MNI ASIA OPEN: Fed Bullard: Don't Need Much More Stimulus

EXECUTIVE SUMMARY

• MNI INTERVIEW: Ex-Fed's Plosser Sees More 2022 Dots in Sept.
• MNI BRIEF: Near-Term Upside Risks Offset By Delta Doubts - ECB
• MNI FED: Kaplan favours September FOMC meeting taper
• BULLARD: ECONOMY IS BOOMING AND DOESN'T NEED MUCH MORE STIMULUS, Bbg
• GEORGE SEES `GOOD ARGUMENTS' FOR TAPERING FASTER THAN LAST TIME, Bbg
• Fed's George Says Risks From Delta Don't Alter Taper Urgency, Bbg

US

FED: Federal Reserve officials are likely to bring forward forecasts for the start of rate hikes into 2022 at their September meeting due to what will prove persistently elevated inflation pressures, former Philadelphia Fed President Charles Plosser told MNI.

• "From March to July the number of people who thought interest rates would have to rise in 2022 to 2023 went from almost zero to over half the committee," said Plosser, one of the architects of the dot plot during his tenure at the Fed.
• "That told you that most of the committee now believes they are going to have to raise rates in 2022-2023 in order to keep inflation near 2%. My guess is that when you see the September SEPs there will be more, and they'll be higher."
  

EUROPE

ECB: Europe's economic recovery from the Covid-19 pandemic remains on-track, with some upside risk to the inflation outlook, the European Central concluded at the July monetary policy meeting, although the emergence of the Delta variant had created fresh uncertainty, with temporary work schemes and government fiscal support both boosting jobs and at the same time as they partially obscure the pandemic's true costs, the accounts of the gathering show.

• Most of the governing council shared the view that a fourth wave of the virus would have more limited health and economic impacts thanks to rising vaccination rates and the need for less stringent containment measures, but there were concerns that further mutations affecting this assessment were possible.

OVERNIGHT DATA

• US JOBLESS CLAIMS +4K TO 353K IN AUG 21 WK
  
• US PREV JOBLESS CLAIMS REVISED TO 349K IN AUG 14 WK
• US CONTINUING CLAIMS -0.003M to 2.862M IN AUG 14 WK

• US Q2 GDP +6.6%

MARKET SNAPSHOT

Key late session market levels

• DJIA down 143.25 points (-0.4%) at 35364.8
• S&P E-Mini Future down 19.25 points (-0.43%) at 4479.75
• Nasdaq down 51.3 points (-0.3%) at 14999.74
• US 10-Yr yield is up 0.3 bps at 1.3424%
• US Sep 10Y are down 1.5/32 at 133-18.5
• EURUSD down 0.002 (-0.17%) at 1.1762
• USDJPY up 0.02 (0.02%) at 110
• WTI Crude Oil (front-month) down $1.08 (-1.58%) at $67.47
• Gold is up $0.13 (0.01%) at $1796.30

• EuroStoxx 50 down 11.25 points (-0.27%) at 4161.61
• FTSE 100 down 25.14 points (-0.35%) at 7118.82
• German DAX down 67.04 points (-0.42%) at 15769.34
• French CAC 40 down 10.45 points (-0.16%) at 6651.43

US TSYS: Bonds Buoyed, Risk Sours Ahead Jackson Hole Economic Symposium

Rates trading mixed -- off lows after the bell with Bonds inching higher as appetite for risk sours as Pentagon officials hold press conference to discuss the bombing attacks, deaths at Kabul airport. Somber end to a day that would otherwise be more focused on Friday's Jackson Hole/remote economic symposium.

• The event agenda will be posted on the KC Fed site tonight at 2000ET. Fed chair Powell speaks Fri at 1000ET -- but six generally hawkish Fed speakers are expected to speak on Bbg, CNBC prior to the Fed chair's speech.
• Today, KC Fed's George, StL's Bullard and Dallas' Kaplan expressed their opinions.
• Rates weakened as KC Fed George expressed "good arguments" for tapering asset purchases sooner than later on Bbg interview, open minded about pace.
• USD firmed after StL Fed Bullard said the "ECONOMY IS BOOMING AND DOESN'T NEED MUCH MORE STIMULUS" Bbg while implying a timeline with: "FINISHING TAPER BY END-1Q WOULD GIVE FED `OPTIONALITY'" Bbg.
• Dallas' Fed Kaplan prefers to taper sooner at a gradual pace.
• Overall trade volumes remained heavy due to Tsy quarterly futures rolling, now over 75% complete. Tsys traded lower after $62B 7Y note (91282CCV1) auction tailed 5bp: 1.155% high yield vs. 1.150% WI. Strong Indirect take-up climbed to 61.07 vs. 58.37 in July (58.45% 5M avg).
• The 2-Yr yield is down 0.2bps at 0.2367%, 5-Yr is up 2.2bps at 0.8395%, 10-Yr is up 0.2bps at 1.3407%, and 30-Yr is down 1.2bps at 1.9365%.

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

Preliminary forecast summary compared to avg increase for prior year and same time in 2020. TIPS 0.07Y.

US TSY FUTURES CLOSE

• 3M10Y -0.166, 128.663 (L: 127.312 / H: 132.212)
• 2Y10Y -0.166, 109.675 (L: 108.831 / H: 112.832)
• 2Y30Y -1.37, 169.39 (L: 169.39 / H: 173.052)
• 5Y30Y -3.38, 109.495 (L: 109.123 / H: 112.961)
• Current futures levels:
• Sep 2Y down 0.125/32 at 110-8 (L: 110-07.625 / H: 110-08.875)
• Sep 5Y down 1.25/32 at 123-26.5 (L: 123-23 / H: 123-28.5)
• Sep 10Y steady at at 133-20 (L: 133-12 / H: 133-22)
• Sep 30Y up 6/32 at 164-4 (L: 163-11 / H: 164-06)
• Sep Ultra 30Y up 29/32 at 198-19 (L: 197-02 / H: 198-19)

US TSY FUTURES: Quarterly Futures Roll Over 75% Complete

Late roll update: most over 75% complete, 10s still lagging a little. Dec futures take lead quarterly position next Tuesday. Current lvls:

• TUU/TUZ 830,3500 from 5.12 to 5.5, 5.38 last; 73% complete
• FVU/FVZ 1,302,800 from 15.0-16.0, 15.25 last; 75% complete
• TYU/TYZ 1,277,800 from 18.25 to 19.0, 18.75 last; 68% complete
• UXYU/UXYZ 375,000, 1-28.5 last; 80% complete
• USU/USZ 370,700 from 1-17.25 to 1-18, 1-17.5 last; 74% complete
• WNU/WNZ 426,100, 1-24 last; 78% complete

US EURODOLLAR FUTURES CLOSE

• Sep 21 +0.003 at 99.873
• Dec 21 steady at 99.805
• Mar 22 steady at 99.840
• Jun 22 steady at 99.80
• Red Pack (Sep 22-Jun 23) -0.005
• Green Pack (Sep 23-Jun 24) -0.005
• Blue Pack (Sep 24-Jun 25) -0.01
• Gold Pack (Sep 25-Jun 26) -0.01 to -0.005

Short Term Rates

US DOLLAR LIBOR: Latest Settles

• O/N -0.00063 at 0.07575% (-0.00163/wk)
• 1 Month -0.00325 to 0.08463% (-0.00125/wk)
• 3 Month -0.00300 to 0.12075% (-0.00762/wk) ** (Record Low: 0.11800% on 6/14)
• 6 Month -0.00012 to 0.15788% (+0.00525/wk)
• 1 Year -0.00212 to 0.23538% (-0.00125/wk)

• Daily Effective Fed Funds Rate: 0.09% volume: $70B
• Daily Overnight Bank Funding Rate: 0.07% volume: $256B

• Secured Overnight Financing Rate (SOFR): 0.05%, $912B
• Broad General Collateral Rate (BGCR): 0.05%, $376B
• Tri-Party General Collateral Rate (TGCR): 0.05%, $358B
• (rate, volume levels reflect prior session)

• Tsy 0Y-2.25Y, $12.401B accepted vs. $42.281B submission
• Next scheduled purchase
• Fri 8/27 1010-1030ET: Tsy 22.5Y-30Y, appr $2.025B

FED: REVERSE REPO OPERATION

NY Fed reverse repo usage slips to 1,091.792B from 76 counter-parties vs. Wednesday's record high of $1,147.089B. Prior record high of $1,135.697B set Monday, Aug 23.

PIPELINE: Total $8.85B Priced on Week

No new corporate or supra-sovereign issuance Thursday; $8.85B/wk

FOREX: CAD underperforms as the USD is king on Thursday

• CAD has been the underperformer today, down 0.6% against the USD, with USDCAD reversing Tuesday's move lower but still moving nowhere near the highs of Friday. CAD has not been helped by falling oil prices today.
• The dollar has remained strong, initially on higher yields, and later on risk aversion as events in Afghanistan spook the market somewhat. In keeping with the latter, the yen and euro are the next best performers in G10.
• Focus is now shifting to tomorrow's Jackson Hole Economic Symposium. There are six scheduled media appearances from FOMC members ahead of Powell's speech which is due at 10:00ET/15:00BST.

EGB/Gilts cash close: Bunds at lowest levels in a month this morning

• Bunds were the underperformers in global core fixed income today with 10-year Bund yields up 1.5bp on the day as the curve bear flattened and Schatz remained flat on the day. Indeed, 10-year Bunds futures are at their lowest level in a month, but are higher than the nadir of around 8:00BST/9:00CET this morning.
• Greek spreads have widened notably today, with GGB-Bund 10-year spreads 4.7bp wider on the day. There is no real new news, but there continues to be market discussion of whether Greek bonds will be eligible for purchase under the APP when PEPP eventually ends next year. The market is still hopeful, but the ECB have not given much encouragement to this possibility yet.
• Most other EGB spreads have been unremarkable.
• Gilts have been less affected by the sell-off than either Bunds or Treasuries with the curve seeing a parallel shift lower.