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Pullback Considered Corrective

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Holding Above Recent Lows

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BLOCK, Large 3Y Midcurve Put Condor

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EXECUTIVE SUMMARY

  • Biden Delivers Remarks On Economy: Fed independent, to use any measures necessary to ensure economic stability
  • MNI BRIEF: BOE Nominee Mann: Doesn't See Inflationary Spiral
  • MNI BRIEF: BOE Incomer Mann: Doubts Benefits Of Negative Rates
  • NBER SAYS U.S. RECESSION LASTED 2 MONTHS, ENDED IN APRIL 2020, Bbg
  • U.S. CDC RAISES COVID WARNING FOR TRAVELERS TO UNITED KINGDOM TO LEVEL FOUR, HIGHEST LEVEL, Rtrs
  • FAUCI: VACCINATED 'GENERALLY PROTECTED' ALTHOUGH NOT COMPLETELY, Bbg
  • CANADA TO OPEN BORDER TO FULLY VACCINATED U.S. VISITORS AUG. 9, Bbg
  • OPEC+ Makes Deal to Boost Output as Gulf Allies Call Truce, Bbg
  • UK'S VAN TAM: CAN'T REDUCE COVID TRANSMISSION RISK TO ZERO, WON'T SEE IMPACT OF REOPENING FOR 7-10 DAYS, Bbg

US TSY SUMMARY: Risk Aversion Heats Up, Tsys Surge as Equitys Falter

Risk-off tone surged Monday: Tsy futures surged on heavy volumes (TYU1 >2M ) by the close while equities sold off sharply (S&Ps -2.08% in late trade).
  • Of the various drivers for bid -- global spd of covid delta variant, spike in case counts spurring safe haven buying in EGBs, GBP, Tsys. Note: CDC raised covid related warning to level 4 (highest) to those traveling to the UK even as UK drops virus restrictions. Economic data remains light on wk, Fed in blackout.
  • TYU hit high of 134-25.5 well through bull-channel top of 134-03 and 200% fibonacci projection (134-24.5). 10YY fell to 1.739% low, well through 200DMA on move back to mid-Feb levels. Yield curves bull flattened vs. intermediates while longer curves outperformed (5s30s 112.098 late vs 110.188L).
  • Early on, sources report prop, real$ and foreign bank buying in 5s-30s, fast$ selling bonds and taking stab at entering steepeners vs. intermediates. Mid- to late morning Flow included ongoing real$, foreign and domestic bank buying in 5s-30s, stops triggered on latest move. Fast$ unwinding tactical shorts.
  • The 2-Yr yield is down 1.6bps at 0.2055%, 5-Yr is down 8.7bps at 0.6867%, 10-Yr is down 11.5bps at 1.1756%, and 30-Yr is down 11.1bps at 1.8083%.

US

US: US President Joe Biden speaking on the economy. Says that the gov't will 'remain vigilant' to inflation.

  • Says he said to Chairman Powell that the Fed is independent he should use any measures necessary in ensuring economic stability.
  • 'If your primary concern at present is inflation, you should be enthusiastic about my [infrastructure] plan.'

UK

BOE: Incoming Bank of England Monetary Policy Committee member Catherine Mann said Monday that what was emerging now was "a major surge" in inflation but that she does not expect it to persist." I don't see it becoming a spiral," she said, noting a lack of inflation from the global recovery and that labour market tightness was not commensurate with the headline growth data.

  • Mann told the Treasury Select Committee that policymakers should be wary of premature tightening, resulting in permanent GDP losses.
BOE: Catherine Mann, who is set to join the Bank of England Monetary Policy Committee in September, believes the current economic recovery is more fragile than headline activity data suggests but she has doubts about the benefits of negative interest and dislikes the idea of tying policy tightening to closing the output gap.
  • Mann's written answers to the Treasury Select Committee were mainly theoretical, stressing that she needed to look more closely at the economic situation from within the Bank but some themes did emerge.

OVERNIGHT DATA

  • US NAHB HOUSING MARKET INDEX 80 IN JUL
  • US NAHB JUL SINGLE FAMILY SALES INDEX 86; NEXT 6-MO 81

MARKETS SNAPSHOT

Key late session market levels:

  • DJIA down 831 points (-2.4%) at 33796.02
  • S&P E-Mini Future down 80.25 points (-1.86%) at 4229.75
  • Nasdaq down 176.9 points (-1.2%) at 14224
  • US 10-Yr yield is down 11.5 bps at 1.1756%
  • US Sep 10Y are up 29.5/32 at 134-22.5
  • EURUSD down 0.0011 (-0.09%) at 1.1798
  • USDJPY down 0.59 (-0.54%) at 109.46
  • WTI Crude Oil (front-month) down $5.88 (-8.19%) at $66.09
  • Gold is down $4.29 (-0.24%) at $1807.81


European bourses closing levels:

  • EuroStoxx 50 down 107.24 points (-2.66%) at 3928.53
  • FTSE 100 down 163.7 points (-2.34%) at 6844.39
  • German DAX down 407.11 points (-2.62%) at 15133.2
  • French CAC 40 down 164.11 points (-2.54%) at 6295.97

US TSY FUTURES CLOSE

  • 3M10Y -10.723, 113.491 (L: 112.665 / H: 123.949)
  • 2Y10Y -9.579, 97.1 (L: 96.44 / H: 106.692)
  • 2Y30Y -8.93, 160.639 (L: 159.692 / H: 169.494)
  • 5Y30Y -1.973, 112.284 (L: 110.188 / H: 114.77)
  • Current futures levels:
  • Sep 2Y up 1.125/32 at 110-8.25 (L: 110-07.125 / H: 110-09.625)
  • Sep 5Y up 13.75/32 at 124-11.5 (L: 123-30.25 / H: 124-16.5)
  • Sep 10Y up 28/32 at 134-21 (L: 133-26 / H: 134-25.5)
  • Sep 30Y up 2-1/32 at 166-4 (L: 163-26 / H: 166-10)
  • Sep Ultra 30Y up 4-13/32 at 202-10 (L: 198-01 / H: 202-27)

US EURODOLLAR FUTURES CLOSE

  • Sep 21 -0.005 at 99.870
  • Dec 21 -0.010 at 99.810
  • Mar 22 steady at 99.825
  • Jun 22 +0.005 at 99.770
  • Red Pack (Sep 22-Jun 23) +0.025 to +0.115
  • Green Pack (Sep 23-Jun 24) +0.140 to +0.170
  • Blue Pack (Sep 24-Jun 25) +0.170
  • Gold Pack (Sep 25-Jun 26) +0.170 to +0.175

SHORT TERM RATES

US DOLLAR LIBOR: Latest Settles

  • O/N +0.00025 at 0.08600% (-0.00088 total last wk)
  • 1 Month +0.00162 to 0.08525% (-0.01650 total last wk)
  • 3 Month +0.00000 to 0.13425% (+0.00562 total last wk) ** (Record Low: 0.11800% on 6/14)
  • 6 Month -0.00038 to 0.15175% (+0.00112 total last wk)
  • 1 Year -0.00050 to 0.24163% (+0.00325 total last wk)
STIR: FRBNY EFFR for prior session:
  • Daily Effective Fed Funds Rate: 0.10% volume: $72B
  • Daily Overnight Bank Funding Rate: 0.08% volume: $254B
US TSYS: Repo Reference Rates
  • Secured Overnight Financing Rate (SOFR): 0.05%, $864B
  • Broad General Collateral Rate (BGCR): 0.05%, $364B
  • Tri-Party General Collateral Rate (TGCR): 0.05%, $339B
  • (rate, volume levels reflect prior session)
FED: NY Fed Operational Purchase
  • Tsy 10Y-22.5Y, $1.401B accepted vs. $3.099B submission
  • Next scheduled purchases
  • Tue 7/20 1010-1030ET: TIPS 7.5Y-30Y, appr $1.225B
  • Wed 7/21 1010-1030ET: Tsy 2.25Y-4.5Y, appr $8.425B
  • Thu 7/22 1010-1030ET: Tsy 22.5Y-30Y, appr $2.025B
  • Fri 7/23 1010-1030ET: Tsy 4.5Y-7Y, appr $6.025B

FED: Reverse Repo Operations

NY Fed reverse repo usage climbs to $860.468B from 71 counterparties vs. $817.566B on Friday. Remains well off June 30 record high of $991.939B.

PIPELINE: ICBC Priced Earlier

  • Date $MM Issuer (Priced *, Launch #)
  • 07/19 $600M *ICBC Holdings 3Y +75
  • 07/19 $3.1B DirecTV 6NC2 investor calls
  • 07/19 $750M Aydem Renewables 5.5NC3 investor calls
  • Rolled to Tuesday --
  • 07/20 $Benchmark CPPIB Capital 5Y FRN/SOFR +25a

EGBs-GILTS CASH CLOSE: Monumental Moves Monday

The recent bull flattening in core European FI accelerated Monday, with longer-end yields having one of their best sessions since March 2020.

  • Though there was no data or bond issuance Monday, risk-off was the order of the day, with equity indices dropping 2-3% and periphery spreads wider. Fears of COVID resurgence restraining the recovery was the proximate trigger, with the move accelerating as US traders came in.
  • While the move faded a bit in the last two hours of cash trade, we still closed at post-Feb 2021 lows for 10Y Bund and Gilt yields.
  • New BoE MPC member Mann said she doesn't expect currently high inflation to persist.
  • On Tuesday, ECB's Villeroy speaks, while Germany sells E4bln of Bund and UK sells GBP1.25bln of Oct-71 Gilt.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

  • Germany: The 2-Yr yield is down 0.7bps at -0.691%, 5-Yr is down 2bps at -0.656%, 10-Yr is down 3.3bps at -0.386%, and 30-Yr is down 4.4bps at 0.088%.
  • UK: The 2-Yr yield is down 3.7bps at 0.081%, 5-Yr is down 5.2bps at 0.276%, 10-Yr is down 6.6bps at 0.56%, and 30-Yr is down 8.2bps at 1.031%.
  • Italian BTP spread up 3.9bps at 109.9bps / Spanish up 2.3bps at 66.3bps

FOREX: CAD Continues Retreat, Haven Demand For JPY

  • Heightened volatility in oil/equity markets provided a nervy backdrop for currency markets to start the week.
  • Initially, the greenback was haven of choice with the dollar index firming roughly half a percent throughout European trading hours, however, risk-off flows were superseded by JPY strength in the early stages of Monday's New York session, while also filtering through to EMFX weakness.
  • The sharp turnaround in the dollar was attributed to the aggressive move lower in US yields, which prompted EURUSD to entirely erase the day's losses to trade from 1.1764 to 1.1824 in quick fashion before consolidating around the 1.18 mark, as EUR crosses benefited on the day.
  • USDJPY took out the most recent support through 109.53, to fresh lows of 109.07 in anticipation of the US cash equity open and despite a mild recovery, remains 0.6% worse off.
  • Particular weakness was seen in commodity currencies with antipodeans retreating just shy of 1%, however, the notable laggard was the Canadian dollar. Pressured by the magnitude of the oil price drop (WTI down 7.5%), USDCAD rose to levels not seen since early February, above 1.28. CADJPY stands out, down 1.75% on Monday, but also having matched the April lows at 85.43 as the pair continues its downward trajectory.
  • Some late headlines from the CDC raising the Covid warning to level four for travellers to the UK, underscores the heavy price action for the Pound. Moving average studies remain in bear mode for GBPUSD with the technical bear trigger currently being probed at 1.3669, the April 12 low.
  • The minutes of the latest RBA meeting will be published overnight, while tomorrow's light US calendar includes US building permits and housing starts.