MNI ASIA OPEN: Infra-Bill Passes, Supply Weighs on Rates

EXECUTIVE SUMMARY

• MNI: Fed Set For Sept Taper Warning After Job Surge- Advisers
• MNI BRIEF: NCB Economists More Pro-QE Than Academics - Study
• Cleveland Fed Pres Mester Reiterates Inflation Concerns
• SWEEPING $550 BILLION INFRASTRUCTURE BILL PASSES U.S. SENATE, Bbg

US

US: The Federal Reserve is on track to signal a QE taper as soon as next month and start scaling back the program in November, with recent strong job creation more compelling than concerns the Delta variant will soon slow hiring again, current and former advisers tell MNI.

• Policymakers appear to be placing less weight on factors they had emphasized earlier -- the need for a more fulsome rebound in workforce participation and the employment-to-population ratio -- and shifted focus to upside surprises on inflation and concerns those price gains might linger.
• "If inflation remains high and now it is getting more difficult to argue that the labor market is weak, then tapering should happen relatively sooner," said Dean Croushore, a former long-time economist at the Philadelphia Fed. "Tapering is even more likely if break-even inflation measures start moving higher, as the Fed certainly doesn't want to lose its anchor on long-term expectations." For more see MNI Policy main wire at 0946ET.

EUROPE

• Central bank economists also use more positive language in the abstract when discussing QE's statistical and economic effects, and enjoy more favourable career outcomes than than their non-central bank counterparts, the authors claim. A survey of central banks found "substantial" involvement of bank management in research production, authors Brian Fabo, Martina Jancokova, Elisabeth Kempf, Lubos Pastor reported.

OVERNIGHT DATA

• US Q2 PREL UNIT LABOR COSTS +1.0% VS Q1 -2.8%; Y/Y +0.1%
• US Q2 PREL NONFARM PRODUCTIVITY +2.3% vs Q1 +4.3%; Y/Y +1.9%

• US REDBOOK: AUG STORE SALES +16.2% V YR AGO MO
• US REDBOOK: STORE SALES +16.2% WK ENDED AUG 07 V YR AGO WK
• US REDBOOK: WILL RESUME MONTH-TO-MONTH DATA COMPARISON IN FEB 2022

MARKET SNAPSHOT

Key late session market levels:

• DJIA up 141.5 points (0.4%) at 35245.9
• S&P E-Mini Future up 0.75 points (0.02%) at 4427
• Nasdaq down 84.2 points (-0.6%) at 14776.3
• US 10-Yr yield is up 1.9 bps at 1.3422%
• US Sep 10Y are down 7/32 at 133-18
• EURUSD down 0.0018 (-0.15%) at 1.1718
• USDJPY up 0.29 (0.26%) at 110.57
• WTI Crude Oil (front-month) up $1.99 (2.99%) at $68.46
• Gold is down $1.08 (-0.06%) at $1728.63

US TSY SUMMARY: Tsy Yields Grinding Higher Ahead CPI

• Rates near midday lows after the bell, on modest volumes (TYU just over 1.1M) as participants focused on Wed's CPI MoM (0.5% est, 0.9% prior); ex food/energy (0.4% est, 0.9% prior), YoY (5.3% est, 5.4% prior); ex food/energy (4.3% est, 4.5% prior).
  • Citi economists say details for inflation metrics like CPI are becoming much more important as they forecast a "solid 0.39% increase in core CPI in July, with some further upside from transitory components such as airfares, but with strength in components like used car prices likely coming to an end."
• Continued surge in corporate debt issuance in intermediates to long end weighed: $5B Intel 5Pt jumbo, $3.5B HSBC and $1.2B Moddy's lead.
• Tsys held steady/near lows after $58B 3Y note auction (91282CCT6) stopped through: 0.465% high yield vs. 0.467% WI; 2.54x bid-to-cover off 2.46x 5 auction avg.
  • Indirect take-up remains strong at 55.41% vs. 51.16% 5M avg, while direct bidder take-up climbs to new 1+ year high of 18.43%. Primary dealer take-up slips to 26.17% vs. July's 28.55% still well off 31.10% 5M average.
• The 2-Yr yield is up 1.4bps at 0.2344%, 5-Yr is up 2.4bps at 0.8195%, 10-Yr is up 1.9bps at 1.3422%, and 30-Yr is up 1.7bps at 1.9869%.

US TSY FUTURES CLOSE

• 3M10Y +1.511, 128.815 (L: 125.105 / H: 129.66)
• 2Y10Y +0.611, 110.757 (L: 108.44 / H: 111.722)
• 2Y30Y +0.509, 175.315 (L: 172.812 / H: 176.178)
• 5Y30Y -0.676, 116.68 (L: 115.644 / H: 117.773)
• Current futures levels:
• Sep 2Y down 1/32 at 110-7.125 (L: 110-07 / H: 110-08.25)
• Sep 5Y down 5.25/32 at 123-26.25 (L: 123-25.5 / H: 124-00.75)
• Sep 10Y down 7.5/32 at 133-17.5 (L: 133-16 / H: 133-27.5)
• Sep 30Y down 17/32 at 163-5 (L: 163-01 / H: 163-28)
• Sep Ultra 30Y down 31/32 at 196-6 (L: 196-03 / H: 197-16)

US EURODOLLAR FUTURES CLOSE

• Sep 21 -0.005 at 99.870
• Dec 21 -0.005 at 99.815
• Mar 22 -0.005 at 99.835
• Jun 22 -0.005 at 99.785
• Red Pack (Sep 22-Jun 23) -0.03 to -0.02
• Green Pack (Sep 23-Jun 24) -0.04 to -0.03
• Blue Pack (Sep 24-Jun 25) -0.035 to -0.03
• Gold Pack (Sep 25-Jun 26) -0.035 to -0.025

SHORT TERM RATES

US DOLLAR LIBOR: Latest Settles

• O/N -0.00012 at 0.07863% (+0.00012/wk)
• 1 Month +0.00125 to 0.09650% (+0.00138/wk)
• 3 Month -0.00450 to 0.12275% (-0.00563/wk) ** (Record Low: 0.11800% on 6/14)
• 6 Month +0.00662 to 0.15625% (+0.00688/wk)
• 1 Year +0.00188 to 0.23963% (+0.00225/wk)

• Daily Effective Fed Funds Rate: 0.10% volume: $68B
• Daily Overnight Bank Funding Rate: 0.08% volume: $252B

• Secured Overnight Financing Rate (SOFR): 0.05%, $884B
• Broad General Collateral Rate (BGCR): 0.05%, $365B
• Tri-Party General Collateral Rate (TGCR): 0.05%, $343B
• (rate, volume levels reflect prior session)

• Tsy 4.5Y-7Y, $6.001B accepted vs. $19.629B submission
• Next scheduled purchases
• Wed 8/11 1010-1030ET: Tsy 22.5Y-30Y, appr $2.025B
• Thu 8/12 1010-1030ET: TIPS 1Y-7.5Y, appr $2.025B
• Thu 8/12 1500ET Update NY Fed Operational Purchase Schedule

FED: Reverse Repo Operations, Closing in on $1T Again

NY Fed reverse repo usage climbs to $998.654B from 71 counterparties vs. $981.765B on Monday. Compares to record high of $1,039.394B on Friday, July 30.

PIPELINE: $5B Intel 5Pt Jumbo Launched, $1.2B Moddy's Rounds Out List

• Date $MM Issuer (Priced *, Launch #)
• 08/10 $5B #Intel $1B 7Y +50, $1.25B 10Y +65, $750M 20Y +90, $1.25B 30Y +105, $750M 40Y +120 (Intel issued $8B via six tranches in Mar'20: $1.5B 5Y +290, $1B 7Y +295, $1.5B 10Y +295, $750M 20Y +295, $2.25B 30Y +310, $1B 40Y from +340)
• 08/10 $2B #T-Mobile $1.3B 31Y +140, $700M Tap 11/15/60 +155 (adds to $3.8B issued in Mar'21: $1.2B 5NC2 2.625%, $1.25B 8NC3 3.375%, $1.35B 10NC5 3.5%)
• 08/10 $1.2B #Moody's $600M 10Y +80, $600M 20Y +100
• 08/10 $700M *PNC Financial 5Y +37
• 08/10 $3.5B #HSBC $1.5B 3NC2 fix/FRN +50, $2B 8NC7 fix/FRN +108
• 08/10 $1.5B *Standard Chartered 7Y 4.3%
• 08/10 $1.2B #Universal Health $700M 5Y +85, $500M 10Y +133
• 08/10 $1B *Dominion Energy 10Y +92
• 08/10 $650M *Eversource $350M 2Y FRN/SOFR+25, $300M 5Y +60
• 08/10 $500M *Alleghany Corp 30Y +132

EGBs-GILTS CASH CLOSE: UK Short End Underperforms ... Again

The UK curve bear flattened with the short end / belly underperforming, while Germany saw a parallel shift modestly higher Tuesday in a fairly directionless session.

• Fairly modest volumes; core FI leaned weaker amid equities gaining. Periphery spreads were marginally tighter.
• Markets shrugged off a disappointing German ZEW expectations figure. Wednesday sees data flow pick up, with UK 2Q GDP (though more attention on US inflation figures).
• After an unremarkable 10-Yr UK auction today, Wednesday sees the last bond issuance of the week: UK sells GBP 0.7bln of Mar-39 linker and Germany sells E4bln of 10Yr Bund.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is up 0.2bps at -0.748%, 5-Yr is up 0.2bps at -0.723%, 10-Yr is up 0.3bps at -0.457%, and 30-Yr is up 0.2bps at -0.01%.
• UK: The 2-Yr yield is up 1.8bps at 0.153%, 5-Yr is up 1.8bps at 0.296%, 10-Yr is up 0.5bps at 0.589%, and 30-Yr is up 0.1bps at 0.954%.
• Italian BTP spread down 0.6bps at 100.6bps / Spanish down 0.8bps at 68.6bps

FOREX: CAD Rebounds, JPY Continues Drift Lower

• A recovery in oil prices benefitted the Canadian dollar on Tuesday, topping the G10 pile. USDCAD fell 0.4%, despite broad dollar indices likely to register a third consecutive day of gains.
• An overall improvement in the commodity space also boosted AUD and NZD, with most notable gains seen against the Japanese Yen.
• USDJPY firmed toward 110.60 as the e-mini S&P printed a new all-time high of 4438.25. Greenback strength also remained resolute against both the CHF and the EUR, with EURUSD edging towards the 1.17 mark, falling just short of 1.1704, the March 31 low and a key support.
• USDCHF is set to extend its winning streak to five days, consolidating well above the 0.92 mark and making a marginal new high from late July at 0.9234. More notable resistance comes in at the early July highs seen at 0.9275.
• Overall, currency market activity remained uneventful as markets prepare for the US July CPI report on Wednesday, the headline data and event risk for the week.