MNI ASIA OPEN: Fed Bostic, Kaplan Expect Hikes To Start  in 2022

EXECUTIVE SUMMARY

• MNI: Fed's Bostic Sees Rate Hike in 2022, Two Hikes in 2023
• DALLAS FED'S KAPLAN FORECASTS FIRST RATE INCREASE IN 2022, Bbg
• MNI: Ex-Fed Officials See Rate Liftoff Before Taper Ends
• MNI BRIEF: Yellen Says Inflation to Return to Normal in 2022
• TSY SEC YELLEN URGES CONGRESS TO RAISE DEBT LIMIT BEFORE JULY 31 DEADLINE
• YELLEN: POSSIBLE U.S. COULD REACH 'X DATE' WHILE CONGRESS OUT IN AUGUST
• SENATOR TESTER: `GETTING CLOSER' ON INFRASTRUCTURE TALKS, Bbg
• SENATOR ROMNEY: HOPES TO HAVE INFRASTRUCTURE DEAL TODAY, Bbg

US

• "Given the upside surprises and recent data points, I pulled forward my projection for our first move to late 2022," Bostic said in remarks to reporters after speaking at the Russell Innovation Center for Entrepreneurs. "The economy is well on its way to recovering from the pandemic, and much of the data, recently has come in stronger than expected." For more see MNI Policy mainwire at 1305ET.

FED: First Bostic, Now Kaplan Air 2022 Rate Hike Opinion: After Atlanta Fed Pres Bostic called for two hikes in 2022 and two more in 2023 earlier today, Dallas Fed Pres Kaplan sees first rate hike in 2022 followed soon after by taper. Bbg interview headlines:

• DALLAS FED'S KAPLAN FORECASTS FIRST RATE INCREASE IN 2022
• KAPLAN SEES 2022 INFLATION MODERATING, BUT BROADENING
• KAPLAN SEES 2021 PCE INFLATION AT 3.4%, SLOWING TO 2.4% IN '22
• KAPLAN REPEATS SUBSTANTIAL PROGRESS REACHED SOONER THAN LATER

FED: The Federal Reserve is likely to raise interest rates before its bond-purchasing program is phased out completely if faced with uncomfortable levels of inflation, though its communication task will be simplified if it can finish tapering first, former top Fed officials told MNI.

• Most investors presume the Fed would not raise rates while still buying Treasuries and agency mortgage-backed securities, based on the post-financial crisis playbook. But some former officials anticipate economic conditions will warrant interest rate increases as early as 2022 following a tapering decision to be delivered toward the end of this year, leaving little or no time separating the two processes.
  
• "I can well see, and indeed expect, some movement on rates before they finish expanding the balance sheet," former Fed Vice Chair Alan Blinder said in an interview. "Finishing the taper before raising rates is the less likely option." For more see MNI Policy main wire at 1126ET.

OVERNIGHT DATA

• US FLASH JUN MFG PMI 62.6 (EXP. 61.5, MAY 62.1)
• US FLASH JUN SERVICES PMI 64.8 (EXP. 70.0, MAY 70.4)
• US FLASH JUN COMP PMI 63.9 (MAY 68.7)=

• US MAY NEW HOME SALES -5.9% TO 0.769M SAAR
• US APR NEW HOME SALES REVISED TO 0.817M SAAR

• US Q1 CURRENT ACCOUNT GAP -$195.7
• US Q4 CURRENT ACCOUNT REVISED TO -$175.1

• US MBA: REFIS +3% SA; PURCH INDEX +1% SA THRU JUNE 18 WK
• US MBA: UNADJ PURCHASE INDEX -14% VS YEAR-EARLIER LEVEL
• US MBA: 30-YR CONFORMING MORTGAGE RATE 3.18% VS 3.11% PREV
• US MBA: MARKET COMPOSITE +2.1% SA THRU JUN 18 WK

• CANADIAN APR RETAIL SALES -5.7%; SALES EX-AUTOS/PARTS -7.2%
• CANADA APR RETAIL SALES EX-AUTOS/PARTS-GASOLINE -7.6%
• CANADA FLASH MAY RETAIL SALES -3.2%

MARKETS SNAPSHOT

​Key late session market levels

• DJIA down 14.52 points (-0.04%) at 33931.23
• S&P E-Mini Future up 2 points (0.05%) at 4238.25
• Nasdaq up 37.7 points (0.3%) at 14290.84
• US 10-Yr yield is up 2.7 bps at 1.4903%
• US Sep 10Y are down 7/32 at 132-4.5
• EURUSD down 0.0013 (-0.11%) at 1.1926
• USDJPY up 0.34 (0.31%) at 110.99
• WTI Crude Oil (front-month) up $0.27 (0.37%) at $73.12
• Gold is down $1.64 (-0.09%) at $1777.10

US TSY SUMMARY: Mkts Discount More Hawkish Fed-Speak

Inside range session with Tsys trading modestly weaker after the bell, yield curves marginally mixed, equities mostly firmer (ESU1 +4.0 at 4240.0). Decent volumes on two-way positioning flow ahead Thursday's heavy economic data release schedule and continued Fed-speak.

• Hawkish rhetoric returns with side of salt: after Atlanta Fed Pres Bostic called for two hikes in 2022 and two more in 2023 earlier today, Dallas Fed Pres Kaplan sees first rate hike in 2022 followed soon after by taper. Why the salt? Markets discounted either slow to react to Kaplan comments after the bell, or are seriously discounting the message as rates hold off session lows.
• Other political headlines also discounted: Sens' Romney and Tester see infrastructure deal as soon as today.
• Tsys failed to hold session highs reached prior to Services Markit PMI miss: 64.8 (EXP. 70.0, MAY 70.4),
• The $61B 5Y note (91282CCJ8) auction tailed slightly: .02bp: high yield of 0.904% vs. 0.902% WI. Bid-to-cover 2.36x just over 5 month average of 2.35x. Indirects take-up declines to 57.62% vs. last month's 64.35% (prior high of 66.22% in August 2020); direct bidder take-up surged to 18.09% vs. 14.87% last month and 5M avg of 15.48%; primary dealer take-up: 24.29% just shy of the 5-month average of 24.88%.
• The 2-Yr yield is up 3.8bps at 0.2661%, 5-Yr is up 2.8bps at 0.8829%, 10-Yr is up 2.7bps at 1.4903%, and 30-Yr is up 3bps at 2.1158%.

US TSY FUTURES CLOSE

• 3M10Y +2.364, 144.886 (L: 141.087 / H: 145.141)
• 2Y10Y -0.717, 122.39 (L: 121.282 / H: 124.157)
• 2Y30Y -0.387, 185.05 (L: 184.272 / H: 187.502)
• 5Y30Y +0.499, 123.399 (L: 122.673 / H: 126.061)
• Current futures levels:
• Sep 2Y down 1.125/32 at 110-4 (L: 110-04 / H: 110-05.87)
• Sep 5Y down 4.25/32 at 123-10.25 (L: 123-10 / H: 123-16.75)
• Sep 10Y down 7/32 at 132-4.5 (L: 132-03.5 / H: 132-15)
• Sep 30Y down 11/32 at 159-19 (L: 159-15 / H: 160-07)
• Sep Ultra 30Y down 14/32 at 190-25 (L: 190-13 / H: 191-30)

US EURODOLLAR FUTURES CLOSE

• Sep 21 -0.015 at 99.855
• Dec 21 -0.005 at 99.790
• Mar 22 -0.005 at 99.790
• Jun 22 -0.015 at 99.715
• Red Pack (Sep 22-Jun 23) -0.045 to -0.025
• Green Pack (Sep 23-Jun 24) -0.05 to -0.045
• Blue Pack (Sep 24-Jun 25) -0.04 to -0.035
• Gold Pack (Sep 25-Jun 26) -0.04 to -0.035

SHORT TERM RATES

US DOLLAR LIBOR: Latest Settles

• O/N -0.00013 at 0.08525% (+0.00475/wk)
• 1 Month +0.00075 to 0.09150% (+0.00050/wk)
• 3 Month +0.01350 to 0.14725% (+0.01238/wk) ** (New Record Low: 0.11800% on 6/14)
• 6 Month -0.00125 to 0.15938% (+0.00313/wk)
• 1 Year -0.00213 to 0.24350% (+0.00338/wk)

• Daily Effective Fed Funds Rate: 0.10% volume: $70B
• Daily Overnight Bank Funding Rate: 0.08% volume: $261B

• Secured Overnight Financing Rate (SOFR): 0.05%, $888B
• Broad General Collateral Rate (BGCR): 0.05%, $358B
• Tri-Party General Collateral Rate (TGCR): 0.05%, $333B
• (rate, volume levels reflect prior session)

• Tsy 4.5Y-7Y, $6.001B accepted vs. $15.933B submission
• Next scheduled purchases:
• 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

FED: Repo and Reverse Repo Operations, Another Record High

NY Fed reverse repo usage makes another new record high of $813.573B from 73 counterparties. Compares to Tue's record of $791.605B -- continued knock-on effect of FOMC's IOER technical adjustment to 0.15% from 0.10%.

MONTH-END EXTENSION: PRELIMINARY Barclays/Bbg Extension Estimates for US

PRELIMINARY forecast summary compared to avg increase for prior year and same time in 2020. TIPS 0.01Y; US Gov infl-linked -0.4Y.

PIPELINE: Banco Santander, BNP Paribas, NatWest Launched

• Date $MM Issuer (Priced *, Launch #)
• 06/23 $1.5B #Banco Santander 3NC2 +45
• 06/23 $1B #BNP Paribas 6NC5 +80
• 06/23 $750M *Turk Eximbank 5Y 5.875%
• 06/23 $750M #NatWest WNG PerpNC10.5 4.6%
• 06/23 $500M #Welltower +7Y +85
• 06/23 $500M Nemak 10Y 3.75%a
• 06/23 $Benchmark Fidelity National Fncl 5Y +90a
• 06/23 $Benchmark Rep of Panama 10Y +200a, 29Y tap +170a

EGBs-GILTS CASH CLOSE: Mixed Curves Post-PMIs, Pre-BoE

Bunds and Gilts traded mostly stronger Wednesday though curves were mixed, with equities retreating, and the Bank of England decision awaited Thursday.

• The German curve bull flattened to 10-Yrs, while the UK short-end outperformed. Periphery spreads widened slightly.
• Flash Jun PMI data was mixed, with France and the UK disappointing, and Germany beating expectations. Global core FI ticked higher on a US PMI miss in the afternoon.
• UK sold GBP0.4bln in linkers; Germany allotted E2.06bln of Bund; Slovenia syndicated E1bln of sustainable 10Y.
• Looking ahead to Thursday, we get the BoE decision - our preview went out today. We also get some confidence data (France; German IFO). No supply scheduled for Thursday, though today Italy announced a syndication for Apr-29 CCTeu.

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

• Germany: The 2-Yr yield is down 0.6bps at -0.653%, 5-Yr is down 1.2bps at -0.568%, 10-Yr is down 1.4bps at -0.178%, and 30-Yr is down 0.9bps at 0.308%.
• UK: The 2-Yr yield is down 1.9bps at 0.089%, 5-Yr is down 0.5bps at 0.384%, 10-Yr is unchanged at 0.78%, and 30-Yr is up 1.3bps at 1.28%.
• Italian BTP spread up 1.1bps at 107.3bps / Spanish spread up 0.3bps at 62.8bps

FOREX: JPY Continues Downward Trajectory

• USDJPY extended its winning streak on Wednesday, trading to the highest level since March 2020, triggering some volatile price action in the pair.
• As the 2021 highs and the technical bull trigger were broken through 110.97, a flurry of demand prompted a 111.10 print. However, a lack of follow through prompted a sharp reversal in fortune with no headlines behind the move.
• The JPY lurch higher coincided with sizeable spike in JPY futs volumes, with just shy of 2,000 contracts changing hands inside 60 seconds at 1236BST/0736ET, roughly $225mln cash equivalent. USDJPY retreated back to the overnight highs of 110.66 which acted as firm support. The pair spent the majority of the session grinding back towards the 111 mark, continuing to benefit the crosses (notably AUDJPY & NZDJPY +0.57%).
• The dollar index remains unchanged from Tuesday's close. Initial weakness saw fresh lows for the week just above 91.50, however, a small bounce throughout the US session capped G10 FX volatility.
• German IFO on Thursday morning precedes the Bank of England decision/statement where the most notable risk is if another MPC member joins Haldane in voting for a reduction to the QE target. MNI deem this risk to be low.
• Thursday's US session sees a good amount of data on the docket, headlined by the final Q1 GDP reading as well as initial jobless claims.