MNI ASIA MARKETS ANALYSIS: Tsys Firmer on Inside Range Day

US TSYS Back Near Early Session Highs

• Treasury futures have drifted back to the upper half of the session range, curves flatter with short end rates underperforming. After the bell, 2s10s is back below -100 at -101.738, -3.256.
• Rather decent volumes (TYU3>1.2M) for an inside range day after Tsys traded firmer overnight after lower than expected UK CPI data (0.1% MoM vs. 0.4% est) saw front month Sep'23 10Y futures hit 113-06.5 high.
• Treasury futures pared early session gains, with 10s see-sawing to session low of 112-21 by midday: likely due to some deal-tied hedging pressure: rate locks on expected corporate issuance ($6.75B Morgan Stanley 4-tranche for instance) and/or pre-auction short sets ahead Tsy's $12B 20Y bond auction re-open at 1300ET.
• The sale traded near in-line with WI: 4.036% high yield vs. 4.037% WI; 2.68x bid-to-cover vs. prior month's 2.87x. Indirect take-up 68.75% vs. 74.58% last month; direct bidder take-up 21.68% vs. 17.62% prior; primary dealer take-up 9.57% vs. 7.79%.
• Projected rate hike expectations gain slightly: July 26 FOMC is 96% w/ implied rate of +24bp to 5.318%. September cumulative of +27bp at 5.347%, November cumulative of 32.2bp at 5.399%, and December cumulative of 26.8bp at 5.346%. Fed terminal holding at 5.405% in Nov'23.

SHORT TERM RATES

SOFR Benchmark Settlements:

• 1M +0.00900 to 5.26357 (+.03363/wk)
• 3M +0.00738 to 5.33352 (+.02363/wk)
• 6M -0.00130 to 5.39914 (+.02360/wk)
• 12M -0.01469 to 5.28580 (+.03179/wk)

• Daily Effective Fed Funds Rate: 5.08% volume: $106B
• Daily Overnight Bank Funding Rate: 5.07% volume: $264B

• Secured Overnight Financing Rate (SOFR): 5.06%, $1.482T
• Broad General Collateral Rate (BGCR): 5.04%, $600B
• Tri-Party General Collateral Rate (TGCR): 5.03%, $591B
• (rate, volume levels reflect prior session)

FED Reverse Repo Operation

The latest operation bounces to $1,732.804B , w/ 97 counterparties, compared to $1,716.862B (lowest since early April May'22) 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

Mixed trade on light summer volumes reported Wednesday, underlying futures higher for the most part, short end lagging as curves flattened and projected rate hikes firmed up into year end.
SOFR Options:
Block, 5,000 OQZ3 95.50/96.00 put spds 8.0 over 2QZ3 95.75/96.25 put spds at 1254:43ET
2,000 SFRV3 94.50/94.56/94.62/94.68 put condors, ref 94.675
Block, 5,000 OQV3 95.62/96.12 put spds 4.5 over 2QV3 96.12/96.62 put spds at 1222:07ET
+10,000 SFRZ4 97.25 calls, 34.5
-4,000 SFRZ3 94.68 straddles, 38.5-38.0
2,000 SFRU3 94.68/94.75/94.81 call flys

Treasury Options:
8,000 TYQ3 114 calls, 1 ref 112-28
over 15,000 112.5/116 call spds, 38-43
4,000 TYU3 111.5/114.5 strangles, 51 ref 112-25
over 4,200 FVQ3 108 calls, 8 ref 107-26.5
3,200 FVQ3 107.5 puts, 5 last
over 3,400 TYU3 115.5 calls, 12 last ref 112-29.5
2,500 TYQ3 113 puts, 17 ref 113-01
1,000 TYU3 109/110.5 put spds ref 113-02

EGBs-GILTS CASH CLOSE: UK Short End Soars On Downside CPI Surprise

The UK short end rallied sharply Wednesday as the highly anticipated June inflation report delivered a downside surprise, with Bunds initially following suit but closing weaker.

• UK headline and core CPI both came in 2 tenths below expected, with the rates strip erasing nearly a full 25bp hike from the implied BoE path.
• The UK curve bull steepened, with 2Y yields at one point 23bp lower (which would have been the biggest one-day drop since March).
• Yields retraced higher over the course of the session as equities soared and commodity prices rose, leaving Gilt gains diminished and the Bund rally reversed.
• Eurozone core CPI was revised up 0.1pp in the final, but only a marginal increase when unrounded, and had little lasting impact.
• Periphery spreads were mixed, with Greece outperforming after a solid 5Y GGB auction.
• Attention first thing Thursday will be on German producer prices.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is up 1.6bps at 3.074%, 5-Yr is up 3.2bps at 2.515%, 10-Yr is up 4.9bps at 2.438%, and 30-Yr is up 4.4bps at 2.469%.
• UK: The 2-Yr yield is down 18.1bps at 4.91%, 5-Yr is down 16bps at 4.31%, 10-Yr is down 11.6bps at 4.215%, and 30-Yr is down 10bps at 4.377%.
• Italian BTP spread up 1.7bps at 164.2bps / Greek down 4.2bps at 138.5bps

Multiple Sonia Call Structures Bought After Below-Expected UK CPI

Wednesday's Europe bond / rate options flow included:

• ERM4 96.25/96.75/97.25 call fly paper paid up to 9 on 10K
• ERZ3 96.12/25/37/50 call condor paper paid 2.75 on 2.5K
• SFIQ3/U3 94.50/60/70 call fly strip paper paid 2 on 2K
• SFIQ3 94.40/50 1/1.5x call spread paper paid 1.5 on 8K
• SFIQ3 94.40/94.50 call spread paper paid 3 on 5K
• SFIQ3 94.40/94.50 1/1.5x call spread paper paid 1.75 on 3K

Sterling Consolidates Post CPI Weakness Amid Greenback Bounce

• GBP remains softer against all others in G10 following a broadly lower-than-expected June inflation report. Headline CPI slowed to 7.9% Y/Y, the slowest rate of inflation in a year, missing forecasts by 0.3ppts in the process. Core inflation was also soft, helping drive a step lower in GBPUSD from ~1.3020 to lows of 1.2868. Price has such edged back above the 1.29 handle but broadly is consolidating session declines of around 0.9%.
• After hovering around the 100 mark early this week, the USD index took a step higher on Wednesday, gaining 0.40% with the greenback higher against most others in G10.
• Worth noting an extension of the USDJPY recovery seen on Tuesday following the comments from the Bank of Japan governor on maintaining easy monetary policy. USDJPY (+0.60%) stealthily climbed to a high of 139.99 amid the general greenback advance.
• AUDUSD (-0.50%) weakness today has now erased the entirety of the Jul13 rally. A low of 0.6750 today matches closely with the 20-day EMA at 0.6746. A break below here would mark a notable downside shift in short-term technical momentum.
• Australian employment data for June highlights the APAC docket on Thursday before US jobless claims and Philly Fed Manufacturing later in the session.

FX Expiries for Jul20 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.1110(E796mln), $1.1190-00(E1.3bln), $1.1300(E592mln)
• USD/JPY: Y140.00($1.9bln), Y140.60-70($746mln), Y140.90-00($599mln)
• AUD/USD: $0.6755-65(A$577mln), $0.6800-15(A$2.1bln)
• NZD/USD: $0.6310(N$1.1bln)
• USD/CAD: C$1.3105($680mln)
• USD/CNY: Cny7.1000($1.4bln), Cny7.1500($2.6bln), Cny7.2000($2.5bln), Cny7.2500($2.0bln)

Late Equities Roundup: Paring Early Gains, Earnings Cycle Accelerating

• Stocks are trading modestly higher for the most part after midday, Nasdaq shares off midday highs to marginally weaker at the moment. Currently, Nasdaq is down 24.4 points (-0.2%) at 14329.09, S&P E-Mini Future are up 2.75 points (0.06%) at 4590.25, DJIA up 94.88 points (0.27%) at 35045.93.
• Leading gainers: Real Estate, Utilities and Consumer Staples. Real Estate shares buoyed by Office, Health Care and Specialized REITs while Food and Beverage shares helped Consumer staples on the day, Constellation Brand shares up 5.6%.
• Laggers: Materials, Information Technology and Industrials. Miners weighed on Materials: Steel Dynamics -3.5%, Nucor -2.55%. Software and Services weighed on IT Sector, profit taking in Microsoft after strong gains Tue, MSFT currently -1.75%.
• Technicals for SPX Eminis: Moving averages continue to underpin the underlying bull trend, with envelope resistance sitting just above the Wednesday high at 4601.70. The bull channel top has been breached, underscoring the momentum shift in this week’s rally and making the 4631.00 upside level a more realistic prospect in the near-term. Nonetheless, the RSI has now tipped into overbought territory, signalling a slowing of the uptrend could dominate to alleviate the condition over the coming few sessions. Any corrective pullback would initially target the 20-day EMA at 4482.32 for support.
• Earnings after today's close: Zions Bancorp, Discover, Netflix, IBM, Alcoa, Crown Castle, Equifax, Tesla, United Airlines. Early Thursday sees earnings from Fifth Third, J&J, KeyCorp, Travelers, Newmont, Freeport-McMoRan, Abbott Labs, AA, Philip Morris, Blackstone and Capital One.

E-MINI S&P TECHS: (U3) Bull Channel Top Cleared

• RES 4: 4631.00 High 29 Mar’22
• RES 3: 4601.70 2.0% 10-dma envelope
• RES 2: 4594.50 Bull channel top drawn from the Mar 13 low
• RES 1: 4592.25 High Jul 17
• PRICE: 4587.00 @ 12:18 BST Jul 19
• SUP 1: 4482.32 / 4368.50 20-day EMA / Low Jun 26 and a key support
• SUP 2: 4351.02 50-day EMA
• SUP 3: 4337.83 Bull channel base drawn from the Mar 13 low
• SUP 4: 4269.50 Low Jun 2

The rally accelerated Tuesday, with the index cresting at a new cycle high of 4594.50. Moving averages continue to underpin the underlying bull trend, with envelope resistance sitting just above the Wednesday high at 4601.70. The bull channel top has been breached, underscoring the momentum shift in this week’s rally and making the 4631.00 upside level a more realistic prospect in the near-term. Nonetheless, the RSI has now tipped into overbought territory, signalling a slowing of the uptrend could dominate to alleviate the condition over the coming few sessions. Any corrective pullback would initially target the 20-day EMA at 4482.32 for support.

COMMODITIES Crude Reverses Gains On EIA Data, Gold Resilient To USD Climb

• Front crude oil futures have seen a sharp reversal of earlier gains for small losses on the day.
• The paring of gains started from a smaller than expected decrease in EIA crude stocks of -708k vs 2.369m forecast. The data further showed implied US gasoline consumption under 9mbpd for a second straight week, with the 4-week average down to 9.1mbpd or 4% below the same time in 2019.
• Gains had earlier been supported in a supply constraint backdrop after Russia’s pledge to cut crude output and exports is starting to show. Reported yesterday, Russian seaborne crude shipments in the four-week period to 16 July fell to a six-month low, whilst Russian Urals oil prices rose back above the G7 price cap of $60/bbl today.
• WTI is -0.6% at $75.30 off a high of $76.97 to move closer to but not trouble resistance at $78.03 (Fibo retracement of Apr 12 – May 4 bear leg).
• Brent is -0.2% at $79.47, off a high of $80.93 vs resistance at $82.06 (Fibo retracement of Apr 12 – May 4 downleg).
• Gold is near unchanged at $1978.03 as the USD index eeking out gains has been somewhat offset by lower Treasury yields. It has kept to a relatively narrow range, having yesterday cleared resistance at $1968.0 (Jun 16 high) to open key resistance at $1985.3 (May 24 high).

THURSDAY DATA CALENDAR

Date	GMT/Local	Impact	Flag	Country	Event
20/07/2023	0130/1130	***		AU	Labor Force Survey
20/07/2023	0600/0800	**		DE	PPI
20/07/2023	0645/0845	**		FR	Manufacturing Sentiment
20/07/2023	0800/1000	**		EU	EZ Current Account
20/07/2023	1230/0830	**		US	Jobless Claims
20/07/2023	1230/0830	**		US	WASDE Weekly Import/Export
20/07/2023	1230/0830	**		US	Philadelphia Fed Manufacturing Index
20/07/2023	1400/1000	***		US	NAR existing home sales
20/07/2023	1400/1600	**		EU	Consumer Confidence Indicator (p)
20/07/2023	1430/1030	**		US	Natural Gas Stocks
20/07/2023	1530/1130	**		US	US Bill 04 Week Treasury Auction Result
20/07/2023	1530/1130	*		US	US Bill 08 Week Treasury Auction Result
20/07/2023	1700/1300	**		US	US Treasury Auction Result for TIPS 10 Year Note