MNI ASIA MARKETS ANALYSIS:Geopol Tension Adds to Post FOMC Bid

US TSYS Late Risk-Off Adds to Post-Powell Tsy Rally

• Treasury futures surged to the highest levels since mid-March late Tuesday, strong safe haven buying evident after Iran orders attack on Israel for Tuesday's killing of Hamas political leader Haniyeh.
• Tsy Sep'24 10Y futures blew through a couple resistance levels to a high of 112-08 (+22), with 112-10 (1.50 proj of the Apr 25 - May 16 - 29 price swing)
• The late surge saw projected rate cut pricing into year end look steady to firmer vs. early Wednesday levels (*): Sep'24 cumulative -28.8bp, Nov'24 cumulative -46.9bp (-44.6bp), Dec'24 -72.4bp (-68.2bp).
• Tsys had extended session highs prior to the Iran/Israel headlines after Fed Chairman Powell left the door open to a rate cut at the next FOMC meeting in September if inflation continues to cool and the labor market remains.
• While keeping a close eye on data that suggests a normalizing labor market -- Chairmen Powell said "we have a lot of room to respond. If we were seeing weakness. That's not what we're seeing."
• Early data support: Treasury futures extending gains after lower than expected private payroll ADP jobs figures. Tsy futures gap higher following Tsy refunding annc w/ no plan on increasing auction sizes for now, increase weekly buybacks. ECI slightly lower than expected.

SOFR FIXES AND PRIOR SESSION REFERENCE RATES

SOFR Benchmark Settlements:

• 1M +0.00022 to 5.34255 (-0.00415/wk)
• 3M -0.00658 to 5.24110 (-0.01417/wk)
• 6M -0.00364 to 5.07558 (-0.01587/wk)
• 12M -0.00934 to 4.73547 (-0.01743/wk)

• Secured Overnight Financing Rate (SOFR): 5.33% (+0.00), volume: $1.978T
• Broad General Collateral Rate (BGCR): 5.32% (-0.01), volume: $808B
• Tri-Party General Collateral Rate (TGCR): 5.32% (-0.01), volume: $786B
• (rate, volume levels reflect prior session)

• Daily Effective Fed Funds Rate: 5.33% (+0.00), volume: $87B
• Daily Overnight Bank Funding Rate: 5.32% (+0.00), volume: $240B

FED Reverse Repo Operation

RRP usage rebounds up to $413.200B from $367.054B on Tuesday. Number of counterparties at 66 from 70 prior. Today's usage compares to $327.066B on Monday, April 15 -- the lowest level since mid-May 2021.

SOFR/TEASURY OPTION SUMMARY

• SOFR Options:
  • 5,000 SFRQ4 94.68/94.81/94.93/95.00 put condors ref 94.975
  • 5,000 SFRU4 94.68/94.75 put spds, 0.5 ref 94.955
  • +2,000 SFRH5 95.75/96.00/96.18 broken call flys, 4.5 vs. 95.82/0.05%
  • -4,000 SFRX4 95.25/95.37/95.50/95.62 call condors, 3.25 ref 95.38
  • -5,000 SFRZ4 96.00 calls, 5.0 vs. 95.37/0.10%
  • 1,500 SFRZ4 95.50/95.87/96.25 call flys ref 95.37
  • over 5,800 SFRZ4 96.00 calls, 5.5 last ref 95.38 to -.37
  • 12,000 0QQ4 96.12 puts, 6.5 vs 96.28/0.30%
  • Block, 2,973 SFRZ5 96.50/97.50 call spds, 29.5 ref 96.415
  • +2,750 SFRX4 95.18/95.43/95.68 2x4x1 call flys, 5.5 ref 95.38
  • 1,500 SFRH5 95.12/95.50 put spds, ref 95.765
• Treasury Options:
  • +10,000 FVU4 106.5/107 put spds, 6 vs. 107-25.25/0.08%
  • +10,000 wk2 TY 111 puts, 10 total volume of 19,800 expire next week Friday
  • +20,000 wk1 TY 110.25 puts, 1, expire this Friday
  • -5,500 TYV4 110/114 strangles, 44
  • Block/screen, +10,000 TYU4 109.5/112 3x1 strangles, 52-55
  • 2,000 TYV4 109/110/112 3x2x1 put flys
  • -10,000 wk5 TY 111.5 calls, 14-13 ref 111-17.5
  • -7,000 wk5 TY 111.5 puts, 12
  • -4,000 wk1 FV 107.25/108.25 call over risk reversals, 0.0

EGBs-GILTS CASH CLOSE: Gilts Outperform With BoE Decision On Knife's Edge

Gilts easily outperformed Bunds Wednesday, on the eve of a key BoE decision.

• Eurozone flash July HICP came in slightly above what had been expected entering the week, though this had limited impact on ECB cut pricing which continues to see two full cuts by year end (MNI's Euro Inflation Insight is here - PDF).
• Gilts stole the show, with the belly outperforming ahead of the Bank of England decision Thursday: 5Y yields outperformed, with both they and 10Y yields notably closed below the Mar/April lows and 2Y yields closing at then lowest since May 2023.
• US data was on the soft side and the US Treasury refunding announcement brought no negative surprises, extending a nascent rally through the European afternoon.
• The German curve bull flattened on the day. Periphery EGB spreads tightened modestly.
• The Federal Reserve decision Wednesday evening is the most immediate event risk, but attention thereafter will firmly be on the BoE where a decision to cut 25bp or hold is on a knife's edge - MNI's preview is here (PDF).

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is down 2bps at 2.531%, 5-Yr is down 3.2bps at 2.232%, 10-Yr is down 3.6bps at 2.304%, and 30-Yr is down 5.3bps at 2.514%.
• UK: The 2-Yr yield is down 5.1bps at 3.826%, 5-Yr is down 8.1bps at 3.765%, 10-Yr is down 7.3bps at 3.97%, and 30-Yr is down 6.4bps at 4.536%.
• Italian BTP spread down 1bps at 134.6bps / Spanish down 0.9bps at 81.2bps

EGB Options: Mostly Upside Pre-BoE/Fed

Wednesday's Europe rates/bond options flow included:

• DUU4 105.80/105.60/105.40p fly, bought for 2 in 5k.
• ERZ4 97.25/97.510cs, bought for 2 in 10k
• ERH5 97.00/97.25/97.50c fly vs ERM5 98.00/98.50cs, bought the cs for 1 and 1.5in 5k
• 0RU4 97.62/98.00/98.25c fly 1x3x2, sold at 5.5 in 2k
• SFIU4 95.05/95.15/95.25c fly bought for 3.25 in 15k
• SFIH5 95.00/94.75ps, bought for 2.25 in 2.5k.

FOREX: Powell’s Dovish Lean / Risk Off Prompts Renewed USDJPY Weakness

• Moves in currency markets on Wednesday’s were wholly focused on the substantial moves for the Japanese Yen following the overnight rate hike from the Bank of Japan. After reaching as high as 153.88 in the direct aftermath of the decision, USDJPY has traded with an overwhelming offered tone, with the pair reaching as low as 149.64.
• The greenback traded in a more supportive manner ahead of the month-end WMR fix, edging around 30 pips higher as we approached the July FOMC decision and statement release, primarily driven by the near 1% bounce for USDJPY, approaching back toward 151.00.
• The pair popped to 151.26 as the Fed failed to adjust its forward guidance, however, a dovish leaning Powell hinting that a September cut will likely be on the table prompted renewed weakness. USDJPY grinded back below 150.00 and sits close to session lows as we approach the APAC crossover.
• Given the sharp post-BOJ moves, initial resistance moves down to 151.94, the July 25 low. A close below this point would be an important development reinforcing the current bearish trend. On the downside, renewed weakness would place the focus on 148.54, a Fibonacci retracement point.
• Late headlines from the New York Times claiming Iran has ordered a retaliatory attack on Israel may have exacerbated the price action, taking the shine off an otherwise stellar day for major equity indices.
• With that said, NZD has also outperformed, rising 0.85% against the greenback, while the yen strength has also filtered through to a more moderate bid for the Swiss Franc and sees USDCHF 0.58% in the red.
• Action continues to come thick and fast Thursday with the Bank of England decision and US ISM manufacturing data for July.

FX OPTIONS: Expiries for Aug01 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0750-70(E1.7bln), $1.0785-00(E1.3bln), $1.0850(E1.6bln), $1.0875-80(E1.5bln)
• USD/JPY: Y151.00($1.0bln), Y154.00-05($1.5bln)
• GBP/USD: $1.2850(Gbp502mln)
• EUR/GBP: Gbp0.8420(E731mln)
• EUR/JPY: Y167.00(E601mln)
• AUD/USD: $0.6450(A$1.2bln)
• USD/CAD: C$1.4000($621mln)
• USD/CNY: Cny7.2500($1.2bln)
   

Late Equities Roundup: Paring Post-FOMC Gains, Risk-OffSelling

• Stocks remain well bid in late trade, scaling off post-FOMC highs amid a blend of risk-off selling as Iran called for reprisal for Israel's Tuesday attack on Haniyeh, and profit taking as focus turns to Friday's employment report. Not far off the mid-July all-time high of 41,368.08, the DJIA is up 147.79 points (0.36%) at 40891, S&P E-Minis up 85.75 points (1.57%) at 5559.5, Nasdaq up 442 points (2.6%) at 17591.3.
• Information Technology and Consumer Discretionary sectors continued to outperform in late trade. Still off mid-June highs, Nvidia led gainers, up 13.55%, followed by Broadcom +11.5%, Arista Networks 10.97% and Monolithic Power +9.54.
• Consumer Discretionary sector shares were supported by auto component makers: after exceeding earnings estimates, BorgWarner trades +9.98%, while Aptiv climbed 3.74% off 52 week lows.
• Of note, oil and gas shares traded strong as crude rallied (WTI +3.54 at 78.28): Diamondback Energy +2.37%, Devon Energy +2.19%, Marathon +1.77%.
• Health Care and Financial sectors underperformed in lat etrade, equipment and Services shares weighed on the Health Care sector: Humana -11.53% after cutting it's 2024 outlook amid rising medical costs, CVS -3.58%, and Incyte Corp -3.13%. Banks weighed on Financials: Bank of America -1.84%, JP Morgan -0.92%, USB -0.81%.
• Heavy earnings announcement schedule continues after today's close include: Allstate, Host Hotels, Corteva Inc, MGM Resorts, AIG, Meta, Carvana, QUALCOMM, Lam Research, Western Digital, Cognizant Tech, Albemarle, Bally's Corp, Eversource Energy, American Water Works, APA Corp, eBay, Teladoc Health, Etsy, Noble Corp PLC and Goodyear Tire.

E-MINI S&P TECHS: (U4) Corrective Bounce

• RES 4: 5741.34 3.382 proj of the Apr 19 - 29 - May 2 price swing
• RES 3: 5721.25 High Jul 16 and the bull trigger
• RES 2: 5629.75 High Jul 23
• RES 1: 5586.50 High Jul 31
• PRICE: 5568.50 @ 15:45 ET Jul 31
• SUP 1: 5432.50 Low Jul 25
• SUP 2: 5372.35 3.0% 10-dma envelope
• SUP 3: 5370.62 50.0% retracement of the Apr 19 - Jul 16 bull leg
• SUP 4: 5267.75 Low May 31 and key support

S&P E-Minis traded lower last week and this resulted in a break of the 20- and 50-day EMAs. This reinforces the short-term bearish cycle and signals scope for an extension near-term. Note that the move down is considered corrective. Potential is seen for a move towards 5396.09, the lower band of a MA envelope, ahead of 5370.62 a Fibonacci retracement. Today’s gains are considered corrective, key short-term resistance is 5629.75, Jul 23 high.

COMMODITIES Crude Regains Lost Ground, Gold Rises Further Amidst Middle-East Tensions

• WTI has hit new intraday highs in US hours, erasing losses earlier this week. Tension in the Middle East, a weaker US dollar, and a larger-than-expected draw in US crude stocks have been supportive.
• WTI Sep 24 is up 4.3% at $78.0/bbl.
• For WTI bulls, attention is on the key resistance points at $83.58, the Jul 5 high, and $84.36, the Apr 12 high.
• A continuation lower would open $72.23, the Jun 4 low and the next key support.
• Meanwhile, spot gold has risen by a further 0.9% today to $2,432/oz, amidst the increase in geopolitical tensions.
• For bulls, this week’s gains are constructive. A stronger reversal would refocus attention on $2,483.7, the Jul 17 high, and a bull trigger.
• Initial support is at $2,353.2, the Jul 25 low.
• Copper has also risen by 2.8% on Wednesday to $420/lb, aided by the weakening of the dollar and hopes of more stimulus measures in China.
• Analysts also note that there are tentative signs that Chinese buyers are returning to the market, while Rio Tinto says that demand from China for its products remains fairly robust and stable.
• For copper, initial firm resistance is at $439.3 the 50-day EMA, while on the downside attention is on $405.57, 76.4% of the Feb 9 - May 20 bull cycle.

THURSDAY DATA CALENDAR

Date	GMT/Local	Impact	Flag	Country	Event
01/08/2024	2300/0900	**		AU	S&P Global Manufacturing PMI (f)
01/08/2024	0030/0930	**		JP	S&P Global Final Japan Manufacturing PMI
01/08/2024	0130/1130	**		AU	Trade Balance
01/08/2024	0130/1130	**		AU	Trade price indexes
01/08/2024	0145/0945	**		CN	S&P Global Final China Manufacturing PMI
01/08/2024	0715/0915	**		ES	S&P Global Manufacturing PMI (f)
01/08/2024	0745/0945	**		IT	S&P Global Manufacturing PMI (f)
01/08/2024	0750/0950	**		FR	S&P Global Manufacturing PMI (f)
01/08/2024	0755/0955	**		DE	S&P Global Manufacturing PMI (f)
01/08/2024	0800/1000	**		EU	S&P Global Manufacturing PMI (f)
01/08/2024	0830/0930	**		UK	S&P Global Manufacturing PMI (Final)
01/08/2024	0900/1100	**		EU	Unemployment
01/08/2024	1100/1200	***		UK	Bank Of England Interest Rate
01/08/2024	1100/1200	***		UK	Bank Of England Interest Rate
01/08/2024	1130/1230			UK	BoE Press Conference
01/08/2024	-	***		US	Domestic-Made Vehicle Sales
01/08/2024	1230/0830	***		US	Jobless Claims
01/08/2024	1230/0830	**		US	WASDE Weekly Import/Export
01/08/2024	1230/0830	**		US	Preliminary Non-Farm Productivity
01/08/2024	1300/1400			UK	BOE Monthly Decision Maker Panel Data
01/08/2024	1345/0945	***		US	S&P Global Manufacturing Index (final)
01/08/2024	1400/1000	***		US	ISM Manufacturing Index
01/08/2024	1400/1000	*		US	Construction Spending
01/08/2024	1430/1030	**		US	Natural Gas Stocks
01/08/2024	1530/1130	*		US	US Bill 08 Week Treasury Auction Result
01/08/2024	1530/1130	**		US	US Bill 04 Week Treasury Auction Result
01/08/2024	1615/1715			UK	BOE's Pill MPR virtual Q&A