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MNI: PBOC Net Drains CNY203.9 Bln Via OMO Wednesday

MNI: PBOC Sets Yuan Parity Higher At 7.1358 Weds; -0.98% Y/Y

US EIA: CRUDE OIL STOCKS EX SPR -3.74M TO 436.5M JUL 19 WK

Services PMI Gains Continue To Diverge From Soft Manufacturing

MNI: US JUN NEW HOME SALES -0.6% TO 0.617M SAAR

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

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MNI ASIA OPEN: Bullard Keeping Options Open, Curves Bear Steepen


EXECUTIVE SUMMARY

  • MNI: Bullard-Fed Needs Option To Speed Taper, Hike Rates
  • MNI: Fed's Williams Cites Jobs Hole In Easy Policy Commitment
  • MNI BRIEF: Kaplan: Dallas Fed's Own Forecasts Little Changed
  • BULLARD: HAVE TO BE READY FOR IDEA OF UPSIDE INFLATION RISKS, Bbg

US

FED: Dallas Fed President Rob Kaplan said Monday his bank's economic outlook has not shifted dramatically since March, despite better than expected progress on vaccinations and substantially more fiscal stimulus.

  • He marked up his headline inflation estimate to 3.4% for the year but left the unemployment rate forecast at about 4% by year-end. "At this point we're probably a little bit shy of other more aggressive projections," he told a financial forum Monday.
FED: New York Fed President John Williams on Monday pledged continued commitment to strong monetary support for the economy because the job market remains far from its full potential while inflation pressures appear to be transitory.
  • "The economy is improving at a rapid rate, and the medium-term outlook is very good," he said in prepared remarks. "But the data and conditions have not progressed enough for the FOMC to shift its monetary policy stance of strong support for the economic recovery."
  • Williams held to his view that GDP will grow 7% this year, the fastest since 1984 while inflation will slow to 2% next year, citing temporary problems matching workers with jobs and suppliers hit by shortages including for automobile parts. For more see MNI Policy main wire at 1505ET.

FED: The Federal Reserve needs to have the option to speed up tapering of asset purchases and raise interest rates if inflation comes in faster than anticipated, in what would be a departure from the 2014 taper playbook, St. Louis Fed President Jim Bullard told reporters Monday.
  • "You probably don't want to be in a situation where you have to pull in rate hikes while you're still tapering, but the committee I'm sure would want to keep all options open," he said. "Could we do it? Sure, we could do a lot of things, but we want this to be transparent, non-disruptive, give everyone a good signal about how this is going to transpire." For more see MNI Policy main wire at 1129ET.

FED: Kaplan and Bullard talking inflation

  • Kaplan on structural vs cyclical inflation: Wage issues could be more structural / persistent (retirements, skill mismatches)... On semiconductors etc, some will resolve themselves in the next 6-12 months. Some will be more persistent driven by changes in the economy, including the energy transition (which will require raw materials, semiconductors, etc).
  • Dallas Fed sees 2.4% PCE inflation next year (with risks to the upside) as individual price inflation bleeds into a wider range of categories. On the other hand the base effects may wear off.
  • There's a range of outcomes. Fed should be applying risk management approaches so taking foot off the accelerator sooner rather than later.
  • Bullard: We're in a new era where inflation is above target and is expected to be above target in 2021. The question is how quickly will that dissipate, and does the FOMC have the right posture to do the risk management that Kaplan was talking about.
  • StL has same 2.4% inflation forecast next year. Notes FOMC SEP has >2% core PCE in 2021-23, which is consistent with new framework. Q is what's the timeframe and magnitude of average inflation target - and that's a debate to have.

OVERNIGHT DATA

CHICAGO FED NATIONAL ACTIVITY INDEX AT 0.29 VS -0.09 PRIOR -bbg

MARKETS SNAPSHOT

Key late session market levels:

  • DJIA up 554.11 points (1.66%) at 33842.45
  • S&P E-Mini Future up 56.75 points (1.37%) at 4210.25
  • Nasdaq up 104.4 points (0.7%) at 14134.65
  • US 10-Yr yield is up 4.2 bps at 1.4802%
  • US Sep 10Y are down 4/32 at 132-6
  • EURUSD up 0.0049 (0.41%) at 1.1913
  • USDJPY up 0.06 (0.05%) at 110.27
  • WTI Crude Oil (front-month) up $1.95 (2.72%) at $73.59
  • Gold is up $19.74 (1.12%) at $1783.77

European bourses closing levels:

  • EuroStoxx 50 up 28.96 points (0.71%) at 4112.33
  • FTSE 100 up 44.82 points (0.64%) at 7062.29
  • German DAX up 155.2 points (1%) at 15603.24
  • French CAC 40 up 33.38 points (0.51%) at 6602.54

US TSY SUMMARY: Bullard Tempers the Inner Hawk

Generally sedate, sideways trade since mid-morning, futures trading near session lows by the bell, yld curves regaining some ground after last week's post-FOMC bull flattening slip to 110.568 low from 142.541 high last week Monday.

  • Tsy bonds extend lows after holding narrow/lower range for appr 4 hours heading into the NY open -- well off early overnight highs. Yld curves bounced after the steady bull flattening since last week's FOMC and hawkish pivot.
  • Heavy overnight volumes (TYU >850k by the open; 1.7M after the close) after Tsys ground higher during Asia hours, only to reverse the move during the cross-over to London trade.
  • 30YY currently 2.1083% +.0957 (2.1083%H, 1.9259%L)
  • 10YY currently 1.4381% +.0455 (1.4903%H, 1.3526%L)
  • Contributing to the bounce in yld curves: Bullard softened last week's more hawkish tone somewhat: "I think markets themselves are a little bit confused about the recent moves. I do think we're going to allow inflation to be above target...that has to get priced in."
  • Mixed flow on session, decent corporate issuance hedging added to volumes.
  • The 2-Yr yield is down 0.2bps at 0.2522%, 5-Yr is up 1bps at 0.8844%, 10-Yr is up 4.2bps at 1.4802%, and 30-Yr is up 8.3bps at 2.0954%.

US TSY FUTURES CLOSE

  • 3M10Y +4.72, 144.216 (L: 130.442 / H: 144.977)
  • 2Y10Y +4.701, 122.896 (L: 109.243 / H: 123.165)
  • 2Y30Y +9.753, 185.409 (L: 166.226 / H: 185.409)
  • 5Y30Y +9.278, 122.759 (L: 107.723 / H: 122.759)
  • Current futures levels:
  • Sep 2Y up 0.125/32 at 110-3.625 (L: 110-02.125 / H: 110-04.25)
  • Sep 5Y up 1.5/32 at 123-10.75 (L: 123-03 / H: 123-15.5)
  • Sep 10Y down 3.5/32 at 132-6.5 (L: 132-00 / H: 132-30)
  • Sep 30Y down 1-3/32 at 159-27 (L: 159-26 / H: 163-02)
  • Sep Ultra 30Y down 3-2/32 at 190-30 (L: 190-29 / H: 197-22)

US EURODOLLAR FUTURES CLOSE

  • Sep 21 steady at 99.855
  • Dec 21 -0.005 at 99.785
  • Mar 22 -0.005 at 99.790
  • Jun 22 steady at 99.715
  • Red Pack (Sep 22-Jun 23) +0.005 to +0.015
  • Green Pack (Sep 23-Jun 24) +0.010 to +0.025
  • Blue Pack (Sep 24-Jun 25) steady to +0.005
  • Gold Pack (Sep 25-Jun 26) -0.035 to -0.015

SHORT TERM RATES

US DOLLAR LIBOR: Latest Settles

  • O/N +0.00425 at 0.08475% (+0.02513 total last wk)
  • 1 Month +0.00488 to 0.09588% (+0.01812 total last wk)
  • 3 Month +0.00300 to 0.13788% (+0.01600 total last wk) ** (New Record Low: 0.11800% on 6/14)
  • 6 Month +0.00750 to 0.16375% (+0.00375 total last wk)
  • 1 Year +0.01075 to 0.25088% (+0.00075 total last wk)

STIR: FRBNY EFFR for prior session:

  • Daily Effective Fed Funds Rate: 0.10% volume: $68B
  • Daily Overnight Bank Funding Rate: 0.08% volume: $224B

US TSYS: Repo Reference Rates

  • Secured Overnight Financing Rate (SOFR): 0.05%, $921B
  • Broad General Collateral Rate (BGCR): 0.05%, $370B
  • Tri-Party General Collateral Rate (TGCR): 0.05%, $342B
  • (rate, volume levels reflect prior session)

FED: NY Fed Operational Purchase

  • Tsys 10Y-22.5Y, $1.401B accepted vs. $3.996B submission
  • Next scheduled purchases:
  • Tue 6/22 1010-1030ET: TIPS 1Y-7.5Y, appr $2.025B
  • Wed 6/23 1010-1030ET: Tsy 4.5Y-7Y, appr $6.025B
  • Thu 6/24 1010-1030ET: Tsy 22.5Y-30Y, appr $2.025B
  • Fri 6/25 1010-1030ET: Tsy 2.25Y-4.5Y, appr $8.425B

PIPELINE: Decent Start to Week

At least $8.15B high-grade issuance Monday, still waiting for JP Morgan
  • Date $MM Issuer (Priced *, Launch #)
  • 06/21 $2.5B #HCA Inc $1B 10Y +95, $1.5B 30Y +140
  • 06/21 $2.5B #Martin Marietta $700M 2NC1 +40, $900M 10Y +92, $900M 30Y +112
  • 06/21 $2.15B #Bank of Nova Scotia $750M 2NC1 FRN/SOFR+28, $750M 5Y +48, $650M 5Y FRN/SOFR, 10Y +68
  • 06/21 $800M #Brighthouse Fncl $450M 2Y +35, $350M 7Y +78
  • 06/21 $650M #PPL electric Utilities 3NC1 FRN/SOFR+33
  • 06/21 $Benchmark JP Morgan 4NC3 +50, 4NC3 FRN SOFR
  • 06/21 $Benchmark BNP Paribas -- green bond investor call
  • On tap for Tuesday:
  • 06/22 $1B PSP Capital 5Y +9a

EGBs-GILTS CASH CLOSE: Reversal Sees Bear Steepening Curves

Core FI faded early gains, with the UK and German curves bear steepening Monday.

  • Periphery EGB spreads tightened, while French OATs outperformed following weak results for Le Pen in weekend regional elections.
  • Bunds weakened on headlines that German gov't net borrowing would hit ~E100bn next year (this had already been reported last week so unclear why there was a reaction).
  • ECB Pres Lagarde said US inflation spillovers to the Eurozone are seen as being limited, while tightening market rates would pose a risk to the recovery. Meanwhile, ECB net asset purchases bounced back last week, with PEPP buys at a 4-week high of E19.4B.
  • Tuesday sees UK fiscal data and a few ECB speakers; the Netherlands sells up to E2bln of DSL. Note Spain announced 10-Yr syndication.

Closing German/UK Yields And 10-Yr Spreads To Germany

  • Germany: The 2-Yr yield is up 1.5bps at -0.652%, 5-Yr is up 2.7bps at -0.561%, 10-Yr is up 2.9bps at -0.171%, and 30-Yr is up 5.2bps at 0.303%.
  • UK: The 2-Yr yield is down 0.5bps at 0.125%, 5-Yr is up 0.4bps at 0.385%, 10-Yr is up 1.7bps at 0.769%, and 30-Yr is up 2.2bps at 1.227%.
  • Italian BTP spread down 2.5bps at 104.7bps/ Spanish down 3bps at 62.5bps

FOREX: Greenback Steadily Pares Friday Gains

  • The US dollar retreated for the first time in seven sessions on Monday, closely linked to a gradual recovery in equities. The DXY retreated from a 10-week high, dropping 0.4%, currently hovering just above the Friday lows of 91.81.
  • After matching Friday's low at 1.1848, EURUSD was well supported throughout both the European and US sessions, grinding back above 1.19 to advance 0.5% on the day. The focus is on 1.1837, a Fibonacci retracement where a break would open 1.1704, the Mar 31 low and a key support. On the upside, initial firm resistance is at 1.2006, the Jun 17 high.
  • Larger gains were seen in risk-tied currencies with AUD, NZD, CAD and GBP all firming around 0.85%. The Japanese Yen was broadly unchanged, owing to buoyant risk sentiment also putting a solid bid in cross-JPY.
  • NOK notably strengthened 1.05% against the dollar, with the uptick in oil adding a tailwind for the Krone. The advance was closely matched in the EM space, with ZAR and BRL both firming around 1%.
  • Tomorrow, FED Chair Powell is due to testify on the Fed's emergency lending programs and current policies before the House Select Subcommittee.
  • A light data day on Tuesday before Flash PMI's headline Wednesday's docket.

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