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MNI ASIA MARKETS ANALYSIS: Persistent Inflation Spurs BOE Hike

  • MNI US-INDIA: Biden: "Our Economic Relationship Is Booming"
  • FDIC Chairman says bank agencies eye tougher capital rules for banks over $100 billion in size, Rtrs
Key Links: MNI: BOE Surprises With 50bps Hike, Cites Persistent Inflation / NORGES BANK WATCH: Hikes 50 BPS To 3.75%, Foresees 4.25% Peak / MNI WATCH: SNB Hikes 25bps, More Likely Coming / US Treasury Auction Calendar / US$ Credit Supply Pipeline / Leading Indices Signal Recession That Is Yet To Materialize


US TSYS: Rates Hug Lows After Surprise BOE, Norges Bank 50Bp Hikes

  • Treasury futures settling in around late session lows (TYU3 112-24 -18, yield 3.7946%) after some early policy and data driven volatility. Treasury futures inexplicably bounced off initial lows following this morning's surprise 50Bp hike from the BoE (Norges Bank hiked same overnight).Gist of rebound making the rounds is the larger than anticipated hike to stem inflation brings forward timing of a rate cut.
  • The MPC said nothing to push back directly against market rate expectations for a near 6% peak in Bank Rate, instead sticking to its previous line that if there was evidence of more persistent inflation pressures, further tightening would be required.
  • Meanwhile, Treasury futures marked session highs after weekly claims comes out strong for the third consecutive read (+264k vs. +259k est, +262 prior revised to +264k). Front month 10Y futures tap 113-14 (+4) high post data, scaling back to 112-21 low after midday. Curves bending steeper, 2s10s +1.021 at -99.255 after falling to -101.103 low earlier (nearing March's 40+ year inverted low of -110.0).
  • Little reaction to Fed Chairman Powell's second day of policy testimony to Congress and lengthy Q&A that followed. Chair Powell said the "FED VERY AWARE, CONCERNED ABOUT COMMERCIAL REAL ESTATE, and may raise capital requirements for large banks (>100B) by as much as 20%.
  • Friday focus: S&P PMIs, KC Fed Services and additional Fed Speakers.


SOFR Benchmark Settlements:

  • 1M +0.00676 to 5.08923 (+.01294/wk)
  • 3M +0.01713 to 5.24626 (+.03942/wk)
  • 6M +0.02277 to 5.33450 (+.04512/wk)
  • 12M +0.02468 to 5.27445 (+.04413/wk)

US DOLLAR LIBOR: Latest settlements:

  • O/N +0.00629 to 5.06900%
  • 1M +0.00286 to 5.15043%
  • 3M +0.00229 to 5.54186% */**
  • 6M +0.00014 to 5.68257%
  • 12M +0.00257 to 5.90114%
  • * Record Low 0.11413% on 9/12/21; ** New 16Y high: 5.55743% on 6/12/23
STIR: FRBNY EFFR for prior session:
  • Daily Effective Fed Funds Rate: 5.07% volume: $130B
  • Daily Overnight Bank Funding Rate: 5.06% volume: $297B
US TSYS: Repo Reference Rates
  • Secured Overnight Financing Rate (SOFR): 5.05%, $1.387T
  • Broad General Collateral Rate (BGCR): 5.03%, $610B
  • Tri-Party General Collateral Rate (TGCR): 5.03%, $598B
  • (rate, volume levels reflect prior session)

FED Reverse Repo Operation

NY Federal Reserve/MNI

NY Fed reverse repo usage recedes to $1,994.711B w/ 103 counterparties, compared to $2,037.102B 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.


  • Mixed option trade carried over from overnight session, underlying futures at or near overnight lows. Accts continued to plying the sidelines after the BOE followed Norges bank 50bp hike overnight. Salient trade included larger Dec'23 SOFR call spreads and Aug'23 10Y ratio put spread:
  • SOFR Options:
    • over 6,500 SFRU3 99.37/99.87 put spds
    • 2,000 SFRU3 94.43/94.62 put spds, ref 94.65
    • 4,000 SFRZ3 99.25/99.75 put spds
    • 5,000 SFRU3 98.25/99.75 put spds
    • 6,000 SFRU3 98.25/99.62 put spds
    • +1,500 SFRH4 97.00 calls, 11.5 vs. 95.065/0.13%
    • Block, +7,420 OQN3 96.62/96.75 call spds, 1.0 vs. 95.955
    • Block, 5,000 SFRM4 96.50/97.00/97.50 call flys 2.5 ref 95.525
    • Block/screen, 11,200 SFRH4 96.00/OQH4 97.25 call spd, 0.5 net, short Mar over
    • 7,500 SFRV3 94.50 puts, 10.5-11.0 ref 94.77 to -.765
    • 3,000 2QQ3 97.00 calls ref 96.66
    • 25,000 SFRZ3 95.50/96.00 call spds, 5.0 ref 94.775/0.08%
    • 3,000 SFRU3 94.25/94.37/94.62/94.75 1x2x2x1 put condors ref 94.655
    • 1,000 SFRZ3 96.00/97.50/98.25 1x3x2 call flys ref 94.77
  • Treasury Options:
    • 1,500 TYQ3 112.5 puts, 36 ref 113-03.5
    • 4,000 TYN3 112/112.5 put spds ref 113-01.5
    • 2,000 TYN3 112.25/112.5/112.75 put trees ref 113-03
    • 1,500 TYN3 114 calls, 3 ref 113-03
    • 1,500 FVN3 108.25/108.5 call spds, 2 ref 107-26.5
    • over 16,000 TYQ3 112/113 2x1 put spds ref 113-03.5 to -03

EGBs-GILTS CASH CLOSE: Surprise 50bp BoE Hike Further Inverts Curves

The UK curve twist flattened Thursday as the Bank of England surprised with a 50bp hike, though the German curve underperformed in a bear flattening move.

  • Central banks set a generally hawkish tone overall, with Norges Bank hiking 50bp vs the 25bp expected (SNB's 25bp was in line), before the BoE raised a half point in a 7-2 vote that was not foreseen by any analyst.
  • 10 year Gilt yields jumped to session highs (4.447%) then dived to session lows (4.327%) within the first 15 minutes after the decision as traders assessed the implications of the move, before settling slightly lower on the day. 2Ys gyrated similarly but resolved higher on the day.
  • Interestingly though German yields ended higher than UK counterparts on the day, with the BoE's front-loaded tightening possibly seen as precipitating a UK recession.
  • Greece easily outperformed with 10Y spreads 6+bp tighter ahead of the weekend's elections (our briefing is here).
  • Friday's early highlights are UK retail sales and Europe flash June PMIs.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

  • Germany: The 2-Yr yield is up 8.8bps at 3.221%, 5-Yr is up 8bps at 2.642%, 10-Yr is up 5.9bps at 2.494%, and 30-Yr is up 2.7bps at 2.509%.
  • UK: The 2-Yr yield is up 3.1bps at 5.077%, 5-Yr is down 2.9bps at 4.562%, 10-Yr is down 3.8bps at 4.367%, and 30-Yr is down 2.8bps at 4.485%.
  • Italian BTP spread up 2.1bps at 163.7bps / Greek down 6.6bps at 123.8bps

EGB Options: Mixed Rates Trade

Thursday's Europe rates / bond options flow included:

  • SFIH4 97.50/98.50 call spread bought for 2 in 2k (underlying trades 94.05)
  • OEU3 115.00/113.50 put spread +2.5K vs. -2.5K OEQ3 115.00puts, looks like aroll out of the Aug into the Sep, with paper paying 5.5 on net for the putspread.
  • 0RU3 96.125/95.75 1x1.5 put spread bought for 4.25 in 5k

FOREX: Hawkish Central Banks Weigh Further On Japanese Yen

  • Weakness for the Japanese Yen stands out on Thursday, with USDJPY rising 0.82% on the session and now back above the 143 mark for the first time since November last year. Central banks on Thursday set a fairly hawkish turn placing upward pressure on core yields. Up next on the topside for USDJPY is 143.77, the 2.0% 10-dma envelope.
  • Helped by the soaring USDJPY, the greenback maintains its upward bias in late session with broad dollar indices hovering close to session highs as we approach the APAC crossover. The DXY is now up 0.30%, having reversed the majority of Wednesday’s decline.
  • Interestingly, GBPUSD hovers just above session lows heading into the close, despite the hawkish surprise from the Bank of England. Markets continue to ponder the potential impact of a peak rate circa 6%, which explains GBP largely shrugging off the developments and trading on the heavy side heading into Friday. For cable, short-term support levels are well defined at 1.2680 (the May 10 high) and 1.2630 (the Jun 15 low).
  • NOK remains an outperformer across G10, with a hawkish Norges bank briefly tipping EUR/NOK back toward the 100-dma support undercutting at 11.4405, however those declines have largely been pared throughout the session. A return lower to that level, which was last crossed in November last year, and a break below would mark a key medium-term momentum shift in the cross.
  • Worth noting that in emerging markets, an underwhelming 650bps hike from the central bank placed the Turkish lira under severe selling pressure. USDTRY currently trades at fresh all time highs around 24.85, having appreciated 5.40% on the day.
  • UK retail sales and Flash European PMIs headline a busy European docket on Friday.

FX: Expiries for Jun23 NY cut 1000ET (Source DTCC)

  • EUR/USD: $1.0855(E522mln), $1.0899-00(E507mln), $1.0940-60(E815mln), $1.1000(E669mln)
  • USD/JPY: Y138.00($864mln), Y141.00($1.2bln), Y141.90($598mln), Y145.00($650mln)
  • EUR/GBP: Gbp0.8640(E605mln)
  • AUD/NZD: N$1.1040-50(A$1.0bln)
  • AUD/USD: $0.6740-60(A$928mln)
  • USD/CAD: C$1.3250($758mln)
  • USD/CNY: Cny7.1500($523mln)

Late Equity Roundup: Marking Late Session Highs

  • Stocks are extending modest session highs at the moment, Consumer Discretionary, Health Care and Consumer Staples sectors leading gainers most of the day. Trading desks noted strong performance of Amazon (+3%) in the lead-up to Prime Day (July 11-12).
  • After marking lows for the week earlier S&P E-Mini futures are currently trading up 9.75 points (0.22%) at 4419.25, DJIA down 4.01 points (-0.01%) at 33948.62, Nasdaq up 96.4 points (0.7%) at 13598.74.
  • Leading laggers: Energy sector shares underperforming with crude prices sharply lower (WTI -3.0 at 69.53) while Marathon Oil down -3.75%, APA -3.0, Devon Energy -2.65%. Real Estate shares continue to trade weak after Fed Chairman Powell comments over commercial real estate earlier, while bank shares weaker on talk of raising capital requirements for large banks (over $100B) by as much as 20%.
  • The bull theme in S&P E-minis remains intact, the week’s pullback appears to be corrective. This is allowing a recent overbought condition to unwind. Initial key support lies at the 20-day EMA which intersects at 4348.95. A break of this average would strengthen a short-term bearish theme and signal scope for a deeper pullback. On the upside, the bull trigger is 4493.75, the Jun 16 high. A break would open 4500.21, the top of a bull channel.

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

  • RES 4: 4556.71 2.382 projection of the May 4 - 19 - 24 price swing
  • RES 3: 4532.08 2.236 projection of the May 4 - 19 - 24 price swing
  • RES 2: 4500.21 Bull channel top drawn from the Oct 2022 low (cont)
  • RES 1: 4493.75 High Jun 16 and the bull trigger
  • PRICE: 4422.00 @ 1500ET Jun 22
  • SUP 1: 4381.75/4348.95 Low Jun 13 / 20-day EMA
  • SUP 2: 4263.30 50-day EMA
  • SUP 3: 4154.75 Low May 24
  • SUP 4: 4098.25 Low May 4 and a key support

A bull theme in S&P E-minis remains intact and this week’s pullback appears to be a correction. This is allowing a recent overbought condition to unwind. Initial key support lies at the 20-day EMA which intersects at 4348.95. A break of this average would strengthen a short-term bearish theme and signal scope for a deeper pullback. On the upside, the bull trigger is 4493.75, the Jun 16 high. A break would open 4500.21, the top of a bull channel.

Friday Data Calendar

23/06/20232300/0900***AUJudo Bank Flash Australia PMI
23/06/20232301/0001**UKGfk Monthly Consumer Confidence
23/06/20230030/0930**JPJibun Bank Flash Japan PMI
23/06/20230600/0700***UKRetail Sales
23/06/20230700/0900***ESGDP (f)
23/06/20230715/0915**FRS&P Global Services PMI (p)
23/06/20230715/0915**FRS&P Global Manufacturing PMI (p)
23/06/20230730/0930**DES&P Global Services PMI (p)
23/06/20230730/0930**DES&P Global Manufacturing PMI (p)
23/06/20230800/1000**EUS&P Global Services PMI (p)
23/06/20230800/1000**EUS&P Global Manufacturing PMI (p)
23/06/20230800/1000**EUS&P Global Composite PMI (p)
23/06/20230830/0930***UKS&P Global Manufacturing PMI flash
23/06/20230830/0930***UKS&P Global Services PMI flash
23/06/20230830/0930***UKS&P Global Composite PMI flash
23/06/20230915/0515USSt. Louis Fed's James Bullard
23/06/20231200/0800USAtlanta Fed's Raphael Bostic
23/06/20231230/0830**USWASDE Weekly Import/Export
23/06/20231245/1445EUECB Panetta in BIS Conference Discussion
23/06/20231300/1500**BEBNB Business Sentiment
23/06/20231345/0945***USIHS Markit Manufacturing Index (flash)
23/06/20231345/0945***USS&P Global Services Index (flash)
23/06/20231530/1630UKBOE Announces Q3-23 Active Gilt Sales Schedule
23/06/20231740/1340USCleveland Fed's Loretta Mester

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