MNI ASIA MARKETS ANALYSIS: US PMIs Mirror Weaker EGB Metrics

US TSYS: US PMIs Follow Weaker EGB Metric's Lead

• Treasury futures trading firmer after the bell, but holding to narrow range since late morning after scaling off from post-data highs: TYU3 currently 113-01.5 +10 vs. 113-15.5 high; 2s10s curve at -101.173 after extending inversion to -103.544 low vs. March' 40Y low around -110.0.
• Fast two-way trade noted earlier as front month Treasury futures extended support then reversed after S&P Global US PMI data comes out lower than expected: Manufacturing PMI (46.3 vs. 48.5 est); Services PMI (54.1 vs. 54.0 est) Composite PMI (53.0 vs. 53.5 est).
• Treasury futures tracked higher EGBs overnight after lower than projected European PMIs overnight (France servicer PMI 48 vs 52.1 est; Germany mfg PMI 41.0 vs. 43.5 est; EU and UK softer as well).
• Cooler inflation metrics slightly tempered projected US rate hike at one of the next three meetings, though Nov'23 implied rate still fully pricing in a hike. First full 25bp rate CUT has pushed out to May 2024.
• Atlanta Fed Pres Bostic (non-voter in 2023) comments at Bank event with CFOs contributing to latest move: NOT SEEING ELEMENTS OF RISK APPEARING IN ECONOMY, Bbg.
• Meanwhile, SF Fed Pres Daly could be one of the 9 FOMC members in the two-hike camp for 2023, telling Reuters that 50bp of further tightening this year is "a very reasonable projection at this point...but no decision, for me, has been made." Echoing Chair Powell's comments the past two weeks, Daly said "it is, in my judgment, prudent policy... to slow the pace of policy as you near the destination."

SHORT TERM RATES

SOFR Benchmark Settlements:

• 1M -0.00556 to 5.08367 (+.00738/wk)
• 3M -0.00756 to 5.23870 (+.03186/wk)
• 6M -0.00541 to 5.32909 (+.03971/wk)
• 12M +0.00915 to 5.28360 (+.05398/wk)

US DOLLAR LIBOR: Latest settlements:

• O/N -0.00143 to 5.06757%
• 1M -0.00200 to 5.14843%
• 3M +0.00228 to 5.54414% */**
• 6M +0.00772 to 5.69029%
• 12M +0.02415 to 5.92529%
• * Record Low 0.11413% on 9/12/21; ** New 16Y high: 5.55743% on 6/12/23

• Daily Effective Fed Funds Rate: 5.07% volume: $132B
• Daily Overnight Bank Funding Rate: 5.06% volume: $297B

• Secured Overnight Financing Rate (SOFR): 5.05%, $1.354T
• Broad General Collateral Rate (BGCR): 5.03%, $607B
• Tri-Party General Collateral Rate (TGCR): 5.03%, $594B
• (rate, volume levels reflect prior session)

FED Reverse Repo Operation

NY Fed reverse repo usage falls to $1,969.380B w/ 101 counterparties, compared to $1,994.711B 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/TRERASURY OPTION SUMMARY

Better upside call trade reported Friday, particularly in SOFR options amid massive December call spread volume early the first half. Despite the rebound in underlying futures following lower than expected EGB and US PMI metrics, it appeared a large trading account was unwinding massive upside positions hedging for rate cuts by year end: approximately -100,000 SFRZ3 95.50/96.50 call spreads trade 7.5 after 70,000 SFRZ3 96.50/97.50 call spreads traded 3.5. Coming into the session, open interest in the 95.50 calls 345,812; 96.50 calls 422,721, 97.50 calls 394,127. Underlying futures had bounced overnight after lower than projected European PMIs overnight (France servicer PMI 48 vs 52.1 est; Germany mfg PMI 41.0 vs. 43.5 est; EU and UK softer as well) followed weaker US PMIs: MFG PMI (46.3 vs. 48.5 est); Services PMI (54.1 vs. 54.0 est) Comp PMI (53.0 vs. 53.5 est).. Cooler inflation metrics slightly tempered projected US rate hike at one of the next three meetings, though Nov'23 implied rate still fully pricing in a hike.

• SOFR Options:
  • Block, 8,000 SFRU3 94.75/95.25 put spds 44.0 vs. 94.66/0.24% vs.
  • Block, 8,000 2QU3 96.75 puts, 34.0 vs. 96.63/0.58%
  • +12,000 SFRZ3 98.00/98.25 call strip, 5.0
  • -15,000 SFRU3 94.25 puts, 1.75
  • 4,600 SFRZ3 94.50/94.75/95.00 put flys adds to 8k Block
  • -100,000 SFRZ3 95.50/96.50 call spds 7.5 ref 94.795
  • -70,000 SFRZ3 96.50/97.50 call spds, ref 94.79
  • Block, 8,000 SFRZ3 94.50/94.75/95.00 put flys, 3.75 ref 94.795
  • Block, 7,848 SFRZ3 95.75/96.50/97.25 call flys, 2.0 ref 94.79
  • 2,000 OQQ3 96.25/96.50/96.68 call flys ref 95.89
  • 1,250 SFRN3 94.25/95.25 strangles ref 94.64
  • Block, 2,000 SFRU3 94.25/94.50/94.75 put flys, 10.25 ref 94.65 vs.
  • Block, 4,000 SFRZ3 95.00/95.25 call spds, 4.75 ref 94.75
• Treasury Options:
  • +6,000 FVQ3 106.5 puts, 9 ref 107-31.5
  • over 5,400 FVQ3 109.5 calls, 11 ref 108-00
  • over -16,700 TYN3 113.75 calls, 2 ref 113-13
  • 3,200 TYN3 113 puts, 2
  • 5,800 TYQ3 118 calls, 2
  • over 7,800 TYQ3 115 calls, 14-15 ref 113-03.5 to -03
  • 1,300 TYQ3 116 calls, 7 ref 113-04.5
  • 1,500 FVQ3 107.5 puts, 29 ref 107-26
  • 1,500 FVN3 108.25/109 call spds ref 107-25.5
  • 1,000 TYU3 117 calls, 16 ref 113-03.5
  • 1,000 TYU3 114/115.5/116.5 broken call flys, ref 112-25.5

EGBs-GILTS CASH CLOSE: Bunds Soar As Eurozone Growth Concerns Resurface

Weaker-than-expected European PMI readings boosted Gilts and Bunds Friday, with the latter outperforming as Eurozone growth concerns returned to the fore.

• German yields fell sharply in a bull flattening move after flash Eurozone June flash PMIs disappointed and showed signs of price pressures easing.
• Though UK PMIs were also on the weak side, Gilts lagged the rally slightly as UK retail sales data were solid, and BoE hike pricing continued to gain after Thursday's surprise 50bp hike.
• 2s10s German spreads fell to post-1990 lows; UK's post-2000 lows.
• After the PMI gains, Bunds traded the rest of the session with a slightly positive drift, with Gilts fading, with both finishing much stronger on the day.
• ECB's de Cos said it's not possible to anticipate the September decision at this point, especially given the weak PMI data.
• Greek spreads underperformed on the periphery, giving up some of the recent gains ahead of this weekend's elections (analysis on election implications for GGBs here).
• Next week's highlights include June inflation for multiple Eurozone countries and the ECB's Sintra forum.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is down 11.5bps at 3.106%, 5-Yr is down 14.7bps at 2.495%, 10-Yr is down 14.1bps at 2.353%, and 30-Yr is down 10.5bps at 2.404%.
• UK: The 2-Yr yield is up 10bps at 5.177%, 5-Yr is up 0.9bps at 4.571%, 10-Yr is down 4.7bps at 4.32%, and 30-Yr is down 3.5bps at 4.45%.
• Italian BTP spread down 1.1bps at 162.6bps / Greek up 1.2bps at 125bps

EGB Options: Busy Week Concludes With Some Unwinding

Friday's Europe rates / bond options flow included:

• RXN3 134.50/135.00/135.50c fly, bought for 2 in 2k
• ERZ3 97.5/98.00cs, bought for 1.5 in 4k
• SFIN3 94.35/94.20ps vs 94.80/95.05cs, sold the ps at 10.75 in 5k (profit taking).

FOREX: Greenback Bounce Extends Amid Souring Sentiment, USDJPY Nears 144.00

• Risk sentiment was dented on Friday as disappointing flash PMIs in Europe sparked global growth concerns once again. Amid pressure on major equity benchmarks, the greenback prospered with the USD index (+0.56%) extending the firm bounce to around one percent from Thursday’s lows.
• Following the data, and the particularly poor prints in France and Germany, the Euro is among the poorest performers in G10 Friday, as ECB market-implied pricing has adjusted lower. The EURUSD pullback is considered corrective - for now. Attention turns to support at 1.0853, the 20-day EMA. A clear break of this average would signal scope for a deeper pullback and this would open 1.0804, the Jun 15 low.
• With the price action so closely linked to risk and the commodity complex also under pressure, the Australian dollar was the weakest in G10, falling 1.10% on the session.
• Despite marginally lower core yields, the greenback strength was most notable against the Japanese yen in the second half of Friday trade. A small dip to 1.4272 for USDJPY around the cash equity open was met with fierce support and the pair ramped to fresh-trend highs of 143.87. The pair trades close to the best levels as we approach the weekend close.
• Market participants will be on close watch for any comments from officials as the yen slumps toward levels where the government intervened last year. The party line has remained consistent, that Japan will closely watch currency moves and won't rule out any options, last laid out by a top currency diplomat on May 30 after financial authorities met in the wake of the yen's slide to a six-month low against the USD. 144.40 is a notable target on the topside, the 1.382 Fibonacci projection of the Jan 16 - Mar 8 - Mar 24 price swing.
• German IFO data kicks off next week’s data docket with potential comments from SNB’s Jordan and ECB’s Lagarde. The focus next week will be on a host of fresh inflation data across G10 as well as China manufacturing and non-manufacturing PMIs.

FX: Expiries for Jun26 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0815-25(E662mln)
• USD/JPY: Y139.10($690mln)
• USD/CNY: Cny7.1500($653mln)

Equities Roundup: Off Lows, Bull Theme Intact

• Stocks drift near session lows, SPX Eminis currently trading down 33.25 points (-0.75%) at 4390.5, DJIA down 213.09 points (-0.63%) at 33734.2, Nasdaq down 132.5 points (-1%) at 13498.26.
• Not a lot of appetite for risk going into the weekend with mildly weaker Health Care, Communication and Financials sectors leading gainers. On the flipside, weaker crude (WTI -.30 at 69.21) continued to sap Utilities, Energy and Materials sector performance.
• Despite this week's pullback from last Friday's 14-month high (ESU3 4492.50), a bull theme in S&P E-minis remains intact. The move lower is allowing a recent overbought condition to unwind.
• Initial key support lies at the 20-day EMA, at 4356.07. 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) This Week’s 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: 4503.22 Bull channel top drawn from the Oct 2022 low (cont)
• RES 1: 4493.75 High Jun 16 and the bull trigger
• PRICE: 4389.00 @ 1445ET Jun 23
• SUP 1: 4381.75/4356.07 Low Jun 13 / 20-day EMA
• SUP 2: 4269.59 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. The move lower is allowing a recent overbought condition to unwind. Initial key support lies at the 20-day EMA, at 4356.07. 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.

COMMODITIES: Gold/Silver Ratio Rally Fades Through Cash Equity Open

• Softer equity open provides another boost for spot gold to new session highs and a higher close today could spell the end of the six-session streak of lower lows for gold early next week. The 100-dma is the next upside level (1942.3) and strength through here opens the mid-June highs of 1968.0.
• Sentiment swing clearly the driver for gold, gaining on softer equities, lower yields and a waning USD.
• Despite the gold rally, silver is actually outperforming, tipping the gold/silver ratio into minor negative territory to seemingly put an end to the sharp multi-day rally in the ratio off the Monday low.

Monday Data Calendar

Date	GMT/Local	Impact	Flag	Country	Event
26/06/2023	0800/1000	***		DE	IFO Business Climate Index
26/06/2023	1000/1100	**		UK	CBI Distributive Trades
26/06/2023	1430/1030	**		US	Dallas Fed manufacturing survey
26/06/2023	1530/1130	*		US	US Treasury Auction Result for 26 Week Bill
26/06/2023	1530/1130	*		US	US Treasury Auction Result for 13 Week Bill
26/06/2023	1700/1300	*		US	US Treasury Auction Result for 2 Year Note
26/06/2023	1730/1930			EU	ECB Lagarde Opens ECB Forum