MNI ASIA MARKETS ANALYSIS:Fed Collins More Tightening Possible

US TSYS Rates Hugging Lows After Strong ISM Services Data

• Treasury futures having been drifting sideways since marking session lows in the first half. Early data driven volatility as rates bounced following S&P Global US Services PMI comes out a little lower than expected (50.5 vs. 51.0 est), Composite PMI (50.2 vs. 50.4 est). Futures had pared gains prior to release. Markets also listening to UK Bailey comments on inflation - close to May forecast.
• Support was short lived, however, as futures gapped lower following higher than expected ISM Services Index (54.5 vs. 52.5), Prices Paid (58.9 vs. 56.8 prior). reacceleration to the highest reading since February after a dip in July added further evidence that the US economy has been resilient through Q3, with the ISM noting the 54.5 print is consistent with 1.6% Q/Q annualized real GDP growth (albeit that's lower than most current estimates).
• Dec'23 10Y futures breached initial support of 109-28.5 (Aug 29 low) on the way to 109-19.5 session low. An extension lower would signal scope for 109-09+, Aug 22 low and a bear trigger. A break of this level would strengthen a bearish theme.
• Little react to Bank of Canada leaving its key lending rate at the highest since 2001 at 5% Wednesday and signaled officials remain prepared to hike again because of the risk elevated price gains become entrenched amid slow progress wrestling down inflation.
• Focus turns to Thursday's weekly claims, ULC and flurry of Fed speakers Thursday, ahead late Friday's policy blackout at midnight

SHORT TERM RATES

SOFR Benchmark Settlements:

• 1M -0.00078 to 5.32684 (-.00203/wk)
• 3M +0.00665 to 5.39773 (-0.00457/wk)
• 6M +0.02060 to 5.45272 (-0.00052/wk)
• 12M +0.06324 to 5.38895 (+0.02029/wk)

• Daily Effective Fed Funds Rate: 5.33% volume: $102B
• Daily Overnight Bank Funding Rate: 5.32% volume: $259B

• Secured Overnight Financing Rate (SOFR): 5.31%, $1.472T
• Broad General Collateral Rate (BGCR): 5.29%, $553B
• Tri-Party General Collateral Rate (TGCR): 5.29%, $546B
• (rate, volume levels reflect prior session)

FED REVERSE REPO OPERATION

Repo operation rebounds to $1,606.244B w/96 counterparties, compared to $1,568.490B in the prior session (lowest since early March 2022). 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

SOFR and Treasury option trade turned mixed after better upside call trade overnight. Put buyers returned as underlying futures gapped lower following this morning's higher than expected ISM Services Index (54.5 vs. 52.5), Prices Paid (58.9 vs. 56.8 prior). Rate hike projections through year end inched high: Sep 20 FOMC is 6.8% w/ implied rate change of +1.7bp to 5.347%. November cumulative of +12.5bp at 5.456, December cumulative of 11.8bp at 5.449%. Fed terminal at 5.45% in Nov'23 to Jan'24.

• SOFR Options:
  • +3,000 2QZ3 96.00 puts, 20.0 vs. 96.225/0.38%
  • Block/screen, +8,500 SFRH4 95.00/95.25/95.50/95.75 call condors, 2.0 net ref 94.675
  • Block, 10,000 SFRZ4 98.00/98.12 call spds, 1.25 on splits ref 95.69
  • -8,000 SFRM4 93.50/94.00 put spds 3.5 vs. 94.98 to -.00/0.07%
  • 2,300 SFRV3 94.62/94.75 call spds ref 94.57
  • 3,000 SFRM4 94.12/94.38 put spds vs. 95.50/95.75 call spds ref 95.005
  • 2,000 0QZ3 96.00/96.50 call spds vs. 2QZ3 96.62/97.12 call spds
  • 1,750 SFRZ3 94.75 calls, 7.0 ref 94.57
• Treasury Options:
  • +12,000 TYV3/TYX3 109.5 put spds, 31
  • +12,000 TYV3/TYX3 109.5 call spds, 31
  • 2,400 TYZ3 108/108.5 put spds ref 109-25.5
  • 1,400 USV3 123/123.5 call spds ref 119-06
  • 4,000 FVV3 106.75/107.25/107.5 call trees ref 106-12
  • over 10,500 TYV3 111.5 calls, 11-12 ref 110-01
  • 2,700 TUV3 101.37 puts, 5 ref 101-21.88
  • 5,000 TYX3 108/112 strangles ref 110-00.5 to 110-01.5
  • 3,400 TYV3 108.5/111.5 strangles ref 110-01 to -00.5
  • 4,800 FVV3 107.75/108.5 call spds ref 106-12

EGBs-GILTS CASH CLOSE: US Services Data Sinks Bunds

Gilts easily outperformed Bunds Wednesday, with bear flattening in the German curve, and bull steepening in the UK's.

• Core FI yields looked set for a fairly constructive by mid-afternoon European trade, with an early sell-off across Bunds and Gilts having faded. Very weak German factory orders had seen a brief bid in Bund futures on the open, but corporate and govvie supply applied some pressure early.
• Most of the early intrigue was ECB-speaker related, with yields higher as Knot sounded typically hawkish, and later Kazimir expressing a clear preference for another hike, as next week's decision approaches.
• Yields reversed higher a couple hours before the cash close as a stronger than expected US ISM Services reading saw Treasuries sell off sharply (a hawkish hold by the Bank of Canada may have contributed).
• A key exception was the UK short end which rallied throughout the session - the BoE TSC testimony was seen as not reinforcing a hawkish narrative, with Bailey sounding relatively constructive on the outlook.
• Greek instruments continued to trade in relatively volatile fashion, underperforming on the periphery despite little relevant catalyst in evidence.
• Thursday morning sees German IP data, several ECB speakers, Spanish/French bond supply, and the BoE Decision Maker Survey.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is up 7.7bps at 3.122%, 5-Yr is up 6.3bps at 2.659%, 10-Yr is up 4.1bps at 2.653%, and 30-Yr is up 1.6bps at 2.773%.
• UK: The 2-Yr yield is down 3.2bps at 5.239%, 5-Yr is up 0.7bps at 4.81%, 10-Yr is up 0.8bps at 4.533%, and 30-Yr is down 0.9bps at 4.784%.
• Italian BTP spread up 2.2bps at 175bps / Greek up 5.5bps at 137.1bps

EGB Options: Mixed End-Year Rates Trade Wednesday

Wednesday's Europe rates / bond options flow included:

• ERZ3 96.125/96.00/95.75 (broken) put fly bought for up to 1.5 in 5k
• ERZ3 96.125/96.25/96.375 1x3x2 call fly bought for 1.25 in 6.5k on the day

FOREX Stronger US ISM Further Boosts Greenback, GBP Underperforms

• The US dollar continued to edge higher on Wednesday, boosted by an-above estimate US ISM Services index, with both prices paid and employment advancing from the prior read. Bank of America highlighted that “while the data flow last week showed some signs of moderation in the U.S., the theme of U.S. relative economic strength continues to dominate market narratives, particularly in the face of ongoing softness out of Europe and China.”
• GBP underperformed on the session, extending Tuesday’s weakness and reinforcing the bearish outlook. Support at 1.2548, the Aug 25 low, has been breached, confirming a resumption of the trend and cable has narrowed the gap with 1.2480, a Fibonacci projection, which has held for now. Below here, the most obvious targets are 1.2433 and 1.2369, lows from early June.
• USDJPY was pulled in both directions on Wednesday, as the nation’s top currency official said he won’t rule out any options if current moves in the exchange rate continue. The comments prompted downward pressure on the pair from the 147.82 highs down to 147.02 session lows. However, the firmer US data kept USDJPY weakness short-lived, with the pair trading back above 147.50 as we approach the APAC crossover.
• Weakness for global stocks continued to weigh on EMFX with the JPMorgan emerging market currency index registering a further 0.3% decline. Noteworthy pressure on the Polish Zloty stands out on Wednesday as the central bank significantly surprised the market by delivering a 75bp rate cut compared to the surveyed median estimate of a 25bp reduction. Strength for USDMXN (+1.00%) should also be highlighted, extending the most recent bounce to reach 3-month highs.
• Speeches from both RBA Governor Lowe and BOC Governor Macklem will be in focus on Thursday. Australian trade data, Swiss currency reserves and German industrial production highlight the data docket.

FX Expiries for Sep07 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0675-80(E588mln), $1.0700(E1.7bln), $1.0750-55(E839mln), $1.0780-90(E595mln), $1.0810-25(E983mln), $1.0840-50(E1.1bln), $1.0875-90(E1.5bln)
• USD/JPY: Y144.45-50($1.0bln), Y145.00-05($1.0bln)
• GBP/USD: $1.2550(Gbp821mln), $1.2700(Gbp1.3bln)
• AUD/USD: $0.6330(A$540mln), $0.6350-57(A$733mln), $0.6400-10(A$978mln)
• USD/CAD: C$1.3663($512mln)
• USD/CNY: Cny7.3000($525mln)

Late Equity Roundup: Off Midday Lows

• Stocks are still trading weaker, but are quietly climbing off lows to late morning levels at the moment. Stocks had extended lows after this morning's higher than expected ISM Services Index (54.5 vs. 52.5), Prices Paid (58.9 vs. 56.8 prior) spurred a sell-off in rates and stocks as projected rate hikes through year end gained slightly (November cumulative of +13.4 (+11bp earlier) at 5.466, December cumulative of 13.6bp (9.6bp earlier) at 5.468%.
• Currently, S&P E-Mini futures are down 34.25 points (-0.76%) at 4468, DJIA down 186.86 points (-0.54%) at 34456.29, Nasdaq down 166.7 points (-1.2%) at 13855.08
• Laggers: Information Technology, Consumer Discretionary and Communication Services sectors continue to underperform. Hardware and Semiconductor shares weighed on IT: SolarEdge -3.9%, Enphase -3.75%, Apple -3.7% and Nvidia -3.0%. No particular headline driver, traders cited general profit taking on the strong sector.
• Meanwhile, auto makers weigh on Discretionary stocks, but are inching off lows: Tesla -1.8%, GM -1.3%, Ford -0.65%. Interactive media and services weighed on Communication services: Google -1.1%, Meta -.65%.
• Leaders: Utilities, Energy and Consumer Staples sectors outperformed, electricity providers supporting the former: Excel Energy +1.30%, Entergy and Pinnacle West both +1.1%.
• Technicals: S&P Emini initial support lies at 4459.74, the 50-day EMA. A return below the average would be a bearish development: 4350.00 Low Aug 18 and a bear trigger.

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

• RES 4: 4634.50 High Jul 27 and key resistance
• RES 3: 4593.50 High Aug 2
• RES 2: 4560.75 High Aug 4
• RES 1: 4547.75 High Sep 1
• PRICE: 4470.00 @ 1500 ET Sep 6
• SUP 1: 4459.74 50-day EMA
• SUP 2: 4350.00 Low Aug 18 and a bear trigger
• SUP 3: 4344.28 38.2% retracement of the Mar 13 - Jul 27 bull cycle
• SUP 4: 4305.75 Low Jun 8

The E-mini S&P contract maintains a firmer tone and the latest pullback is considered corrective - for now. Price has recently traded above resistance at 4537.06, the base of a bull channel drawn from the Mar 13 low. The line was breached on Aug 16. A clear break of this level would strengthen the upleg and open 4560.75, the Aug 4 high. Initial support to watch lies at 4459.74, the 50-day EMA. A return below the average would be a bearish development.

COMMODITIES WTI Settles At Fresh YTD High After Climbing Later In The Session

• Crude gains resumed later on in today’s session following headlines that Saudi Aramco is raising its October OSP for Arab Light Crude to Asia, despite the 0.1ct/bbl increase to a $3.60/bbl premium being below the 0.30ct/bbl hike seen by analyst in Reuters and Bloomberg surveys.
• Yesterday’s decisions by OPEC+ leaders Saudi Arabia and Russia to extend voluntary oil production cuts through to the year-end brings bullish risks to the bank’s $86/bbl Brent forecast for December 2023, Goldman Sachs said in a note.
• The G7 and Western partners have shelved plans for regular reviews of the Russian oil price cap, despite Urals crude trading above the threshold, according to Reuters.
• MNI Commodity Weekly: Oil Markets Face Further Tightness On Surprise Cuts Until Year-End: Full piece here.
• WTI is +1.0% at $87.59 off an earlier high of $88.08 that squeezed one cent higher than yesterday’s peak, still eyeing resistance at the round $90.
• Brent is +0.7% at $90.65, stopping just shy of yesterday’s $91.15 which continues to form resistance ahead of $92.91 (Nov 17, 2022 low).
• Gold is -0.5% at $1917.25, weighed by the increase in front end Treasury yields rather than USD strength today with the latter seeing relatively modest gains considering the surprise strength in ISM Services. It pushes towards support at $1903.9 (Aug 25 low).

THURSDAY DATA CALENDAR

Date	GMT/Local	Impact	Flag	Country	Event
07/09/2023	0130/1130	**		AU	Trade Balance
07/09/2023	0300/1100	***		CN	Trade
07/09/2023	0600/0800	**		DE	Industrial Production
07/09/2023	0600/0700	*		UK	Halifax House Price Index
07/09/2023	0645/0845	*		FR	Foreign Trade
07/09/2023	0800/1000	*		IT	Retail Sales
07/09/2023	0830/0930			UK	BOE DMP Survey
07/09/2023	0830/1030			EU	ECB's Elderson speaks at Event
07/09/2023	0900/1100	***		EU	GDP (final)
07/09/2023	0900/1100	*		EU	Employment
07/09/2023	1230/0830	**		US	Jobless Claims
07/09/2023	1230/0830	**		US	WASDE Weekly Import/Export
07/09/2023	1230/0830	*		CA	Building Permits
07/09/2023	1230/0830	**		US	Non-Farm Productivity (f)
07/09/2023	1400/1000	*		CA	Ivey PMI
07/09/2023	1400/1000	*		US	Services Revenues
07/09/2023	1430/1030	**		US	Natural Gas Stocks
07/09/2023	1500/1100	**		US	DOE Weekly Crude Oil Stocks
07/09/2023	1530/1130	**		US	US Bill 04 Week Treasury Auction Result
07/09/2023	1530/1130	*		US	US Bill 08 Week Treasury Auction Result
07/09/2023	1755/1355			CA	BOC Governor Macklem gives "Economic Progress Report" speech in Calgary
07/09/2023	1930/1530			US	New York Fed's John Williams
07/09/2023	1945/1545			US	Atlanta Fed's Raphael Bostic
07/09/2023	2055/1655			US	Fed Governor Michelle Bowman
07/09/2023	2300/1900			US	Atlanta Fed's Raphael Bostic