MNI ASIA MARKETS ANALYSIS: Tsy Modest Gains After Volatile Wk

US TSYS Firmer/Inside Range, Build Permits Miss, UofM Expectations Firmer

• Treasuries are holding modestly higher after the bell, inside the early session range after some modest data driven volatility. Rates held near early highs after Building permits disappointed in July at 1396k (cons 1425k) after a mildly upward revised 1454k (1446k).
• Tsys ratcheted lower into/after University of Michigan inflation expectations were a tenth stronger than expected for both 1Y and 5-10Y measures but remain in recent ranges.
• Meanwhile, the BLS state household survey data showed another decline in the share of states that have triggered the Sahm Rule threshold, down to 30% in July from 34% in June and 42% in May.
• Tsy Sep'24 10Y futures gained slightly on the week, currently at 113-04 (+5.5/day) vs. last Friday's 112-30.5 settle. Curves mildly steeper, 2s10s +.795 at -17.611, 5s30s +.370 at 38.171.
• As such, short end rebound underpinned projected rate cuts into year end vs. this mornings pre-data levels (*): Sep'24 cumulative -33.8bp (-33.8bp), Nov'24 cumulative -64.2bp (-62.0bp), Dec'24 -96.8bp (-93.5bp).
• The KC Fed hosted Jackson Hole economic symposium "Reassessing the Effectiveness and Transmission of Monetary Policy," will be held Aug. 22-24, Fed Chairman Powell speaking 1000ET Friday Morning.

SOFR FIXES AND PRIOR SESSION REFERENCE RATES

SOFR Benchmark Settlements:

• 1M -0.00589 to 5.33568 (+0.00216/wk)
• 3M +0.02686 to 5.12841 (+0.01572/wk)
• 6M +0.05907 to 4.83969 (+0.03372/wk)
• 12M +0.10199 to 4.38660 (+0.03252/wk)

• Secured Overnight Financing Rate (SOFR): 5.35% (+0.02), volume: $2.118T
• Broad General Collateral Rate (BGCR): 5.32% (+0.00), volume: $817B
• Tri-Party General Collateral Rate (TGCR): 5.32% (+0.00), volume: $797B
• (rate, volume levels reflect prior session)

• Daily Effective Fed Funds Rate: 5.33% (+0.00), volume: $96B
• Daily Overnight Bank Funding Rate: 5.32% (+0.00), volume: $253B

FED Reverse Repo Operation

RRP usage rebounds to $330.317B from $307.141B Thursday -- compares to $286.660B on Wednesday, Aug 7 -- the lowest since mid-May 2021. Number of counterparties steady at 63.

US SOFR/TREASURY OPTION SUMMARY

• SOFR Options:
  • Block, 5,000 SFRU4 95.06/95.18/95.50/95.62 call condors, 2.25 net ref 95.035
  • +10,000 SFRU4 95.12/95.25/95.37 call trees, 1.25
  • 3,500 SFRM5 97.00/97.50 call spds
  • 2,000 SFRU4 95.12/95.50 call spds vs. 95.00 put ref 95.075
  • 2,000 SFRH5 97.50/98.00 call spds ref 96.155
  • 3,000 SFRU4 95.18/95.31 call spds ref 95.07
  • 2,000 0QZ4/3QZ4 97.00/97.50 call spd spd, ongoing curve play
  • 3,000 SFRZ4 94.93/95.18/95.43 put flys ref 95.66 to -.685
  • 2,000 SFRZ4 95.62/95.75/95.87 call flys
• Treasury Options:
  • Block, -10,000 TYV4 114 call/TYX4 111 put call over risk vs. 113-03.5/0.40%
  • 5,000 USV4 126 calls, 60 ref 123-26
  • 4,000 FVU4 108.75 calls, 20 ref 108-25
  • 4,000 TYU4 112/112.5 put spds, 3 ref 113-11
  • over 6,400 FVU4 109 calls, 9-11.5
  • 3,000 TYU4 113/113.5 call spds ref 113-10.5
  • over 4,100 TYU4 112.5 puts, 6 last ref 113-09 to -09.5
  • 6,300 USU4 122 puts, 11-12 ref 123-17
  • 7,300 wk3 TY 113.25/113.5 call spds ref 113-02, expire today
  • 2,100 FVU4 108 puts ref 108-24

EGBs-GILTS CASH CLOSE: Yields End Week On Flat Note

Bunds and Gilts surrendered early session strength by Friday's close, leaving yields relatively flat for the week.

• Core yields fell through the European morning, helped in large part by weaker oil prices diminishing inflation risk premia.
• But after bottoming out in early afternoon, Bund and Gilt yields turned higher as the week's cash trade reached a conclusion, closing the session near the highs.
• Contributing factors in the reversal included a rebound in oil and equities from session lows and stronger-than-expected US consumer sentiment data (UMichigan).
• The German curve bull steepened slightly on the day, with the UK's twist flattening.
• Periphery EGB spreads widened modestly.
• Next week's schedule includes August flash PMIs Thursday, with central bank speakers including BoE's Bailey and ECB's Lane appearing at the Fed's Jackson Hole symposium.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is down 2.7bps at 2.433%, 5-Yr is down 2.1bps at 2.174%, 10-Yr is down 1.6bps at 2.247%, and 30-Yr is down 1.5bps at 2.467%.
• UK: The 2-Yr yield is up 2.7bps at 3.68%, 5-Yr is up 1.8bps at 3.736%, 10-Yr is up 0.3bps at 3.926%, and 30-Yr is down 1.1bps at 4.469%.
• Italian BTP spread up 1.7bps at 138.6bps / Spanish up 1.6bps at 84.3bps

EGB Options: Euro Rate Call Spread Buying Features To Close The Week

Friday's Europe rates/bond options flow included:

• ERU4 96.50/96.37/96.25/96.12p condor, bought for 1 in 2k
• ERH5 97.75/98.00cs, bought for 3.75 now in 7.5k and earlier for 3.25 in 5k
• SFIU4 95.25/95.40/95.55c fly, bought for 1.25 in 3k

FOREX DXY Erases Thursday’s Data Inspired Boost, USDJPY Back Below 148.00

• The US dollar slowly backtracked on the prior session gains that had been prompted by a set of firmer US retail sales and initial jobless claims data. The ongoing strength of the major equity benchmarks recovery weighed consistently on the greenback, and slightly lower US yields, added to this pessimism. The DXY is down half a percent approaching the close.
• Amid this dynamic, USDJPY retreated 1.10% on Friday, slipping back below 148 having bridged the gap to the pre-NFP levels yesterday. Overall, the bearish condition remains intact, leaving this week’s recovery as corrective in nature. Note that the downtrend remains oversold, and the latest recovery is allowing this set-up to unwind. Resistance to watch is 149.99, the 20-day EMA.
• Also capitalising on the firmer risk sentiment and pressure on the greenback was kiwi, with NZDUSD extending gains to 1.15% on the session, unwinding a large portion of the dovish RBNZ inspired decline seen Wednesday.
• Also standing out is GBP, breaking above the initial resistance at 1.2899 (a retracement level for the downleg off the cycle high), helping trigger some decent volumes via futures markets. UK retail sales was not the trigger for this morning's GBP strength (particularly as BoE pricing holds the recent range), with the currency more closely correlated to risk sentiment and global equity futures. Cross-selling via EUR/GBP also evident, as the price continues to unwind the overbought condition that resulted from the run-up to 0.8625. The 100-dma undercuts as support at 0.8511.
• FOMC Member Waller speaks Monday, however, the focus next week will be later in the week as central bankers gather at the Jackson Hole Symposium. Also, there are a host of emerging market central bank decisions.

FX OPTIONS: Expiries for Aug19 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0850(E529mln), $1.0980(E625mln), $1.0996-02(E569mln), $1.1010-15(E595mln), $1.1090(E765mln)
• USD/JPY: Y147.75-80($842mln)
• GBP/USD: $1.2850(Gbp645mln)
• AUD/USD: $0.6675(A$781mln)
• USD/CAD: C$1.3700($575mln), C$1.3900($1.3bln)

Late Equities Roundup: Eminis Near August 1 High/Resistance

• Stocks have recovered from first half sell pressure to mildly higher in late trade, Utility and Financial sector shares still outperforming. Currently, the DJIA trades up 110.73 points (0.27%) at 40674.08, S&P E-Minis up 11.75 points (0.21%) at 5579, Nasdaq up 44.2 points (0.3%) at 17637.59.
  
• Eminis neared initial technical resistance of 5600.75 (High Aug 1).
• Rebounding from Thursday selling, Utility and Financial sector shares led gainers in late trade. Electricity and multi-energy shares buoyed the former: Xcel Energy +1.63%, NextEra Energy +1.37, Dominion Energy +1.36%. Banks buoyed the Financial sector, outpacing earlier services shares: Fifth Third Bancorp +1.23%, Regions Financial +1.20%, Citigroup +1.11%.
  
• On the flipside, Real Estate and Industrials sectors underperformed in late trade, industrial and hotel/resort REITS weighing on the former: Prologis -1.53%, Essex Property -1.18%, Iron Mountain -1.02%. GE Vernova -2.83%, Hubbell Inc -2.04%, Trane Technologies -1.80% weighed on Industrials.

EQUITY TECHS: E-MINI S&P: (U4) Reversal Extends

• RES 4: 5721.25 High Jul 16 and Key resistance
• RES 3: 5664.00 High Jul 18
• RES 2: 5629.75 High Jul 23
• RES 1: 5600.75 High Aug 1
• PRICE: 5580.50 @ 1230 ET Aug 16
• SUP 1: 5438.75/5319.50 Low Aug 14 / 9
• SUP 2: 5182.0 Low Aug 8
• SUP 3: 5120.00 Low Aug 5 and the bear trigger
• SUP 4: 5092.00 Low May 2

S&P E-Minis traded higher Thursday and are consolidating the gains into the Friday session. This retains the firmer short-term tone. The rally this week has resulted in a break of the 50-day EMA. This highlights a stronger reversal and signals the end of the corrective cycle between Jul 16 - Aug 5. Sights are on 5600.75, Aug 1 high. A break would set the scene for an extension towards key resistance and the bull trigger at 5721.25, the Jul 16 high. Initial support lies at 5367.50, the Aug 13 low.

COMMODITIES Gold Soars to Fresh Record High Above $2,500

• Gold soared to a fresh all-time-high on Friday, notably rising above the psychological $2,500/oz mark. The rise follows US data indicating inflation slowed last month while retail sales surged, easing recession worries while strengthening expectations the Federal Reserve can begin easing in September.
• "Gold's data dependency remains paramount, as jobs, inflation, and economic data all have the potential to clarify the Fed's path and future monetary policy," a strategist at RBC Capital Markets, said in a note.
• The technical break above $2483.7, the Jul 17 high and bull trigger resumes the uptrend. The initial target of note is $2528.4, the 3.00 projection of the Oct 6 - 27 - Nov 13 price swing.
• WTI crude futures have weakened 1.7% on the session, keeping the front-month contract roughly flat week-on-week. Notably, Commerzbank revised their oil price forecast downwards on weak China demand with Brent at $85/bbl and WTI at $80/bbl by year end.
• OPEC+ has succeeded in fine tuning its supply to support prices, but planned cut unwinding could create downward pressure, according to Platts.
• For natural gas, Henry Hub has pulled back to its lowest level since Aug. 9. Indications of cooling weather, robust production levels, and a continued - albeit shrinking - storage surplus have added pressure.

MONDAY DATA CALENDAR

Date	GMT/Local	Impact	Country	Event
19/08/2024	-		SE	Riksbank Meeting
19/08/2024	2350/0850	*	JP	Machinery orders
19/08/2024	-		GB	DMO to hold quarterly consultation investors / GEMM consultation
19/08/2024	1315/0915		US	Fed Governor Christopher Waller
19/08/2024	1530/1130	*	US	US Treasury Auction Result for 26 Week Bill
19/08/2024	1530/1130	*	US	US Treasury Auction Result for 13 Week Bill