MNI ASIA MARKETS ANALYSIS: Risk-On As PPI Inflation Eases

US TSYS: Risk-On Post-Data, Rate Hike Projections Cool

• Treasury futures drift near late session highs, well above this morning's knee-jerk bid after PPI +0.1% vs. -0.1% est quickly reversed on weekly claims decline of 12k to 237k vs . 250k est.
• Curves running mixed: 3M10Y -9.840 at -163.468 (still above late June lows), while 2s10s remains steeper, but off highs (2s10s +3.889 at -85.206 vs. -82.676 high).
• Despite post-CPI, carry-over support in 10s, medium-term trend remains down and the latest recovery is likely part of a short-term corrective cycle. The contract has cleared the 20-day EMA and attention turns to a key resistance area at the 50-day EMA, at 113-12. A clear break of this average would strengthen a bullish theme. Key support and the bear trigger has been defined at 110-05, the Jul 6 low.
• In-line with short-end support, rate-hike projections have cooled in later dates: July 26 FOMC is 89% w/ implied rate of +22.2bp to 5.298%. September cumulative of +25.2bp at 5.33%, November cumulative of 29.3bp at 5.364%, December cumulative slips to 21.5bp vs. 31.7bp late Tuesday. Fed terminal has slipped to at 5.365% in Nov'23.
• Little react to San Fran Fed Pres Mary Daly on CNBC earlier: "It's too early to say that we can declare victory on inflation," she said. "This month of data is very positive, I hope it's part of a downward trend in inflation. But I remain in a wait-and-see mode on that because I remain resolute to bring inflation back down to 2%." Reminder, Fed enters policy blackout tomorrow at midnight.

SHORT TERM RATES

SOFR Benchmark Settlements:

• 1M +0.01942 to 5.22164 (+.04463/wk)
• 3M -0.00309 to 5.31105 (+.01258/wk)
• 6M -0.01826 to 5.39280 (-.02220/wk)
• 12M -0.05675 to 5.32653 (-.12789/wk)

• Daily Effective Fed Funds Rate: 5.08% volume: $116B
• Daily Overnight Bank Funding Rate: 5.07% volume: $263B

• Secured Overnight Financing Rate (SOFR): 5.05%, $1.361T
• Broad General Collateral Rate (BGCR): 5.04%, $585B
• Tri-Party General Collateral Rate (TGCR): 5.03%, $574B
• (rate, volume levels reflect prior session)

FED Reverse Repo Operation

Back to making new lows, the latest operation falls to $1,767.432B (lowest since early May'22), w/ 98 counterparties, compared to $1,820.146B 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 trade continued to focus on calls with one notable exception Thursday as underlying futures extend rally well past Wed's post-CPI related highs -- back to June 29 levels (TYU3 113-03 high). No obvious headline driver, more flow driven overnight with EGBs following suit. Cooler rate hike projections in longer dates drove batter call buying on net, while one large account faded the rally via 40,000 SFRV3 put condors:

• SOFR Options:
  • Block, 40,000 SFRV3 94.43/94.68/94.75/95.00 put condors, 10.0 ref 94.75 to -.735
  • 4,250 SFRZ3 94.87/95.00 call spds, 2.5 ref 94.75
  • 1,700 SFRQ3 94.62 calls ref 94.63
  • Block/screen, 4,250 SFRZ3 94.50/94.62/94.75/94.87 put condors, 3.5 ref 94.725
  • +55,000 SFRZ3 94.87/95.00 call spds, 2.5 ref 94.71 to -.735/0.06%
  • 1,000 OQU3 95.37/95.75 put spds vs. 2QU3 96.12/96.50 put spds
  • 2,000 SFRN3 94.62/94.75 call spds ref 94.63
  • 1,000 SFRU3 94.62/94.75/94.87 call flys ref 94.625
• Treasury Options:
  • 10,000 TYQ3 114/116/118 call flys, ref 113-02
  • 2,700 TYU3 110/111 put spds, 12 ref 112-19
  • 2,000 FVU3 107.5 calls, 59 ref 107-24.5
  • over 10,400 FVQ3 108.5 calls, 5.5 ref 107-24.5
  • over 6,300 TYQ3 115 calls, 1 ref 112-23
  • 4,500 FVU3 107.5 puts, 42.5 last ref 107-25
  • 4,000 wk2 TY 111.75 puts, 4 ref 112-17
  • over 7,200 TYQ3 114 calls, 3 ref 112-16
  • 2,800 FCQ3 108 calls, 12.5 ref 107-21.5
  • 5,100 FVU3 108.5 calls, 28 ref 107-20.75
  • 3,000 TYU3 114.5 calls, 21 ref 112-10
  • 5,000 TYU3 112.5/114 call spds 1 over TYU3 111 put ref 112-09.5
  • 1,300 TYQ3 112.75/113.25 call spds ref 112-08.5

EGBs-GILTS CASH CLOSE: Rally Continues On US Disinflation Narrative

European yields fell sharply for a 2nd consecutive session Thursday as the dovish implications of Wednesday's soft US inflation data continued to reverberate.

• Most of the day's German yield drop was in place by midday European trade, with a modest retracement thereafter, even as another round of weak US price data (this time PPI) appeared to reinforce the disinflationary narrative.
• UK yields continued to head lower by late afternoon as BoE hike prospects dimmed further, (-7bp on the day) in a cross-asset move that saw the US dollar sink further and equities push higher.
• 5Y UK yields fell the most across European instruments on the day as the short-end/belly rallied despite less soft-than-expected UK GDP data.
• Periphery spreads were mixed.
• Otherwise, data had little impact (final French CPI, weak Eurozone IP), while the ECB's accounts of the June meeting brought no surprises.
• Friday's schedule is light, with no major European data or central bank speakers expected.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is down 7.7bps at 3.152%, 5-Yr is down 8.8bps at 2.565%, 10-Yr is down 9.3bps at 2.485%, and 30-Yr is down 6.2bps at 2.529%.
• UK: The 2-Yr yield is down 9.2bps at 5.137%, 5-Yr is down 12.6bps at 4.566%, 10-Yr is down 9.2bps at 4.422%, and 30-Yr is down 6.6bps at 4.539%.
• Italian BTP spread down 2.8bps at 165.4bps / Greek up 4.1bps at 142.1bps

Continuing To Shift Positions Post-US CPI

Thursday's Europe rates / bond options flow included:

• ERZ3 96.00/95.875/95.375 put ladder paper paid 2.5 on 4K
• ERH4 95.875/96.25/96.625 call fly paper paid 7.5 on 5K
• ERQ3 96.125 puts 19K given at 8.5 vs. ERU3 96.00 puts with paper paying 4 on 19K, covered via 4.9K ERU3 at 96.08, looks like rolling down and out of an existing position
• RXQ3 131/130 put spread 4.5K given at 13/12

FOREX: Greenback Weakens Further, USDNOK Extends Weekly Drop To 6.25%

• Further optimism for risk assets on Thursday saw an extension of the building momentum across the currency space this week. The moves have been underpinned by a weaker greenback, with today’s price action leading the USD index (-0.71%) below the 100 mark for the first time since April 2022.
• In similar price action to Wednesday, Antipodean FX have been the biggest beneficiaries, with both AUD & NZD rising over 1.5% against the greenback. In similar vein, Scandinavian FX has continued to surge. A perfect storm of higher domestic inflation, a softer greenback, elevated oil prices and firmer risk have led USDNOK to fall an impressive 6.25% just this week, declining below 10.00 for the first time since February this year.
• The short-term outlook for USDCAD has deteriorated Thursday, with spot falling through the horizontal bear trigger drawn off the late June low of 1.3117. Next downside levels in USD/CAD undercut at 1.3084 the 1.618 projection of the Apr 28 - May 8 - May 26 price swing ahead of 50% retracement for the 2021 - 2022 upleg at 1.2992.
• Hot on the heels of their higher beta counterparts, EURUSD and GBPUSD continue to trade in a bullish manner, grinding above 1.12 and 1.31 respectively. For EURUSD, this represents the highest point since March 2022 and immediate focus is on 1.1211, before a retracement level at 1.1274 and the February 24 2022 high at 1.1313.
• Given the moves for SEK this week, emphasis is on the June inflation data due on Friday. Elsewhere the docket remains fairly quiet until the latest sentiment and inflation expectations data from the University of Michigan round off the week.

FX Expiries for Jul14 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0900-05(E1.3bln), $1.0955-60(E1.4bln), $1.1000(E2.0bln), $1.1120(E767mln), $1.1200(E971mln)
• USD/JPY: Y140.00($745mln), Y141.00($571mln)
• AUD/USD: $0.6700(A$960mln)
• USD/CAD: C$1.3030-40($795mln), C$1.3210-25($697mln)
• USD/CNY: Cny7.1500($2.9bln), Cny7.2000($2.1bln)

Late Equities Roundup: Communication Services, IT Continue to Lead

• Despite cautious policy comments, risk assets continue to react positively to disinflationary data, stocks marking session highs after midday. SPX Eminis climbing to the highest levels since mid-April 2022. At the moment, S&P E-Mini Future up 32 points (0.71%) at 4539.25, DJIA up 64.93 points (0.19%) at 34412.81, Nasdaq up 202.7 points (1.5%) at 14121.54.
• Leading gainers: Communication Services, Information Technology and Consumer Discretionary sectors are outperforming. Media and entertainment shares continue to support Communication Services sector higher for the third day running: Google +4.4%, Meta and Match both +1.9%, Live Nation +1.7%. Continued demand by AI applications remains supportive of semiconductor shares: Applied Materials +2.8%, Nvidia +2.65% and Qualcomm +2.5%. Autos led Consumer Discretionary with Tesla +1.25%.
• Laggers: Energy, Health Care and Utilities sectors lagged the rally, oil an gas shares weaker with Exxon -2.65%, Chevron -1.7%, Hess Energy -1.15%.
• The technical/bull theme in S&P E-minis bull theme remains intact with futures breaking resistance at 4498.00, the Jun 30 high. This confirms a resumption of the uptrend and maintains a bullish price sequence of higher highs and higher lows. The contract has also traded through 4500.00 and this opens 4532.08, a Fibonacci projection. First support lies at 4428.89, the 20-day EMA. Clearance of this level would highlight a S/T bearish development.

E-MINI S&P TECHS: (U3) Heading North

• RES 4: 4579.04 Bull channel top drawn from the Mar 13 low
• RES 3: 4576.62 2.50projection of the May 4 - 19 - 24 price swing
• RES 2: 4556.71 2.382 projection of the May 4 - 19 - 24 price swing
• RES 1: 4532.08 2.236 projection of the May 4 - 19 - 24 price swing
• PRICE: 4524.50 @ 14:20 BST Jul 13
• SUP 1: 4428.89/4368.50 20-day EMA / Low Jun 26 and a key support
• SUP 2: 4336.46 50-day EMA
• SUP 3: 4343.16 Bull channel base drawn from the Mar 13 low
• SUP 4: 4269.50 Low Jun 2

A bull theme in S&P E-minis remains intact. Yesterday’s gains resulted in a break of resistance at 4498.00, the Jun 30 high. This confirms a resumption of the uptrend and maintains a bullish price sequence of higher highs and higher lows. The contract has also traded through 4500.00 and this opens 4532.08, a Fibonacci projection. First support lies at 4428.89, the 20-day EMA. Clearance of this level would highlight a S/T bearish development.

COMMODITIES: Libya’s Sharara Field Halt Sparks Another Step Higher For Oil

• Crude oil has seen solid gains on the day, with the latest pop higher coming from news that Libya’s Sharara field is to be halted in growing spillover from protests that earlier affected its El Feel oil field. El Feel production was circa 60kbpd but Sharara was typically about 250-260kbpd.
• El Feel disruption had seen a bid for crude before fading some of the increase despite the dollar providing a tailwind with steady depreciation through the session.
• In other oil news, the IEA has revised down its global oil demand growth forecast for this year by 200kbpd to 102.1mbpd. Global oil supply for this year has been revised up to 101.5mbpd from the previously forecast 101.3mbpd.
• OPEC meanwhile raised its global oil demand growth forecast for this year to 2.4mbpd, up by 0.1mbpd, to 102mbpd. OPEC-13 crude oil output stood at 28.19mbpd in June, up by 91kbpd MoM.
• WTI is +1.4% at $76.83 having pushed through resistance at $76.15 (Jun 5 high) to open $78.03 (76.4% retrace of Apr 12 – May 4 bear leg).
• Brent is +1.54% at $81.36, easily through $80.55 (Jul 12 high) and opening $82.06 (76.4% retrace of Apr 12 – May 4 downleg).
• Gold is +0.1% at $1959.49, holding relatively steady through the session despite that USD despite and further large rally in Treasury yields. Having previously cleared resistance at the 50-day EMA, resistance is next eyed at $1968.0 (Jun 16 high).

FRIDAY DATA CALENDAR

Date	GMT/Local	Impact	Flag	Country	Event
14/07/2023	0600/0800	***		SE	Inflation Report
14/07/2023	0900/1100	*		EU	Trade Balance
14/07/2023	-			EU	ECB de Guindos in Ecofin Meeting
14/07/2023	1230/0830	**		CA	Monthly Survey of Manufacturing
14/07/2023	1230/0830	**		US	Import/Export Price Index
14/07/2023	1300/0900	*		CA	CREA Existing Home Sales
14/07/2023	1400/1000	**		US	U. Mich. Survey of Consumers