MNI ASIA OPEN: Chicago Business Barometer, Consumer Conf Decline

EXECUTIVE SUMMARY

• MNI: US Aug Hiring Slowed by Vacations- St Louis Fed Economist
• MNI INTERVIEW: Central Banks Face Independence Risk- Poloz
• US DATA: MNI Chicago Business Barometer Slips in August to 66.8
• BANK OF MONTREAL CUTS 2021 CANADA GROWTH ESTIMATE TO 5% FROM 6% bbg
• JAPAN'S SUGA PLANS TO CALL SNAP ELECTION MID-SEPT.: MAINICHI - bbg

US

US: U.S. hiring likely slowed in August as people opted to take vacation, according to a St. Louis Fed analysis of high-frequency data from scheduling software company Homebase.

• "Data shows a mild negative evolution over the last few weeks," St. Louis Fed economist Max Dvorkin told MNI, though he did not produce an actual employment forecast this month. "Much of this evolution is driven by vacation and time off for workers between mid-July and mid-August."
• It's not yet clear how much the spread of the Delta variant of Covid-19 is impacting employment, Dvorkin said. Other data from workforce manager Kronos was again excluded from this month's calculation, mostly because of its vulnerability to summer seasonality.

CANADA

BOC: Global central banks may face pressure from governments to tolerate some unhealthy inflation that makes it easier for them to run deficits, former Bank of Canada Governor Stephen Poloz told MNI.

• Poloz, now a special adviser at the law firm Osler, Hoskin & Harcourt, said companies he meets with are worried about the potential for rising taxes, debt and more inflation pressures. "I see these three things as highly linked," Poloz said. "Historically when government debts have gone up a lot and become really high as they have globally during the pandemic, they are still rising of course, there has been a tendency for inflation to break out in places around the world." For more, see MNI Policy main wire at 1418ET.

OVERNIGHT DATA

The MNI Chicago Business Barometer fell 6.6 points in August to 66.8, the lowest reading since June after climbing to a two-month high in July.

• Survey respondents told MNI the available supply of raw materials and workers isn't sufficient to keep up with new orders, which fell to 67.8 in August, suggesting demand through the month grew at a slower pace compared to July.
• Production also fell in August, dropping 7.8 points to a two-month low of 61. Meanwhile, order backlogs saw the largest gain through the month, rising 11.6 points to 81.6, the highest reading since 1951.
• That was followed by Supplier Deliveries, which increased 6.3 points to 92.8, the highest since 1973. Inventories rose 6.2 points to 48.8, the highest level since March.
• Prices Paid rose to 93.9, the highest since 1979. Employment was up only slightly, rising 0.8 points to 48.3.

• Phoenix, San Diego, and Seattle reported the highest year-over-year gains among the 20 cities in June. Phoenix led the way with a 29.3% year-over-year price increase, followed by San Diego with a 27.1% increase and Seattle with a 25.0% increase. Third consecutive month in which growth rate of housing prices set a record.

MNI: US CONF BOARD CONSUMER CONFIDENCE 113.8 IN AUG V JUL 125.1

MARKET SNAPSHOT

Key late session market levels:

• DJIA down 35.62 points (-0.1%) at 35365.83
• S&P E-Mini Future down 3.5 points (-0.08%) at 4522
• Nasdaq up 9.4 points (0.1%) at 15275.74
• US 10-Yr yield is up 2.4 bps at 1.302%
• US Sep 10Y are down 3/32 at 134-1
• EURUSD up 0.0013 (0.11%) at 1.181
• USDJPY up 0.08 (0.07%) at 110
• WTI Crude Oil (front-month) down $0.8 (-1.16%) at $68.40
• Gold is up $5.08 (0.28%) at $1815.49

US TSYS: Waiting for Wed's ADP Private Employ Data

• Futures extended session lows into midday, TYZ breaking channel support of 133-17 that had provided support a number of times since April.
• A clear break lower would highlight an important reversal. Bulls will be looking for the channel to hold and for price to extend the recent climb, initially towards 134-19+. Yield curves not surprisingly bear steepened.
• Focus on Wednesday's ADP private employ data (+625k est vs. +330k prior) a precursor to Friday's August non-farm payrolls (+750k est vs. +943k prior).
• The 2-Yr yield is up 0.6bps at 0.2074%, 5-Yr is up 0.5bps at 0.7724%, 10-Yr is up 2.4bps at 1.302%, and 30-Yr is up 2.9bps at 1.9249%.

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

Final forecast summary compared to avg increase for prior year and same time in 2020. Noted gain in MBS extension to 0.14 from 0.10 prelim estimate. US Gov linker 0.13Y.

US TSY FUTURES CLOSE

• 3M10Y +3.283, 126.568 (L: 121.604 / H: 127.41)
• 2Y10Y +1.923, 109.439 (L: 106.499 / H: 110.673)
• 2Y30Y +2.32, 171.558 (L: 167.876 / H: 173.18)
• 5Y30Y +2.279, 114.935 (L: 111.677 / H: 116.028)
• Current futures levels:
• Sep 2Y steady at at 110-10.375 (L: 110-10.125 / H: 110-10.75)
• Sep 5Y down 0.25/32 at 124-5.5 (L: 124-04 / H: 124-08.25)
• Sep 10Y down 3.5/32 at 134-0.5 (L: 134-00 / H: 134-09)
• Sep 30Y down 17/32 at 164-16 (L: 164-09 / H: 165-12)
• Sep Ultra 30Y down 32/32 at 199-3 (L: 198-23 / H: 200-24)

US EURODOLLAR FUTURES CLOSE

• Sep 21 +0.002 at 99.880
• Dec 21 +0.005 at 99.825
• Mar 22 steady at 99.855
• Jun 22 steady at 99.815
• Red Pack (Sep 22-Jun 23) -0.005
• Green Pack (Sep 23-Jun 24) steady to +0.005
• Blue Pack (Sep 24-Jun 25) -0.01 to -0.005
• Gold Pack (Sep 25-Jun 26) -0.025 to -0.01

Short Term Rates

US DOLLAR LIBOR: Settlements resume

• O/N -0.00275 at 0.07338% (-0.00125 total last wk)
• 1 Month -0.00350 to 0.08250% (+0.00012 total last wk)
• 3 Month -0.00025 to 0.11963% (-0.00850 total last wk) ** (Record Low: 0.11800% on 6/14)
• 6 Month -0.00513 to 0.14963% (+0.00213 total last wk)
• 1 Year -0.00725 to 0.22788% (-0.00150 total last wk)

• Daily Effective Fed Funds Rate: 0.08% volume: $71B
• Daily Overnight Bank Funding Rate: 0.07% volume: $262B

• Secured Overnight Financing Rate (SOFR): 0.05%, $885B
• Broad General Collateral Rate (BGCR): 0.05%, $366B
• Tri-Party General Collateral Rate (TGCR): 0.05%, $349B
• (rate, volume levels reflect prior session)

• Tsy 10Y-22.5Y, $1.401B accepted vs. $3.650B submission
• Next scheduled purchases
• Wed 9/01 1100-1120ET: Tsy 7Y-10Y, appr $3.225B
• Thu 9/02 1010-1030ET: Tsy 22.5Y-30Y, appr $2.025B
• Fri 9/03 no buy operation ahead holiday, resume Tuesday Sep 7

FED: REVERSE REPO OPERATION, New Record High

NY Fed reverse repo usage climbs to new record high of 1,189.616B from 82 counter-parties vs. $1,140.711B on Monday. Prior record high of $1,147.089B set Wednesday, Aug 25.

PIPELINE: SEB 2Pt Launched

• Date $MM Issuer (Priced *, Launch #)
• 08/31 $2B #IFC +5Y +19
• 08/31 $1.5B #SEB $750M 3Y +30, $750M 5Y +45
• 08/31 $Benchmark Canada Pension Plan Inv Brd 5Y +5a
• 08/31 $Benchmark Allianz perp NC6.6Y
• 08/31 $Benchmark Chiba Bank 5Y
• 08/31 $Benchmark Verizon 20Y Green bond chatter
• 08/31 Reverse Yankee: GM issuing 6Y via GBP +140a and 7Y via EUR +115a
• Rolled to Wednesday:
• 09/01 $2B ESM WNG 2Y +1

EGBs-GILTS CASH CLOSE: ECB Hawks Hold Sway

Bunds and Gilts weakened sharply in afternoon trade Tuesday, with periphery spreads widening (10Y BTPs just off the August wides).

• EGB weakness was driven by both inflation breakevens and real rates; Gilts followed suit.
• Eurozone Aug inflation came in at 3% Y/Y, higher than expected and the highest print since 2011. Accordingly, ECB hawks Holzmann and Knot set a bearish tone, pointing to scope for a reduction of central bank stimulus as the COVID crisis abates.
  
• Earlier, Netherlands sold E2bln of DSL and Italy E7.75bln of BTP/CCTeu. Wednesday sees issuance from: ESM, Germany, Greece, and the UK; also final European PMIs.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is up 2.3bps at -0.713%, 5-Yr is up 3.9bps at -0.678%, 10-Yr is up 5.6bps at -0.383%, and 30-Yr is up 6.1bps at 0.092%.
• UK: The 2-Yr yield is up 10bps at 0.219%, 5-Yr is up 9.2bps at 0.383%, 10-Yr is up 13.6bps at 0.714%, and 30-Yr is up 5.7bps at 1.056%.
• Italian BTP spread up 4.3bps at 109.2bps / Spanish up 0.6bps at 72.1bps

FOREX: ECB Support Proves Shortlived for EUR

• Having traded firmer for much of the morning session, particularly against the greenback, the EUR faded into the Tuesday close, shrugging off support from a number of ECB speakers and a multiyear high in Eurozone inflation.
• Eurozone HICP touched a decade high of 3.0%, ahead of analyst expectations, which supported EUR/USD to print a session and multi-week high of 1.1845. The move was bolstered by comments from both ECB's Holzmann and Knot, who talked up the prospect of a reduction in stimulus from the ECB headed into the end of 2021.
• This soon faded, however, with the USD strengthening alongside a modest re-steepening of the US yield curve, putting the USD Index back to flat ahead of the close.
• NZD, AUD were the session's outperformers, while NOK, CAD and GBP declined.
• Australian GDP data for Q2, China's Caixin PMI and the August ISM Manufacturing data from the US are the data highlights Wednesday. ECB's Weidmann and Bostic are both due to be speaking.