MNI ASIA MARKETS ANALYSIS: Existing Home Sales Drops

US TSYS Markets Roundup

• Rates are trading mixed after the bell, curves scaling back Monday's curve steepening with short end rates underperformed all day. Contributing Block/cross in late trade was a large Tsy 5Y/30Y Ultra flattener posted at 1517:53ET: -20,852 FVU3 105-14.25, sell through 105-16.5 post-time bid (DV01 $857k) vs. +4,363 WNU3 123-20, post-time bid (DV01 $856.8).
• Front month Sep'23 Treasury futures extended cycle lows with 10s tapping 109-28 (-6.5) overnight and again at midmorning before see-sawing back to 109-01 at the moment, yield marking 4.3618% this morning, the highest level since late 2007.
• Rate hike projections through year end inched higher: Sep 20 FOMC is 16% w/ implied rate change of +4bp to 5.369%. November cumulative of +11.6bp at 5.445, December cumulative of 10.8bp at 5.437%. Fed terminal at 5.44% in Nov'23.
• Little react to morning data: Philly Fed non-manufacturing survey saw regional activity slip in August, falling to -13.1 vs +1.4 prior, while a drop in Existing home sales -2.2% M/M (cons -0.2%) spurred some short covering.
• Trading desks are anticipating a hawkish tone from Fed Chairman Powell at the economic summit in Jackson Hole that informally kicks off Thursday evening and runs through Saturday.

SHORT TERM RATES

SOFR Benchmark Settlements:

• 1M -0.00248 to 5.31530 (+.00103/wk)
• 3M +0.00573 to 5.38307 (-0.00010/wk)
• 6M +0.01788 to 5.44690 (+0.00236/wk)
• 12M +0.03244 to 5.38815 (+0.00477/wk)

• Daily Effective Fed Funds Rate: 5.33% volume: $100B
• Daily Overnight Bank Funding Rate: 5.31% volume: $263B

• Secured Overnight Financing Rate (SOFR): 5.30%, $1.322T
• Broad General Collateral Rate (BGCR): 5.27%, $549B
• Tri-Party General Collateral Rate (TGCR): 5.27%, $540B
• (rate, volume levels reflect prior session)

FED REVERSE REPO OPERATION

Repo operation recedes to $1,812.294B w/98 counterparties, compared to $1,824.788B 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/TREASURY OPTION SUMMARY

Option desks reported continued upside call trade in SOFR options Tuesday while Treasury option trade was more mixed after a pick-up in 5- and 10Y puts overnight. Curves flattened (2Y10Y -3.971 at -70.663) as short end futures held weaker levels in late trade. As such, rate hike projections through year end inched higher: Sep 20 FOMC is 16% w/ implied rate change of +4bp to 5.369%. November cumulative of +11.6bp at 5.445, December cumulative of 10.8bp at 5.437%. Fed terminal at 5.44% in Nov'23.

• SOFR Options:
  • Block, 8,000 SFRU4 99.00/100.0 call spds 2.5 ref 95.355
  • 2,100 SFRH4 96.00/97.00/98.00 call flys ref 94.73
  • Block, total 12,000 0QZ3 97.25 calls, 4.0 vs. 95.70 to -.695/0.08%
  • Block, 2,500 SFRV3 94.56/94.62/94.68/94.81 call condors, 1.5 ref 94.575
  • 2,000 0QU4 97.00/97.50 call spds ref 96.115
  • 2,500 SFRZ3 94.68/95.00 call spds ref 95.575
  • 5,000 SFRZ3 94.68 calls ref 94.575
  • 5,100 SFRZ3 94.56 calls ref 94.575
• Treasury Options:
  • 6,000 TYV3 116 calls, 2 ref 109-18.5
  • 5,000 TYZ3 106/106.5 put spds, 4 ref 109-16.5
  • 4,000 USV3 110/114 put spds, 29 ref 118-12
  • 2,250 TYX3 110/113 1x2 call spds ref 109-15.5 to -16
  • 2,400 FVZ3 107.5 calls, 37.5 ref 106-00.5
  • 2,000 FVZ3 106 straddles, 219.5 ref 106-00
  • 5,250 TYU3 109.5 calls, 17 last
  • 5,000 TYU3 109/110 put spds ref 109-06
  • 5,500 FVV3 107.5/108.5 call spds
  • 2,000 FVV3 104.75/105.25/106.5 2x3x1 broken put flys ref 106-03.75
  • 2,000 FVV3 104.5/105/106 2x3x1 broken put flys ref 106-03.75

EGBs-GILTS CASH CLOSE: Bullish Tone Ahead Of PMIs

The UK curve bull steepened with Germany's bull flattening Tuesday, with yields closing near session lows as the rally accelerated in late afternoon.

• Gilts outperformed Bunds, with the UK short- and long-ends outperforming the belly. The 30Y segment in Europe outperformed overall (the case was the same in the US, suggesting duration was back in style).
• At the margins, the afternoon rally was probably assisted by soft US existing home sales data, but perhaps moreso with an eye on Wednesday's release of flash August PMIs, which are expected to show a further deterioration in economic activity in the Eurozone and UK.
• The core FI rally was even more impressive considering today saw the busiest day of primary Euro issuance in over 6 weeks (E13.7bln per BBG calculations). Additionally, Finland and the EFSF announced syndications which could take place Wednesday.
• Periphery EGB spreads to Bunds closed tighter, again led by BTPs.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is down 2.9bps at 3.087%, 5-Yr is down 5.1bps at 2.654%, 10-Yr is down 5.8bps at 2.645%, and 30-Yr is down 7.5bps at 2.725%.
• UK: The 2-Yr yield is down 9bps at 5.146%, 5-Yr is down 6.7bps at 4.683%, 10-Yr is down 8.4bps at 4.645%, and 30-Yr is down 9bps at 4.835%.
• Italian BTP spread down 3.4bps at 166bps / Spanish down 1.6bps at 103.2bps

Euribor Midcurve Structures And German Calls Tuesday

Tuesday's Europe rates / bond options flow included:

• OEV3 116.5/117.25/118c fly, bought for 10.5 in 1.5k
• DUV3 105.80/106.20 call spread paper paid 5.5 on 7K
• RXV23 1322/133/134/135c condor, bought for 15 in 3.3k
• 0RU3 96.75/97.00 call spread bought for 2.75 in 4k
• 0RU3 96.62/96.37/96.00p ladder vs 0RZ3 96.75/96.50/96.00p ladder, sold the mid Sep at 7 in 19k

FOREX USD Advances, EURJPY Retraces Monday Rally

• With US 2-year yields consolidating above 5%, the greenback has made furtive gains on Tuesday with the USD index advancing around a quarter of a percent. However, outperformance at the long-end of the curve has propped up the Japanese yen, which has traded in a more constructive manner throughout the session.
• EURJPY's reversal off highs has been notable, after the cross touched 159.49, the highest rate since Sept'08. The moves strengthen the importance of resistance layered in the cross at 159.21-49. A break and close above these levels is needed to resume the underlying bull trend.
• In similar vein, EURUSD (-0.39%) trades just 20 pips above the daily lows of 1.0833, cementing the single currency's status as the poorest G10 performer Tuesday. Volumes across futures have been solid: EUR futures have seen strong participation across US hours, putting daily cumulative volumes over 30% above average around the European close - countering more muted trade on Monday. Equity markets have rolled off highs, putting the e-mini S&P through yesterday's close and into negative territory - underpinning further strength in haven FX and the greenback.
• The New Zealand dollar is the strongest in G10, prompting a near 0.75% retracement lower for EURNZD, following an impressive 4.2% rally across August.
• The strong early performance for equities and the positive session for metals have maintained a more supportive tone for some higher beta emerging market currencies, namely the South African Rand and the Brazilian Real, both rising around 1%. The latter has also benefitted from the headlines regarding an imminent vote in the lower house to pass the new fiscal framework.
• New Zealand retail sales headline the docket overnight before European flash PMIs will give the latest indication of the health of Eurozone economies. Canada retail sales, US PMIs and new home sales data is also scheduled.

FX Expiries for Aug23 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0800(E2.0bln), $1.0825-35(E1.7bln), $1.0845-55(E518mln)
• USD/JPY: Y145.00($1.7bln)
• AUD/USD: $0.6529(A$570mln)
• NZD/USD: $0.6100(N$670mln)
• USD/CNY: Cny7.5690($2.7bln)

Late Equities Roundup: Financials Underperforming

• Stocks still trading mixed with SP and DJIA lagging modestly higher Nasdaq shares in late trade. At the moment, S&P E-Mini futures are currently down 3 points (-0.07%) at 4408.75, DJIA down 108.27 points (-0.31%) at 34354.66, Nasdaq up 41.5 points (0.3%) at 13538.18.
• Financials sector weighed by regional banks after S&P Global Ratings downgraded Associated Banc. Corp. (ASB), Comerica Inc. (CMA), KeyCorp. (KEY), UMB Financial Corp. (UMBF) and Valley National Bancorp. (VLY) late Monday citing "risks relating to funding, liquidity and asset quality with an emphasis on office commercial real estate."
• Laggers: Regions Financial -4.9%, Zions Bancorp -4.65%, Keycorp and Comerica shares both -4.2%.. Elsewhere, Energy and Consumer Staples sectors traded weaker.
• Leading gainers: Real Estate, Utilities and Communication Services sectors outperformed. Real Estate buoyed by estate management shares, CoStar Group +.60%, followed by residential and industrial REITS with Digital Realty +2.32%, Iron Mountain +2.12%, Weyerhaeuser +1.36%.
• Technicals: A bearish theme in the E-mini S&P contract remains intact and last week’s price action reinforces this theme. Furthermore, this week’s gains appear to be a correction. The move lower last week resulted in a break of the 50-day EMA and a breach of channel support drawn from the Mar 13 low. 4368.50, the Jun 26 low, was breached last Friday and attention is on 4344.28, a Fibonacci retracement. Initial firm resistance is at 4454.24, the 50-day EMA.

E-MINI S&P TECHS: (U3) Gains This Week Considered Corrective

• RES 4: 4634.50 High Jul 27 and the bull trigger
• RES 3: 4593.50/4634.50 High Aug 2 / Jul 27
• RES 2: 4560.75 High Aug 4
• RES 1: 4454.24/4477.27 50- and 20-day EMA values
• PRICE: 4400.00 @ 1215 ET Aug 22
• SUP 1: 4344.28 38.2% retracement of the Mar 13 - Jul 27 bull cycle
• SUP 2: 4305.75 Low Jun 8
• SUP 3: 4254.62 50.0% retracement of the Mar 13 - Jul 27 bull cycle
• SUP 4: 4216.00 Low May 31

A bearish theme in the E-mini S&P contract remains intact and last week’s price action reinforces this theme. Furthermore, this week’s gains appear to be a correction. The move lower last week resulted in a break of the 50-day EMA and a breach of channel support drawn from the Mar 13 low. 4368.50, the Jun 26 low, was breached last Friday and attention is on 4344.28, a Fibonacci retracement. Initial firm resistance is at 4454.24, the 50-day EMA.

COMMODITIES Crude Oil Nudges Lower With China Demand

• Crude prices edged down on the day on an uncertain global demand outlook after weaker than expected stimulus measures in China are weighed against tighter supplies amid OPEC+ cuts, with Eurasia Group seeing the former putting a ceiling for crude of about $90/bbl.
• In supply news, Iraq has not reached an agreement with Turkey on Tuesday to allow an immediate resumption of oil exports via the Turkish port of Ceyhan. US seaborne crude exports in August are set to reach the highest since March to average about 4.2mb/d compared to 3.8mb/d in July. Norway’s oil and natural gas production recovered last month with oil output rising to the highest level in four months, NPD data show.
• WTI (V3) is -0.7% at $79.52 but doesn’t yet test support at $78.33 (Aug 3 low). Resistance remains at the bull trigger of $84.16 (Aug 10 high).
• Brent (V3) is -0.6% at $83.95 but above support at $82.36 (Aug 3 low). Resistance remains at $88.10 (Aug 10 high).
• Gold is +0.1% at $1896.56, regaining some ground with a paring of earlier intraday USD strength and the push higher in Tsy yields. It briefly pushed to highs since Aug 16 but didn’t trouble resistance at $1918.3 (20-day EMA).

WEDNESDAY DATA CALENDAR

Date	GMT/Local	Impact	Flag	Country	Event
23/08/2023	2300/0900	***		AU	Judo Bank Flash Australia PMI
23/08/2023	0030/0930	**		JP	Jibun Bank Flash Japan PMI
23/08/2023	0715/0915	**		FR	S&P Global Services PMI (p)
23/08/2023	0715/0915	**		FR	S&P Global Manufacturing PMI (p)
23/08/2023	0730/0930	**		DE	S&P Global Services PMI (p)
23/08/2023	0730/0930	**		DE	S&P Global Manufacturing PMI (p)
23/08/2023	0800/1000	**		EU	S&P Global Services PMI (p)
23/08/2023	0800/1000	**		EU	S&P Global Manufacturing PMI (p)
23/08/2023	0800/1000	**		EU	S&P Global Composite PMI (p)
23/08/2023	0830/0930	***		UK	S&P Global Manufacturing PMI flash
23/08/2023	0830/0930	***		UK	S&P Global Services PMI flash
23/08/2023	0830/0930	***		UK	S&P Global Composite PMI flash
23/08/2023	1100/0700	**		US	MBA Weekly Applications Index
23/08/2023	1230/0830	**		CA	Retail Trade
23/08/2023	1345/0945	***		US	IHS Markit Manufacturing Index (flash)
23/08/2023	1345/0945	***		US	S&P Global Services Index (flash)
23/08/2023	1400/1000	***		US	New Home Sales
23/08/2023	1400/1600	**		EU	Consumer Confidence Indicator (p)
23/08/2023	1430/1030	**		US	DOE Weekly Crude Oil Stocks
23/08/2023	1530/1130	**		US	US Treasury Auction Result for 2 Year Floating Rate Note
23/08/2023	1700/1300	**		US	US Treasury Auction Result for 20 Year Bond