MNI ASIA MARKETS ANALYSIS: Geopol Tensions Saps Risk Appetite

US TSYS Brewing Geopol Tension Underpins Tsys

• Thin summer markets exacerbated market moves Monday, brewing tension in the Middle East where Israel in on full alert ahead of an expected attack from Iran/Hamas, while fighting continues in Eastern Europe after Ukraine took control of over 1,000 square kilometers of Russian territory in a counter-offensive that kicked off over the weekend.
• Treasury futures climbed to 113-09.5 high in late trade, still well below technical resistance at 114-03 (High Aug 6). Tsy 10Y yield slipped to 3.8940% low in late trade.
• Limited data, NY Fed inflation expectations were unchanged for 1Y and 5Y ahead measures (1Y unchanged on a rounded basis at 3.0% but unrounded at 2.97% after 3.02%, 5Y at 2.8%).
• Focus on Tuesday morning's PPI data while Richmond Fed Bostic will discuss his economic outlook (no text, Q&A) at 1315ET.

SOFR FIXES AND PRIOR SESSION REFERENCE RATES

SOFR Benchmark Settlements:

• 1M +0.00425 to 5.33777 (-0.01672 total last wk)
• 3M +0.00333 to 5.11602 (-0.11504 total last wk)
• 6M -0.00166 to 4.80431 (-0.20166 total last wk)
• 12M -0.00833 to 4.34795 (-0.23980 total last wk)

• Secured Overnight Financing Rate (SOFR): 5.34% (+0.00), volume: $2.170T
• Broad General Collateral Rate (BGCR): 5.33% (+0.00), volume: $816B
• Tri-Party General Collateral Rate (TGCR): 5.33% (+0.00), volume: $795B
• (rate, volume levels reflect prior session)

• Daily Effective Fed Funds Rate: 5.33% (+0.00), volume: $104B
• Daily Overnight Bank Funding Rate: 5.32% (+0.00), volume: $239B

FED Reverse Repo Operation:

RRP usage climbs to $328.641B from $312.198B last Friday -- compares to $286.660B last Wednesday -- the lowest since mid-May 2021. Number of counterparties climbs to 64 from 62 prior.

SOFR/TEASURY OPTION SUMMARY

• SOFR Options:
  • -5,000 3QH5 96.00/97.50 call over risk reversals, 1.5 vs. 96.775/0.36%
  • +7,500 0QX4 97.00/97.25/97.50/97.75 call condors 4.0 ref 96.80
  • +6,000 SFRZ4 95.12/95.37 2x1 put spds2.0 ref 95.755
  • -5,000 0QU4 96.12 calls v 2QU4 96.50 calls 17.0
  • +20,000 SFRZ4 95.12/95.37 2x1 put spds, 2.0-2.25
  • 10,000 SFRU4 95.18/95.31/95.44 call flys
  • +10,000 SFRH5 98.00/99.00 2x3 call spds, 3.5
  • +4,000 SFRX4/SFRZ4 95.25/95.37/95.50 put fly spd 3.25
  • +11,000 SFRZ4 95.50/95.75 put spd 2x1 3.75-4.0 ref 95.745
  • -5,000 SFRH5 95.37 puts vs 0QH4 95.50 puts .25
  • +10,000 SFRZ4 95.87 calls, 17.0 vs. 95.735/0.25%
  • 3,000 SFRQ4 94.93/95.00/95.06 put flys
  • 1,000 SFRX4 95.37/95.50/95.62/95.75 put condors
  • Block/screen, 6,000 SFRH5 96.00/96.25 call spds vs. 95.50/95.75 put spds, 4.5 net ref 96.18
• Treasury Options:
  • 3,500 TUU4 104.25 calls, 1 ref 103-09
  • +20,000 TYU4 114.5 calls, 13 half covered vs. 113-11.5/0.05%
  • 2,000 TUV4 104/104.5 call spds
  • 2,000 FVU4 110 calls, 5 ref 108-22
  • 4,000 wk3 5FV 108.75/109.25 call spds vs. 108.25 put ref 108-22.75 (expire Fri)
  • over 15,000 wk3 TY 113/113.5 call spds vs. 112.25 put, 0.0 ref 112-26.5 to -29 (expire Fri)
  • 2,800 TYV4 114/116.5 1x2 call spds vs. TYV4 111 put ref 113-14

EGBs-GILTS CASH CLOSE: Modest Gilt Outperformance Ahead Of Key UK Data

European yields closed little changed Monday, with Gilts modestly outperforming ahead of a heavy UK data schedule this week.

• Bunds and Gilts weakened in European morning trade, paring some of Friday's gains amid a quiet data/speaker slate.
• They ultimately recovered those losses in the afternoon in volatile trade (albeit within last week's ranges) that mirrored the wider risk picture, as equities vacillated despite no major headline triggers.
• The German curve modestly bear flattened, with the UK's bull flattening. Periphery EGB spreads closed mixed, but basically unchanged vs Bunds.
• Most market focus in Europe is on UK labour market data Tuesday and inflation Wednesday (MNI's preview went out today), though US PPI/CPI on those respective days will of course be of global importance.
• In the Eurozone, Tuesday sees final Spain CPI, with the second reading of Q2 Eurozone GDP on Wednesday.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is up 0.7bps at 2.393%, 5-Yr is up 0.4bps at 2.136%, 10-Yr is up 0.1bps at 2.226%, and 30-Yr is up 0.1bps at 2.459%.
• UK: The 2-Yr yield is down 1.6bps at 3.636%, 5-Yr is down 1.4bps at 3.711%, 10-Yr is down 2.9bps at 3.916%, and 30-Yr is down 2.3bps at 4.493%.
• Italian BTP spread down 0.3bps at 141.5bps / Spanish bond spread down 0.3bps at 85.7bps

EGB Options Upside Lean In Rate Structures Monday

Monday's Europe rates/bond options flow included:

• RXU4 131.50p, bought for 3 in 6k
• ERH5 97.75/98.00cs, bought for 3.75 in 1k
• SFIQ4 95.00/95.10/95.20c fly, bought for 1.25 in 1k

FOREX: USDJPY Remains Higher Despite Pullback, NZD Strengthens

• Despite volatile trading for equities on Monday, risk sentiment remains a touch firmer on Monday, contributing to Japanese yen and Swiss franc weakness overall, while antipodeans trade on the front foot.
• USDJPY rose as high as 148.22 in early US trade before the more volatile equity backdrop then prompted a gradual 100 pip turnaround. 
• Note that the bear trend for USDJPY remains in an extreme oversold condition, and the latest recovery - a correction - is allowing this condition to unwind. Initial firm resistance is not seen until 151.10, the 20-day EMA and support comes in at 144.29, the Aug 7 low.
• The firmer tone for risk sentiment on Monday is benefitting the Kiwi most notably in G10 and the aforementioned pressure on the Yen has seen NZDJPY rise by 0.75%.
• The cross briefly pierced last week’s highs earlier in the session, rising back above 89.00, which may strengthen the scope for a more protracted recovery to the psychological 90.00 mark which has been technically pivotal in recent months. A close back above here would then target trendline resistance closer to 93.00.
• Elsewhere, adjustments across major G10 pairs were more limited as global markets await key US CPI data on Wednesday. Elsewhere, UK labour market and CPI is scheduled, as well as the RBNZ decision.

Late Equities Roundup: Chip Stocks, Oil & Gas Outperform

• After several rounds of see-sawing in a progressively narrow range, stocks are looking near steady to mixed in late trade, the Dow still underperforming. Currently, the DJIA trades down 182.29 points (-0.46%) at 39313.5, S&P E-Minis down 5.25 points (-0.1%) at 5364.75, Nasdaq up 26.1 points (0.2%) at 16771.39.
• Information Technology and Energy sectors continued to lead gainers in late trade, semiconductor stocks buoyed the former: Super Micro +6.09%, Nvidia +4.61%, First Solar +2.86%. Oil and gas stocks gained on the back of rising crude prices Monday (WTI +2.82 at 79.66) -- likely driven by the ongoing geopolitical risk in the Middle East: EQT Corp +3.60%, APA +3.11%, Marathon +1.94%.
• Conversely, Real Estate and Industrials sectors continued to underperform, investment trusts weighing on the former: Simon Property Group -3.91%, BXP Inc -2.51%, CoStar Group -2.52%. Airlines weighed on the Industrials sector amid declining travel data, American Airlines -2.43%, Boeing -2.25%.
• While the latest earnings cycle is over 85% complete, there are still a number of announcements expected this week: Home Depot early Tuesday; Brinker Int, Samsonite and Cisco late Wednesday; Walmart, Applied Materials and Deere & Co on Thursday.

E-MINI S&P: (U4) Recovery Appears To Be A Corrective Cycle

• RES 4: 5721.25 High Jul 16 and Key resistance
• RES 3: 5600.75 High Aug 1
• RES 2: 5457.01 50-day EMA
• RES 1: 5389.50 Intraday high
• PRICE: 5368.00 @ 1440 ET Aug 12
• SUP 1: 5182.0/5120.00 Low Aug 8 / 5 and the bear trigger
• SUP 2: 5185 50.76.4% retracement of the Apr 19 - Jul 16 bull leg
• SUP 3: 5092.00 Low May 2
• SUP 4: 5020 Low Apr 19 and a key support

S&P E-Minis traded lower on Aug 5 and this confirmed an extension of the bear cycle. The move down resulted in a print below 5185.50, 76.4% of the Apr 19 - Jul 16 bear leg. A clear break of this level would open 5092.00 next, the May 2 low. Short-term gains are - for now - considered corrective and the 50-day EMA marks a firm resistance, at 5457.01. Clearance of this average is required to alter the picture and signal scope for stronger gains.

COMMODITIES Crude Extends Gains, Precious Metals Rally

• Crude markets have extended their gains to reach their highest level since July 22, with support from Middle East escalation fears and expectations of falling US stocks.
• WTI Sep 24 is up 3.6% at $79.6/bbl.
• WTI futures have pierced key near-term resistance at $78.88, the Aug 1 high. The next level to note is $82.27, the Jul 18 high.
• Spot gold is up by 1.6% to $2,470/oz today, bringing the yellow metal to its highest since Aug 1.
• Attention is on $2,483.7, the Jul 17 high and a bull trigger. Clearance of this hurdle would resume the uptrend.
• Silver has also rallied by 1.9% to $28.0/oz.
• For silver, initial firm resistance has been defined at $28.8716, the 50-day EMA.
• Meanwhile, copper has extended gains on Monday, rising by another 2.1% to $408/lb, lifting the red metal almost 4% from last week’s near 5-month low.
• A bear cycle in copper futures remains intact, with attention on $372.35, the Feb 9 low. Initial firm resistance is at $429.08, the 50-day EMA.

TUESDAY DATA CALENDAR

Date	GMT/Local	Impact	Flag	Country	Event
13/08/2024	0130/1130	***		AU	Quarterly wage price index
13/08/2024	0600/0700	***		UK	Labour Market Survey
13/08/2024	0700/0900	***		ES	HICP (f)
13/08/2024	0900/1100	***		DE	ZEW Current Conditions Index
13/08/2024	0900/1100	***		DE	ZEW Current Expectations Index
13/08/2024	0900/1000	**		UK	Gilt Outright Auction Result
13/08/2024	1000/0600	**		US	NFIB Small Business Optimism Index
13/08/2024	1230/0830	***		US	PPI
13/08/2024	1255/0855	**		US	Redbook Retail Sales Index
13/08/2024	1530/1130	*		US	US Treasury Auction Result for Cash Management Bill
13/08/2024	1715/1315			US	Atlanta Fed's Raphael Bostic
14/08/2024	-			NZ	Reserve Bank of New Zealand Meeting