4 96.00/96.50 call spds ref 95.375 to -.385
  • 1,800 SFRZ4 95.62/95.87 call spds ref 95.39
  • 1,300 SFRV4 95.37/0QV4 96.50 call spds

EGBs-GILTS CASH CLOSE: Gains Fade, But UK Short-End Rally Stands Out

Gilts and core EGBs strengthened Thursday, with periphery spreads mostly wider.

• The session began with a risk-off tone in a resumption of the previous day's price action. Gilts and Bunds both gained, helped by an unexpected PBOC rate cut overnight, soft German IFO data, and weak corporate earnings reports - each of which underlined global growth concerns.
  
• Price action shifted negative in the afternoon following stronger-than-expected US GDP data, though Bund and Gilt futures partially recovered and closed higher on the day.
  
• The German curve bull flattened, with the UK's bull steepening.
• UK short-end outperformance was notable, with 2Y yields seeing their lowest close since May 2023 as BoE rate cut probabilities crept higher.
• Having widened in early trade, periphery EGB spreads regained ground over the course of the session as equities found their footing. BTPs underperformed, closing wider to Bunds, with PGBs outperforming.
• Looking ahead, Friday's docket includes more Eurozone consumer confidence surveys, and ECB inflation expectations.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is down 2.1bps at 2.634%, 5-Yr is down 2.2bps at 2.348%, 10-Yr is down 2.7bps at 2.417%, and 30-Yr is down 3.2bps at 2.629%.
• UK: The 2-Yr yield is down 4.1bps at 3.948%, 5-Yr is down 2.5bps at 3.917%, 10-Yr is down 2.6bps at 4.13%, and 30-Yr is down 0.3bps at 4.67%.
• Italian BTP spread up 1.1bps at 136.1bps / Portuguese down 1.2bps at 64.1bps

EGB Options: Predominantly Call Fly Buying In Rates Thursday

Thursday's Europe rates/bond options flow included:

• DUQ4 106.0 call, sold for 5.25 in 4k
• DUU4 106.5/107.0 call spread, bought for 2.75 in 4.5k
• RXQ4 131.5 C vs 2x RXU4 133/135 c1x1.5 ppr sold at 36 In 2k (bought call spread)
• ERU4 96.25/96.375/96.50 put fly, bought for 1.5 in 4k
• ERX4 96.75/96.875/97.00 call fly, bought for 2.5 in 8k
• ERZ4 97.125/97.375/97.625 call fly, bought for 1 in 10k
• SFIU4 95.05/95.10/95.20 1x1.5x0.5 call fly, bought for 1.5 in 3.5k

FOREX JPY Rally Slows, But Trend Direction is Still Higher

• The week's JPY rally persisted well through the European morning, pressing USD/JPY through the Y152.00 handle for the first time since early May, marking a total correction off the cycle highs of 1,000 pips. The aggressive short covering-triggered rally pressured EUR/JPY, NZD/JPY and AUD/JPY to new pullback lows.
• A strong set of US growth numbers briefly interrupted the one-way traffic in the JPY, as advanced GDP data for Q2 came in ahead of expectations. The stabilization above the lows allows the near-term oversold condition in USD/JPY to unwind.
• Outside of JPY, CHF has extended recent outperformance, as soft global equities and JPY volatility undermines the carry trade dynamics that have dominated across the first half of 2024. USD/CHF broke to a new low and through the 0.88 handle in the process.
• Focus for Friday turns to Tokyo CPI for July - one of the last looks at inflation momentum in Japan ahead of next week's BoJ decision - at which markets continue to speculate over the possibility of a further rate hike from the Bank of Japan. A 10bps hike from 0.1% is more than 50% priced by markets, but a hot CPI print for Tokyo could help bed in this pricing further. The ECB's inflation expectations survey is also due, ahead of June personal income/spending and PCE price index numbers from the US.

Late Equities Roundup: Aerospace, Energy Sectors Buoy Broader Mkt

• Stocks rebounded from Wednesday's sharp sell-off, firmer but off early session highs late in the session. Currently, the DJIA is up 329.87 points (0.83%) at 40183.72, S&P E-Minis up 15 points (0.27%) at 5487.25, Nasdaq up 40.7 points (0.2%) at 17381.96.
• Industrial and Energy sectors outperformed in late trade, aerospace and construction related companies buoyed the former: RTX Corp +9.98%, Masco +7.88%, Northrop Grumman and Dover Corp both +6.38%. Oil & Gas and servicer related companies supported the Energy sector: Valero +5.29%, Halliburton +3.88% while APA Corp gained 3.38%.
• On the flipside, Communication Services and Utility sectors underperformed in late trade, interactive media and entertainment continued to weigh on the former: Warner Brothers -5.37%, Alphabet, formerly Google trades -2.24%, Meta -0.81%. Meanwhile, independent energy providers weighed on the Utility sector: Vistra -3.22%, Constellation Energy -2.76%, Public Service Enterprise -2.34%.
• Reminder, Thursday afternoon earnings announcements expected from: Baker Hughes, Weyerhaeuser, Mohawk Industries, Dexcom, Digital Realty Trust, L3Harris, Skechers, Arthur J Gallagher, Norfolk Southern, LPL Financial Holdings, Texas Roadhouse, Fortune Brands Innovations and Juniper Networks.
• Early Friday earnings announcement are expected by: Centene Corp, Aon PLC, Avantor, Charter Communications, 3M Co, T Rowe Price, Colgate-Palmolive, Bristol-Myers Squibb, Newell Brands and Franklin Resources.

COMMODITIES Crude Regains Ground, Gold Pulls Back Further From Highs

• WTI has broken through yesterday’s high, regaining all the previously lost ground to be back to July 23 levels.
• WTI Sep 24 is up 0.7% at $78.1/bbl.
• For WTI futures, vol band based support undercuts from here at $76.52, ahead of key support at the June 4 low of $72.23. Initial key resistance to watch is $83.58, the July 5 high.
• Gold has fallen by 1.6% to $2,358/oz on Thursday, pushing spot below the 20-day EMA support to new pullback lows.
• The move brings the yellow metal to its lowest level since July 9, following solid US data which have reduced the odds of an imminent Fed rate cut.
• Spot has also pierced the 50-day EMA at $2,359.7, with next support at $2,286.9, the June 7 low.
• Meanwhile, silver is down by 3.7% to $27.8/oz today.
• Silver has slipped through further supports, taking out the weekly lows and extending the negative response to the break of the 50-day EMA. $28.573, the Jun 26 low, has given way, opening $26.018 as the next key level.
• In contrast, copper has edged up by 0.3% to $412/lb, the first gain in nine sessions.
• Key support to watch lies at $402.35, the March 27 low.

FRIDAY DATA CALENDAR

Date	GMT/Local	Impact	Flag	Country	Event
26/07/2024	2330/0830	**		JP	Tokyo CPI
26/07/2024	0600/0800	**		SE	Unemployment
26/07/2024	0645/0845	**		FR	Consumer Sentiment
26/07/2024	0800/1000	**		IT	ISTAT Business Confidence
26/07/2024	0800/1000	**		IT	ISTAT Consumer Confidence
26/07/2024	0800/1000	**		EU	ECB Consumer Expectations Survey
26/07/2024	-			EU	ECB's Cipollone at Rio de Janeiro G20 FinMin/CB conf
26/07/2024	1230/0830	**		US	Personal Income and Consumption
26/07/2024	1400/1000	**		US	U. Mich. Survey of Consumers
26/07/2024	1500/1100			CA	Finance Dept monthly Fiscal Monitor (expected)
26/07/2024	1700/1300	**		US	Baker Hughes Rig Count Overview - Weekly