MNI ASIA OPEN: Tsy Three Auction Strike, Late Risk-Off

EXECUTIVE SUMMARY

• FED: Daly Economic Letter On Policy Nimbleness
• MNI BRIEF: Daly Says Hikes Taking Economy To Sustainable Pace
• MNI SECURITY: Ukr FM Kuleba Calls For Russian Suspension From The OSCE
• TURKEY SATISFIED WITH SWEDEN, FINLAND RESPONSE IN NATO, Bbg

US

FED: The SF Fed has published an economic letter expanding on Daly's remarks from Jun 24.

• "For a number of reasons, I expect our economic transition now to look more like the mid-1990s [when the Fed hiked 300bps in roughly a year but the economy and labor market maintained a relatively strong expansion through the end of the decade] than like the 1970's Great Inflation and subsequent painful disinflation."
  
• "The fact that financial conditions [see chart] and real activity are adjusting to expected monetary policy tightening, even when actual rates have not fully risen, means that long and variable lags may not be as long, or variable, as typically assumed."

EUROPE

UKRAINE/RUSSIA: Ukrainian Foreign Minister Dmytro has called for Russia's suspension from the Organization for Security and Cooperation in Europe (OSCE).

• Kuleba: "My message to the OSCE Annual Security Review Conference 2022 was that OSCE needs to make a choice: allow Russia to ruin OSCE or find a way to suspend Russia. Our commitment to ten principles of the Helsinki Final Act must prevail over the brutal force that seeks to destroy them."
  
• Stephanie Liechtenstein of Politico: "Ukraine calls again for Russia's suspension from the OSCE. But the truth is that such a "consensus minus one decision" is very unlikely to succeed due to Russia's allies who would oppose it."
  
• Polish Foreign Minister Zbigniew Rau said in opening remarks that Russian aggression against Ukraine has had a disastrous impact on the security architecture in the OSCE area.
  
• The OSCE Annual Security Review Conference will continue tomorrow.

US TSYS: Late Risk-Off or Month End Positioning?

FI futures finishing mildly higher - well off early session lows as weaker than expected data helped kick things off. Debatable, some desks cited headlines that Turkey's agreement to back Finland and Sweden entry into NATO for adding to the late risk-off tone. Lack of support for stocks could be associated with month-end repositioning remains to be seen.

• Stocks reversed early gains following weaker data (June Consumer Confidence of 98.7 vs. 100.0 est while Richmond Fed Index much weaker than expected at -19 vs -7 est) extending lows at the moment: SPX eminis -74.5 (-1.91%) at 3829; DJIA -459.54 (-1.46%) at 30978.22; Nasdaq - 316.3(-2.7%) at 11208.38.
• Bonds sold off briefly following weak $40B 7Y note auction (91282CEV9) tails (third consecutive weak sale): 3.280% high yield vs. 3.260% WI; 2.48x bid-to-cover vs. 2.69x last month. Indirect take-up: recede to 61.86% vs. 77.86% in May; Direct take-up: climbs to 20.41% vs. 15.76%; Primary dealer take-up: rebounds to 17.73% vs. last moth's record low of 6.38%.
• Focus turns to Wed's data calendar: GDP (-1.5% est), PCE (3.1% est) and Fed speakers at ECB Forum including: Fed Chair Powell joined by ECBs Lagarde, BoE Bailey, BIS Carstens at ECB Forum in Sintra.

OVERNIGHT DATA

• US ADVANCE WHOLESALE INVENTORIES ROSE 2.0 % IN MAY
  
• US ADVANCE RETAIL INVENTORIES ROSE 1.1 % IN MAY
• US ADVANCE MAY GOODS TRADE DEFICIT AT $104.3B

• US APR FHFA HPI SA +1.6% V +1.6% MAR; +18.8% Y/Y

• US JUNE RICHMOND FED FACTORY INDEX AT -19 -bbg (-7 expected, -9 prior)

• US JUNE CONSUMER CONFIDENCE AT 98.7; EST. 100.0

MARKETS SNAPSHOT

Key late session market levels:

• DJIA down 491.27 points (-1.56%) at 30946.99
• S&P E-Mini Future down 80.25 points (-2.06%) at 3823.25
• Nasdaq down 343 points (-3%) at 11181.54
• US 10-Yr yield is down 1.3 bps at 3.1866%
• US Sep 10Y are up 0.5/32 at 116-26.5
• EURUSD down 0.006 (-0.57%) at 1.0524
• USDJPY up 0.77 (0.57%) at 136.22
• WTI Crude Oil (front-month) up $2.07 (1.89%) at $111.62
• Gold is down $3.08 (-0.17%) at $1819.86

• EuroStoxx 50 up 10.41 points (0.29%) at 3549.29
• FTSE 100 up 65.09 points (0.9%) at 7323.41
• German DAX up 45.75 points (0.35%) at 13231.82
• French CAC 40 up 38.71 points (0.64%) at 6086.02

US TSY FUTURES CLOSE

• 3M10Y -7.685, 143.246 (L: 139.814 / H: 150.542)
• 2Y10Y -0.944, 6.481 (L: 6.056 / H: 12.017)
• 2Y30Y -1.608, 17.031 (L: 16.624 / H: 23.519)
• 5Y30Y -1.036, 4.177 (L: 3.495 / H: 7.351)
• Current futures levels:
• Sep 2Y down 0.625/32 at 104-19.5 (L: 104-16.625 / H: 104-21.25)
• Sep 5Y up 1/32 at 111-3 (L: 110-25.75 / H: 111-06.75)
• Sep 10Y up 1/32 at 116-27 (L: 116-11 / H: 117-01)
• Sep 30Y up 3/32 at 135-13 (L: 134-08 / H: 135-18)
• Sep Ultra 30Y up 11/32 at 149-26 (L: 147-26 / H: 149-28)

‌‌US 10Y FUTURES TECH: (U2)‌‌ Bullish Focus

• RES 4: 120-00 Round number resistance
• RES 3: 119-16+ High Jun 1
• RES 2: 119-03+ 76.4% retracement of the May 26 - Jun 14 bear leg
• RES 1: 118-08/20 High Jun 24 / 50-day EMA
• PRICE: 116-16 @ 11:18 BST Jun 28
• SUP 1: 115-20 Low Jun 17
• SUP 2: 114-07+ Low Jun 14 and bear trigger
• SUP 3: 114-00 Round number support
• SUP 4: 113-19 Low Jun 19, 2009 (cont)

Treasuries maintain a firmer short-term tone despite the retracement from last week’s high. Recent gains have resulted in a break of the 20-day EMA, signalling potential for an extension higher. This has exposed the 50-day EMA, which intersects at 118-20. A break would strengthen bullish conditions. Note that the primary trend is down. Initial firm support to watch is 115-20, the Jun 17 low. A breach would expose 114-07+, the bear trigger.

US EURODOLLAR FUTURES CLOSE

• Sep 22 +0.005 at 96.735
• Dec 22 -0.035 at 96.195
• Mar 23 -0.015 at 96.20
• Jun 23 steady at 96.315
• Red Pack (Sep 23-Jun 24) +0.010 to +0.015
• Green Pack (Sep 24-Jun 25) steady to +0.010
• Blue Pack (Sep 25-Jun 26) -0.005 to +0.005
• Gold Pack (Sep 26-Jun 27) -0.005

SHORT TERM RATES

US DOLLAR LIBOR: Latest settlements

• O/N -0.00014 to 1.57086% (-0.00528/wk)
• 1M +0.01385 to 1.66614% (+0.03343/wk)
• 3M +0.01886 to 2.25043% (+0.01600/wk) * / **
• 6M +0.01472 to 2.87686% (+.01029/wk)
• 12M +0.03529 to 3.60729% (+0.06258/wk)
• * Record Low 0.11413% on 9/12/21; ** New 2+Y high: 2.19729% on 6/23/22

• Daily Effective Fed Funds Rate: 1.58% volume: $90B
• Daily Overnight Bank Funding Rate: 1.57% volume: $258B

• Secured Overnight Financing Rate (SOFR): 1.50%, $945B
• Broad General Collateral Rate (BGCR): 1.49%, $367B
• Tri-Party General Collateral Rate (TGCR): 1.49%, $345B
• (rate, volume levels reflect prior session)

FED Reverse Repo Operation

NY Fed reverse repo usage climbs to $2,213.784B w/ 97 counterparties vs. $2,155.942B prior session. Compares to record high of $2,285.428B from Thursday June 23.

PIPELINE: $1.9B Nomura 3Pt Launched Late

Still waiting for Nomura 3pt to launch

• Date $MM Issuer (Priced *, Launch #)
• 06/28 $1.9B #Nomura $800M 3Y +190, $500M 5Y +215, $600M 7Y +235
• 06/28 $1B *AfDB (African Dev Bank) 3Y SOFR+25

EGBs-GILTS CASH CLOSE: Bobl Underperforms As ECB Talks Tools And Hikes

EGBs and Gilts continued to weaken Tuesday, with some of the move attributable to stronger risk appetite, and a slight hint of ECB hawkishness at Sintra.

• Most of the ECB speak Tuesday focused on the anti-fragmentation tool in the works; a Reuters sources piece in the morning pointed to a cash sterilisation element offsetting the liquidity impact of bond purchases.
• While Lagarde reinforced 25bp hike pricing in July, Kazaks said a 50bp raise should be considered, while Wunsch noted the 200bp in hikes as priced by next March were a "no brainer".
• End-2022 ECB hike pricing closed at a 4-session high (1.05%, +163bp vs current rates), which maintained pressure on the short end/belly of the German curve (Bobl underperformed).

Closing Yields / 10-Yr Periphery EGB Spreads To Germany:

• Germany: The 2-Yr yield is up 5.2bps at 0.957%, 5-Yr is up 14.4bps at 1.433%, 10-Yr is up 8.1bps at 1.628%, and 30-Yr is up 7.6bps at 1.828%.
• UK: The 2-Yr yield is up 10.3bps at 2.116%, 5-Yr is up 10.2bps at 2.142%, 10-Yr is up 7.2bps at 2.465%, and 30-Yr is up 6.8bps at 2.712%.
• Italian BTP spread down 3.9bps at 193.2bps / Spanish down 1.2bps at 109.7bps

FOREX: Greenback Trades On Surer Footing As Equities Head South

• Renewed pressure on major equity benchmarks bolstered the US Dollar on Tuesday with the USD Index rising 0.45%, eliminating the downtick seen over the past two trading sessions.
• JPY weakness was the early story on Tuesday throughout European hours with USD/JPY (+0.55%) touching the week's best levels and continuing to work its way through the pullback from last week's highs. This keeps the cycle best at Y136.71 in view over the medium-term, with the RSI fading back below the technically overbought levels seen early June.
• The EURJPY cross delivered a fresh cycle high of 144.28 today, above the resistance and recent high of 144.25. This print has cancelled a 3-day candle pattern highlighted in recent updates - evening star reversal. Despite the supportive price action, the pair saw a swift reversal and resides close to unchanged approaching the APAC crossover. Key short-term support is at 141.18, the 20-day EMA. A break of this level is required to again highlight a potential top.
• The key reason for the swift reversal was gradual and consistent selling in EURUSD. Today’s high print at 106.06 represents the fourth daily test above the 1.06 mark in the past nine sessions.
  • With momentum consistently waning at the highs, the pair gravitated lower amid the weakness in equities. Furthermore, an added tailwind for the greenback may have manifested in the form of value-date month-end dynamics with rebalancing models pointing to strong USD-buying.
• Moving average studies point south and a break lower would open 1.0350, May 13 low and the bear trigger. A clear break of 1.0627 however would alter the picture.
• With risk under pressure, NZD was the key underperformer, falling over 1% with cable also sliding back below the 1.22 mark, narrowing the gap with last week’s lows at 1.2161.
• Wednesday will bring flash estimates of German and Spanish inflation and the Commission's economic sentiment indices, all for June, while Lagarde, Powell and Bailey will all speak on a panel at the Sintra policy forum.

Wednesday Data Calendar

Date	GMT/Local	Impact	Flag	Country	Event
29/06/2022	2301/0001	*		UK	BRC Monthly Shop Price Index
29/06/2022	0130/1130	**		AU	Retail Trade
29/06/2022	0600/0800	**		SE	Economic Tendency Indicator
29/06/2022	0600/1400	**		CN	MNI China Liquidity Suvey
29/06/2022	0700/0900	***		ES	HICP (p)
29/06/2022	0700/0900			ES	Spain Retail sales
29/06/2022	0745/0945			EU	ECB de Guindos on Real Estate Cycles at ECB Forum
29/06/2022	0800/1000	***		DE	Bavaria CPI
29/06/2022	0800/1000	**		EU	M3
29/06/2022	0845/1045			EU	ECB de Guindos on Global Value Chains & Trade at ECB Forum
29/06/2022	0900/1100	***		DE	Saxony CPI
29/06/2022	0900/1100	**		EU	Economic Sentiment Indicator
29/06/2022	0900/1100	*		EU	Consumer Confidence, Industrial Sentiment
29/06/2022	0900/1100	*		EU	Business Climate Indicator
29/06/2022	1015/1215			EU	ECB Schnabel on Inflation Expectations at ECB Forum
29/06/2022	1030/0630			US	Cleveland Fed's Loretta Mester speaking at ECB forum
29/06/2022	1100/0700	**		US	MBA Weekly Applications Index
29/06/2022	1200/1400	***		DE	HICP (p)
29/06/2022	1230/0830	***		US	GDP (3rd)
29/06/2022	1300/0900			US	Fed Chair Jerome Powell speaking at ECB forum
29/06/2022	1300/1500			EU	ECB Lagarde pm Monetary Policy Challenges
29/06/2022	1300/1400			UK	BOE Bailey Panels ECB Forum
29/06/2022	1430/1030	**		US	DOE weekly crude oil stocks
29/06/2022	1500/1700			EU	ECB Lagarde Closing Remarks at ECB Forum
29/06/2022	1530/1130	*		US	US Treasury Auction Result for Cash Management Bill
29/06/2022	1705/1305			US	St. Louis Fed's James Bullard