MNI BRIEF: Japan Govt Keeps Econ View, Cuts Exports

MNI: PBOC Conducts CNY200 Bln via MLF Thurs; Rate Cut

MNI: PBOC Sets Yuan Parity Lower At 7.1321 Thurs; -1.92% Y/Y

CHINA PBOC CONDUCTS CNY235.1 BILLION VIA 7-DAY REVERSE REPOS THURS

CHINA SETS YUAN CENTRAL PARITY AT 7.1321 THURS VS 7.1358

MNI China Daily Summary: Wednesday, July 24

MNI: JAPAN JUNE SERVICES PPI +3.0% Y/Y; MAY REV +2.7%

MNI BRIEF: Japan June Services PPI Rises 3.0% Vs. May's 2.7%

US Treasury Auction Calendar

RPT-MNI: Canada Sticks To Fiscal Anchors, Spends Chunk Of Windfall

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MNI ASIA OPEN: Stocks Make New Highs


EXECUTIVE SUMMARY

  • MNI INTERVIEW: Modest CPI Lift From Biden Relief: Chicago Fed
  • MNI BRIEF: Fed's Harker Says No Reason to Withdraw Support Yet
  • FEDERAL CHANNELS WILL STOP USING J&J VACCINE IMMEDIATELY: CNN
  • J&J VACCINE PAUSE IN U.S. EXPECTED TO BE `MATTER OF DAYS', Bbg
  • BIDEN TEAM SEES PFIZER, MODERNA MEETING U.S. SHOT DEMAND BY MAY, Bbg
  • BIDEN TO PULL U.S. FORCES FROM AFGHANISTAN BY SEPT. 11: WAPO

Stocks at New Highs, Shrug Off Vaccine, Geopol Risk Factors

Busy session Tue as early vaccine headlines and geopolitical tensions overshadowed much higher than expected CPI (CPI 0.6%, CORE 0.3%; CPI Y/Y 2.6%, CORE Y/Y 1.6%).
  • Sharp risk-off move ahead of the NY open: Tsys gap bid, equities reversed course traded lower on J&J headlines that US calling for pause in J&J vaccine due to blood clotting issues. Vaccine headlines dominated the first half while Russia/US geopol angst plays close second amid following:
  • Russia warns U.S. warships to steer clear of Crimea 'for their own good', Rtrs
  • NATO demands Russia end Ukraine build-up, West examines options, Rtrs
  • RUSSIA'S TAKING MEASURES IN RESPONSE TO NATO'S THREATS, Bbg
  • Rates and equities gradually recovered by midmorning into the second half when Bonds surged after a strong 30Y auction Re-Open: Yield curves whipped around as short end reversed earlier steeper levels to flatter post auction, 5s and 10s vs. 30s holding steeper. 30Y R/O drew high yld of of 2.320%. Stop through of 1.5bp well above five auction avg of only 0.1bp, topping last Dec's 1.2bp stop. Bid-to-cover 2.47x well above 2.34x five auction avg.
  • Equities shrugged off the exogenous risk factors in the second half, S&P eminis making new all-time high of 4139.75.
  • The 2-Yr yield is down 0.8bps at 0.1589%, 5-Yr is down 4.2bps at 0.8386%, 10-Yr is down 4.2bps at 1.6233%, and 30-Yr is down 2.6bps at 2.3077%.

US

US TSY FUTURES: Gap Bid in Rates, Stock Sell-Off On J&J Headlines Quick risk-off move: Tsys gap bid, equities reverse course trade lower on J&J headlines at top of the hour, US calling for pause in J&J vaccine due to blood clotting issues. Decent volumes, TYM1 >415k at moment.

CROSS ASSET: J&J Vaccine Pause in the US Prompts Risk Unwind New York Times reports that the US are to call for a pause in the rollout of the Johnson & Johnson vaccine on clotting cases, prompting some risk unwind trade over the past few minutes.

  • The e-mini S&P inches back into negative territory and touches 4,114.50. Tsy yields move in tandem, with 10y slipping through 1.67% on the way lower.
  • USD/JPY falls further, with the pair narrowing the gap with Y109.00 handle and falling through 109.25 support.
Additional J&J Headlines:
  • J&J: TO PROACTIVELY DELAY ROLLOUT OF VACCINE IN EUROPE, Bbg
  • J&J: REVIEWING BLOOD CLOT CASES WITH EUROPE HEALTH AUTHORITIES, Bbg
  • J&J: AWARE OF EXTREMELY RARE DISORDER OF PEOPLE WITH BLOOD CLOTS, Bbg

US: President Joe Biden's recent USD1.9 trillion fiscal package will most likely deliver a modest and temporary boost to inflation, Chicago Federal Reserve Director of Macroeconomic Research Jonas Fisher told MNI.
  • "Modest and transitory is how I would describe the main message," he said in an interview discussing a paper he co-authored with Duke University associate professor Francesco Bianchi and Chicago Fed senior economist Leonardo Melosi.
FED: Philadelphia Federal Reserve Bank President Patrick Harker said Tuesday even while there are signs the economy has begun to turn around and could grow 5-6% this year, the central bank will continue to support a full recovery from the pandemic.
  • "While the economic situation is improving, recovery is still in its early stages, and there's no reason to withdraw support yet," said Harker in a speech before the Delaware State Chamber of Commerce. Harker isn't a voting member of the rate-setting FOMC this year.
  • His remarks on the need to keep the federal funds rate very low and continue making USD120 billion in monthly Treasury bond and mortgage-backed securities purchases comes after former Fed staffers told MNI an eventual move to pare back hefty bond-buying program could disrupt financial markets.

OVERNIGHT DATA

  • US MAR CPI 0.6%, CORE 0.3%; CPI Y/Y 2.6%, CORE Y/Y 1.6%
  • US MAR ENERGY PRICES 5.0%
  • US MAR OWNERS' EQUIVALENT RENT PRICES 0.2%

DATA REACT: Core Services Highlights Above-Consensus CPI Print At 0.3385% unrounded, the core M/M US core CPI reading in March was a solid upside surprise vs 0.2% M/M expected.
  • At first glance, the most notable dynamic underlying this is a continued divergence between goods and services inflation over the past couple of months, which has handily seen services prices rise more quickly.
  • March saw another weak number for core goods (+0.080% M/M) but core services was very strong at +0.419%, led by Transportation services (+1.8% M/M). In fact that core services print was the 2nd highest going back to 2005. (July 2020 saw an 0.49% print).
  • The Transportation price surge is probably related to US consumers travelling much more now that lockdowns are easing and vaccines are becoming more prevalent - something several analysts flagged prior to the report.
  • US REDBOOK: APR STORE SALES +13.2% V YR AGO MO
  • US REDBOOK: STORE SALES +13.2% WK ENDED APR 10 V YR AGO WK

MARKETS SNAPSHOT

Key late session market levels

  • DJIA down 46.61 points (-0.14%) at 33698.57
  • S&P E-Mini Future up 15 points (0.36%) at 4135.25
  • Nasdaq up 136.5 points (1%) at 13986.28
  • US 10-Yr yield is down 4.2 bps at 1.6233%
  • US Jun 10Y are up 14.5/32 at 132-2.5
  • EURUSD up 0.0035 (0.29%) at 1.1946
  • USDJPY down 0.3 (-0.27%) at 109.08
  • WTI Crude Oil (front-month) up $0.67 (1.12%) at $60.37
  • Gold is up $12.9 (0.74%) at $1745.68
European bourses closing levels:
  • EuroStoxx 50 up 5.09 points (0.13%) at 3966.99
  • FTSE 100 up 1.37 points (0.02%) at 6890.49
  • German DAX up 19.36 points (0.13%) at 15234.36
  • French CAC 40 up 22.42 points (0.36%) at 6184.1

US TSY FUTURES CLOSE

  • 3M10Y -4.492, 160.307 (L: 159.953 / H: 167.865)
  • 2Y10Y -3.248, 146.243 (L: 145.69 / H: 152.658)
  • Y30Y -1.407, 214.835 (L: 214.095 / H: 218.926)
  • 5Y30Y +1.959, 146.906 (L: 143.999 / H: 147.345)
  • Current futures levels:
  • Jun 2Y up 0.75/32 at 110-11.75 (L: 110-10.625 / H: 110-12)
  • Jun 5Y up 8.25/32 at 123-27.75 (L: 123-16.25 / H: 123-28)
  • Jun 10Y up 14/32 at 132-2 (L: 131-12 / H: 132-03)
  • Jun 30Y up 27/32 at 157-4 (L: 155-25 / H: 157-07)
  • Jun Ultra 30Y up 1-8/32 at 185-21 (L: 183-25 / H: 185-30)

US EURODOLLAR FUTURES CLOSE

  • Jun 21 steady at 99.820
  • Sep 21 steady at 99.810
  • Dec 21 -0.005 at 99.735
  • Mar 22 steady at 99.770
  • Red Pack (Jun 22-Mar 23) +0.015 to +0.055
  • Green Pack (Jun 23-Mar 24) +0.065 to +0.085
  • Blue Pack (Jun 24-Mar 25) +0.085 to +0.095
  • Gold Pack (Jun 25-Mar 26) +0.090 to +0.095

Short Term Rates

US DOLLAR LIBOR: Latest settles

  • O/N +0.00125 at 0.07475% (+0.00000/wk)
  • 1 Month +0.00238 to 0.11463% (+0.00338/wk)
  • 3 Month -0.00200 to 0.18375% (-0.00375/wk) (Record Low of 0.17525% on 2/19/21)
  • 6 Month +0.00487 to 0.21950% (+0.00912/wk)
  • 1 Year +0.00337 to 0.28775% (+0.00200/wk)
STIR: FRBNY EFFR for prior session:
  • Daily Effective Fed Funds Rate: 0.07% volume: $68B
  • Daily Overnight Bank Funding Rate: 0.06%, volume: $252B
US TSYS: Repo Reference Rates
  • Secured Overnight Financing Rate (SOFR): 0.01%, $863B
  • Broad General Collateral Rate (BGCR): 0.01%, $377B
  • Tri-Party General Collateral Rate (TGCR): 0.01%, $350B
  • (rate, volume levels reflect prior session)
FED: Updated NY Fed purchase schedule
  • Wed 4/14 1010-1030ET: Tsy 0Y-2.25Y, appr $12.825B
  • Thu 4/15 1010-1030ET: Tsy 20Y-30Y, appr $1.750B
  • Fri 4/16 1010-1030ET: TIPS 7.5Y-30Y, appr $1.225B
  • Mon 4/19 1010-1030ET: Tsy 2.25Y-4.5Y, appr $8.825B
  • Tue 4/20 1010-1030ET: Tsy 20Y-30Y, appr $1.750B
  • Wed 4/21 1010-1030ET: Tsy 4.5Y-7Y, appr $6.025B
  • Thu 4/22 1010-1030ET: Tsy 20Y-30Y, appr $1.750B
  • Fri 4/23 1010-1030ET: TIPS 1Y-7.5Y, appr $2.425B

PIPELINE: $8B World Bank Dual-Tranche Lion's Share $15B Total Debt Issuance

  • Date $MM Issuer (Priced *, Launch #)
  • $15B to price Tuesday
  • 04/13 $8B #World Bank (IBRD) $3B 2Y -5, $5B 7Y +7
  • 04/13 $4.25B *IADB 5Y +0.0
  • 04/13 $1.5B *Ontario Teachers Finance Trust 10Y +40
  • 04/13 $1.25B *JFM 5Y +18
  • 04/13 $Benchmark Tencent investor calls
  • Expected this week:
  • 04/14 $500M Kommunalbanken WNG 3.5Y +2a
  • 04/14 $Benchmark Quebec 10Y +29a
  • 04/15 $5.5B United Airlines $2.75B 5Y, $2.75B 8Y
  • 04/?? $Benchmark/Euro Altice France 8NC3

FOREX: CPI Headfake Sees Greenback Slip to April Lows

  • The USD initially found some support after a higher-than-expected CPI print for March, but price action swiftly reversed and the USD slipped against most others in G10 ahead of the close.
  • Much attention was paid to the decision that the US would pause the rollout of the J&J vaccine on blood-clotting concerns, prompting some equity selling and JPY strength in early US hours. JPY remained strong into the US close, narrowing the gap with the April lows at Y109.00.
  • GBP found another headwind following news that Bank of England Chief Economist and MPC member Haldane is due to step down from his role after the June MPC meeting.
  • Haldane had been one of the more hawkish members of the BoE rate-setting committee, raising the risk that the Bank could adopt a more active approach later this year. EUR/GBP broke to new April highs in response, with the 50-dma undercutting as firm support going forward.
  • Focus Wednesday turns to US import/export price indices and Australia's Westpac consumer confidence data. Central bank speak picks up further, with ECB's de Guindos, Panetta and Lagarde due to speak as well as Fed's Powell & Clarida and BoE's Haskel.

EGBs-GILTS CASH CLOSE: Heavy Supply Ends Up Well-Absorbed

The theme of Tuesday was issuance, unsurprising given the heavy auction/syndication schedule going into the day. This weighed on the space in the morning, though news that J&J's COVID vaccine rollout would be paused in the US and Europe boosted Gilts and Bunds midday London time.

  • In the end, Bunds and Gilts were little changed, with periphery spreads mixed.
  • Supply this morning came from the UK (Gilt , GBP1bn), Germany (Linker, E0.387bn allotted), Italy (BTPs, E7.75bn) Syndications today include: Spain 15-year bond (E6bn) Austria (dual tranche 4-/50-year issues for combined E5.75bn, and the Netherlands (0% Jan-38 DSL, E5.9bn).
  • German ZEW and UK Feb GDP disappointed, but little reaction. ECB's Villeroy said that he didn't favor the bank adopting yield curve control.
  • Note Slovakia today announced a 15-Yr syndication mandate. Auctions Weds include 30-Yr Gilt linker and Germany Aug-48 Bund.

Closing yields/10-Yr Spreads to Bunds:

  • Germany: The 2-Yr yield is down 0.1bps at -0.702%, 5-Yr is unchanged at -0.631%, 10-Yr is up 0.1bps at -0.292%, and 30-Yr is up 0.2bps at 0.264%.
  • UK: The 2-Yr yield is down 0.5bps at 0.049%, 5-Yr is down 0.5bps at 0.356%, 10-Yr is down 1bps at 0.779%, and 30-Yr is down 0.3bps at 1.307%.
  • Italian BTP spread up 1.3bps at 104.1bps / Spanish spread down 0.3bps at 67.9bps

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