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MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
EXECUTIVE SUMMARY
- MNI BRIEF: Fed Report to Congress Stresses Slack in Labor Mkt
- Semiannual report to Congress released Friday
TYU Daily Candle Chart
US
FED: The Federal Reserve said in a semiannual report to Congress released Friday that it sees "much slack" remaining in the labor market but improvements in labor force participation should arrive in coming months.
- "Many of the factors constraining labor force participation should gradually abate in the coming months, and, as they do, the overall participation rate should rise and the demographic disparities in labor force participation that widened during the pandemic will likely continue to narrow," the report said.
- The report cited fears of the virus, expanded jobless benefits, caregiving responsibilities, and retirements as factors constraining the labor or recovery.
- Semiannual report to Congress
TSY: How Large Will The TGA Be At End-July? Latest data shows that the Treasury General Account declined in each of the 4 working days to Jul 8 by a cumulative $125B, but the current cash balance of $725B is higher than many analysts appear to have expected at this point. Consensus has largely been that the TGA would adhere to the Treasury's own assumption (made in May) of winding down to $450B by the end of July, in preparation for the debt ceiling deadline.
- To be sure, there has been a massive amount of reduction vs the peak of $1.83trn, but with 16 more working days until the deadline, meeting the $450B target would require a $275B drawdown, or just over $17B per day (a significant acceleration compared to the past 15 days which have seen an average daily decline of $2.6B).
- Our policy team cites an ex-Fed economist who expects Treasury to keep a cash balance closer to $600B at end-July, with treasury bill paydowns continuing at a slower pace despite the elevated TGA volumes.
- If the TGA doesn't shrink as quickly as many anticipate, the level of reserves in the banking system may prove slightly lower than forecast by analysts, and thus takeup of the overnight repo facility and downward pressure on funding rates could be somewhat lessened vs baseline.
OVERNIGHT DATA
US MAY WHOLESALE INV 1.3%; SALES 0.8%
MARKETS SNAPSHOT
Key late session market levels
- DJIA up 451.19 points (1.31%) at 34885.24
- S&P E-Mini Future up 47 points (1.09%) at 4361.5
- Nasdaq up 132.6 points (0.9%) at 14699.57
- US 10-Yr yield is up 6.3 bps at 1.3561%
- US Sep 10Y are down 15.5/32 at 133-13
- EURUSD up 0.003 (0.25%) at 1.1876
- USDJPY up 0.45 (0.41%) at 110.16
- WTI Crude Oil (front-month) up $1.67 (2.29%) at $74.63
- Gold is up $8.46 (0.47%) at $1812.36
European bourses closing levels:
- EuroStoxx 50 up 76.43 points (1.91%) at 4068.09
- FTSE 100 up 91.22 points (1.3%) at 7121.88
- German DAX up 267.29 points (1.73%) at 15687.93
- French CAC 40 up 132.69 points (2.07%) at 6529.42
US TSY SUMMARY: Bond Bear Reprieve
Bond bears see some relief from the week's rally back to mid-February levels, 10Y futures rejecting a bull channel top, 10YY off 200DMA. No data to speak of: US MAY WHOLESALE INV 1.3%; SALES 0.8%.- Rates trade near late session lows after the bell with equities near highs as the week's risk-off tone ebbed: not that any single factor behind the week's rally had really changed -- Covid-19 Delta variant remains as much a concern as ever, Asia market slow-down, fading stimulus tail winds, etc.
- Parallel with technicals, traders posited markets had come too far/too fast after return from extended holiday weekend. Return of Tsy coupon supply early next week contributing to sell pressure (3s and 10Y re-open on Monday, 30Y on Tuesday).
- Focus also on "big-6" bank earnings next week: JPM and GS Tuesday, BoAML, Citi and Wells Fargo Wednesday, MS Thursday.
- Option traders reported continued interest in buying downside puts, hedging for modest rate hike positioning in mid 2023-2024.
- The 2-Yr yield is up 2bps at 0.2146%, 5-Yr is up 4.5bps at 0.7866%, 10-Yr is up 6.3bps at 1.3561%, and 30-Yr is up 5.7bps at 1.9836%.
US TSY FUTURES CLOSE
- 3M10Y +6.5, 130.712 (L: 125.126 / H: 130.88)
- 2Y10Y +4.478, 114.125 (L: 110.553 / H: 114.356)
- 2Y30Y +4.073, 177.037 (L: 172.955 / H: 177.568)
- 5Y30Y +1.633, 119.872 (L: 117.453 / H: 120.654)
- Current futures levels:
- Sep 2Y down 1.375/32 at 110-7.75 (L: 110-07.625 / H: 110-09)
- Sep 5Y down 8.25/32 at 123-29.5 (L: 123-29 / H: 124-04.25)
- Sep 10Y down 16/32 at 133-12.5 (L: 133-12 / H: 133-26)
- Sep 30Y down 1-15/32 at 162-15 (L: 162-15 / H: 163-22)
- Sep Ultra 30Y down 2-27/32 at 195-26 (L: 195-23 / H: 197-30)
US EURODOLLAR FUTURES CLOSE
- Sep 21 -0.005 at 99.870
- Dec 21 -0.010 at 99.805
- Mar 22 -0.010 at 99.815
- Jun 22 -0.020 at 99.755
- Red Pack (Sep 22-Jun 23) -0.065 to -0.03
- Green Pack (Sep 23-Jun 24) -0.08 to -0.07
- Blue Pack (Sep 24-Jun 25) -0.08 to -0.075
- Gold Pack (Sep 25-Jun 26) -0.095 to -0.08
SHORT TERM RATES
US DOLLAR LIBOR: Latest Settles
- O/N +0.00050 at 0.08663% (+0.00613/wk)
- 1 Month -0.00025 to 0.10013% (-0.00275/wk)
- 3 Month +0.00963 to 0.12863% (-0.00925/wk) ** (Record Low: 0.11800% on 6/14)
- 6 Month -0.00600 to 0.15100% (-0.01200/wk)
- 1 Year +0.00000 to 0.23888% (-0.00563/wk)
- Daily Effective Fed Funds Rate: 0.10% volume: $76B
- Daily Overnight Bank Funding Rate: 0.08% volume: $256B
- Secured Overnight Financing Rate (SOFR): 0.05%, $874B
- Broad General Collateral Rate (BGCR): 0.05%, $364B
- Tri-Party General Collateral Rate (TGCR): 0.05%, $331B
- (rate, volume levels reflect prior session)
- Tsy 22.5Y-30Y, $2.001B accepted vs. $4.781B submission
- Next scheduled purchases:
- Mon 7/12 1010-1030ET: TIPS 1Y-7.5Y, appr $2.025B
- Tue 7/13 1010-1030ET: Tsy 4.5Y-7Y, appr $6.025B
- Wed 7/14 1010-1030ET: Tsy 10Y-22.5Y, appr $1.425B
- Wed 7/14 1500ET Update NY Fed Operational Purchase Schedule
FED: Reverse Repo Operations
NY Fed reverse repo usage recedes to $780.596B from 68 counterparties vs. $793.399B on Thursday. Compares to record high of $991.939B on June 30
PIPELINE: $22.95B Total High-Grade Issuance
- Date $MM Issuer (Priced *, Launch #)
- 07/09 No new issuance Friday; $22.95B total for week
- $1.5B Priced Thursday
- 07/08 $1B *Dexia no-grow 3Y +8
- 07/08 $500M *Mitsubishi Corp 5Y +50
EGBs-GILTS CASH CLOSE: Another Bullish Week Ends On Bearish Note
Thursday's sharp fall in Gilt and Bund yields reversed completely on Friday - but nonetheless FI ended stronger for the 2nd consecutive week.
- The UK and German long-ends underperformed in a bear-steepening move as the multi-day rally took a breather, no particular macro / headline catalyst seen.
- In a generally risk-on session, with equities gaining, periphery spreads tightened, though Italian 10Yr spreads didn't quite make up all of Thursday's lost ground vs Bunds.
- UK May GDP data and Italy May IP data came in weaker than expected.
- Next week's calendar highlights largely surround the UK: BoE speeches (Bailey and Ramsden) and employment / CPI data.
Closing Yields / 10-Yr Periphery EGB Spreads To Germany
- Germany: The 2-Yr yield is up 0.7bps at -0.676%, 5-Yr is up 0.7bps at -0.596%, 10-Yr is up 1.4bps at -0.293%, and 30-Yr is up 2.3bps at 0.206%.
- UK: The 2-Yr yield is up 0.2bps at 0.087%, 5-Yr is up 3.1bps at 0.295%, 10-Yr is up 4.3bps at 0.655%, and 30-Yr is up 4.5bps at 1.173%.
- Italian BTP spread down 1.4bps at 105.6bps / Spanish down 0.8bps at 64.7bps
FOREX: Equity Bounce Works Against Greenback & Haven FX
- Currency markets were the follower rather than the leader Friday, with the sharp bounce off the week's lows in equity markets helping fuel cross-asset risk sentiment. This resulted in the e-mini S&P topping out at new alltime highs as traders watch incoming earnings reports due next week.
- Global equity strength worked against the greenback, with the USD index off around 0.5% from the week's highs. Haven currencies also partially reversed the week's strength, with USD/JPY back above Y110 and EUR/CHF back above 1.0850. The conviction behind these recoveries could be key going forward, as market focus shifts to the US CPI report on Wednesday.
- The recovery rally in GBP/USD looked relatively one-way until the WMR fix, which saw the pair come under sharp selling pressure, with close to £700mln notional in futures contracts changing hands inside 5 minutes. The heavy volume knocked the rate off 1.3877 to trade either side of 1.3850.
- US, UK and German inflation data takes focus in the coming week, as well as the beginning of Q3 US earnings season and a raft of Chinese GDP, retail sales and industrial production data. Rates decisions from the Canadian, Turkish, Japanese and South Korean central banks also cross.
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
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