CANADA MAY RETAILS -0.8% VS FORECAST -0.6%, PRIOR +0.6%

MNI: Canada June Retails Fall And May Biggest Drop In A Year

MNI China Daily Summary: Friday, July 19

MNI BRIEF: China To Boost Consumer Spending, New Industries

MNI BRIEF: China Enhances Fiscal Response To Boost Economy

MNI BRIEF: China To Promote Migrates' Rights, Reform Hukou System

MNI: BAKER HUGHES US RIG COUNT 586; OIL RIGS 477; GAS RIGS 103

EZ/UK T-Bill Calendar: Germany, France Auction on Monday

EZ/UK T-Bill Calendar: Germany, France Auction on Monday

RPT-MNI: Canada Sticks To Fiscal Anchors, Spends Chunk Of Windfall

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MNI ASIA OPEN: FOMC Unanimous 75Bp Hike


EXECUTIVE SUMMARY

  • MNI FOMC Unanimous on 75Bp Hike
  • MNI BRIEF: Fed's Powell Sees QT Lasting About 2 Years
  • MNI BRIEF: Fed Chair Powell Says U.S. Is Not In a Recession
  • MNI BRIEF: June SEP Still Best Guide To Rates - Fed's Powell
  • MNI: Italy Meets Criteria For ECB's New Crisis Tool - Sources

US

FED: Federal Reserve Chair Jerome Powell said Wednesday models at the central bank suggest its "quantitative tightening" program could continue for about two years before a new equilibrium is reached in the level of reserves.

  • "The process of getting back down to the new equilibrium will take awhile," said Powell about reaching a minimum level of reserves in response to a question from MNI. "It's hard to be precise, but you know, the model would suggest that it could be between two, 2-1/2 years."
FED: The U.S. economy is slowing but is not in a recession, Federal Reserve Chair Jerome Powell said Wednesday, and pointed to the labor market as still showing signs of overheating.
  • "I don't think the U.S. is currently in a recession," said Powell, speaking the day before official government statistics could show two quarters of negative growth. There are "areas of the economy that are performing too well and of course, I'd point to the labor market. In particular. It's true that growth is slowing for reasons we understand."
  • The unemployment rate at near a 50-year low, 3.6%, all of the wage measures we track are running very strong, he said. "This is a very strong labor market and it's just not consistent with 2.7 million people hired in the first half of the year. It doesn't make sense that the economy would be in a recession with this kind of thing happening."
FED: Federal Reserve Chair Jerome Powell said Wednesday the Summary of Economic Projections issued in June is still the best guide for where FOMC members see interest rates moving, potentially to 3.50% by yearend and a bit further rate early next year.
  • "I'd say that's probably the best estimate of where the Committee's thinking, which is still that we'd get to a moderately restrictive level by the end of this year," Powell said in a press conference. "Somewhere between 3% and 3.5% and where the Committee sees further rate increases in 2023."

EUROPE

ITALY: The European Central Bank’s new Transmission Protection Instrument marks a break with the punitive approach taken in the past by European authorities to countries struggling with debt problems, two Italian government officials told MNI, adding that Italy meets the four criteria to be eligible for assistance under the facility should that be necessary.

  • In order to qualify for TPI assistance, a country has to be compliant with European Union fiscal frameworks, be free of severe macroeconomic imbalances, and have sustainable public finances and sound economic policies, conditions which the sources indicated were satisfactory to Italy, and which differ from the tougher requirements, including signing up for a European Stability Mechanism Programme, imposed by the ECB’s Outright Monetary Transactions facility. For more see MNI Policy main wire at 1015ET.

US TSYS: Risk Gains When Hawks Cry

Tsys trade mixed after the bell, curves steeper w/ bonds extending lows (30YY hit 3.0777% high). Post FOMC relief rally for short end rates as forward guidance does not appear to green-light more 75bp (or greater) hike for Sep. Equities surged: SPX 4042.50 high but trimming gains a little on earning miss from Meta ($2.46 vs. $2.541 est.).

  • First-half data reacts: Tsy futures trimmed pre-data gains, anticipating 2Q GDP up revision up after better than expected Durable Goods new orders +1.9% vs. -0.4% est, smaller than expected trade deficit -$98.18B vs. -$103.0B est.
  • Rates see-sawed higher into/extended session highs after large miss on pending home sales and the worst M/M figure since April 2020. From the NAR: "As escalating mortgage rates and housing prices impacted potential buyers, pending sales fell in all four major regions in June 2022, with the West experiencing the largest monthly decline." (The West region M/M figure was -15.9%).
  • Stocks and short end rates bounced after Chairman Powell comments:
    "as the stance of monetary policy tightens further, it'll become appropriate to slow the pace of increases while we assess how cumulative policy adjustments are affecting the economy and inflation."
  • Currently the 2-Yr yield is down 7.7bps at 2.9756%, 5-Yr is down 7.3bps at 2.831%, 10-Yr is down 2.9bps at 2.7776%, and 30-Yr is up 3.1bps at 3.0579%.

OVERNIGHT DATA

  • US JUN DURABLE NEW ORDERS +1.9%; EX-TRANSPORTATION +0.3%
  • US MAY DURABLE GDS NEW ORDERS REV TO +0.8%
  • US JUN NONDEF CAP GDS ORDERS EX-AIR +0.5% V MAY +0.5%
  • US NAR JUN PENDING HOME SALES INDEX 91 V 99.6 IN MAY
  • US NAR JUN PENDING HOME SALES -8.6% MOM; -20.0% YOY
Large miss on pending home sales and the worst M/M figure since April 2020. From the NAR: "As escalating mortgage rates and housing prices impacted potential buyers, pending sales fell in all four major regions in June 2022, with the West experiencing the largest monthly decline." (The West region M/M figure was -15.9%)

https://www.nar.realtor/research-and-statistics/ho...

Atlanta Fed GDP Nowcast Updated to -1.2% From -1.6% on July 19.
  • "After recent releases from the US Census Bureau and the National Association of Realtors, the nowcast of the contribution of inventory investment to second-quarter real GDP growth increased from -2.50 percentage points to -2.30 percentage points, while the the nowcast of the contribution of the change in real net exports to second-quarter real GDP growth increased from 0.18 percentage points to 0.59 percentage points."

MARKETS SNAPSHOT

Key late session market levels:

  • DJIA up 457.6 points (1.44%) at 32209.4
  • S&P E-Mini Future up 99.25 points (2.53%) at 4021.75
  • Nasdaq up 452.8 points (3.9%) at 12012.51
  • US 10-Yr yield is down 6.6 bps at 2.7412%
  • US Sep 10Y are up 16/32 at 120-11.5
  • EURUSD up 0.0082 (0.81%) at 1.0197
  • USDJPY down 0.4 (-0.29%) at 136.5
  • WTI Crude Oil (front-month) up $2.77 (2.92%) at $97.78
  • Gold is up $19.53 (1.14%) at $1736.10
European bourses closing levels:
  • EuroStoxx 50 up 32.42 points (0.91%) at 3607.78
  • FTSE 100 up 41.95 points (0.57%) at 7348.23
  • German DAX up 69.45 points (0.53%) at 13166.38
  • French CAC 40 up 46.49 points (0.75%) at 6257.94

US TSY FUTURES CLOSE

  • 3M10Y +1.079, 27.174 (L: 21.485 / H: 29.897)
  • 2Y10Y +1.355, -23.848 (L: -32.142 / H: -23.784)
  • 2Y30Y +6.375, 3.003 (L: -8.689 / H: 3.003)
  • 5Y30Y +8.669, 20.656 (L: 10.689 / H: 20.994)
  • Current futures levels:
  • Sep 2Y up 3.625/32 at 105-2.875 (L: 104-27.75 / H: 105-03.875)
  • Sep 5Y up 11.75/32 at 113-8.75 (L: 112-23.25 / H: 113-11)
  • Sep 10Y up 15/32 at 120-10.5 (L: 119-19.5 / H: 120-15.5)
  • Sep 30Y up 13/32 at 142-17 (L: 141-21 / H: 143-02)
  • Sep Ultra 30Y down 8/32 at 157-4 (L: 156-10 / H: 158-00)

(U2)‌‌ Sights Are On Key Resistance

  • RES 4: 121-28+ 1.382 proj of the 14 - 23 - 28 price swing
  • RES 3: 121-10 1.236 proj of the 14 - 23 - 28 price swing
  • RES 2: 120-19+ High May 26 and a key resistance
  • RES 1: 120-16+ High Jul 6 and the bull trigger
  • PRICE: 120-04+ @ 1515ET Jul 27
  • SUP 1: 118-21+ 50-day EMA
  • SUP 2: 117-14+ Low Jul 21 and key near-term support
  • SUP 3: 116-11 Low Jun 28
  • SUP 4: 115-20 Low Jun 17

Treasuries trade broadly unchanged ahead of the Fed. The contract maintains a firmer short-term tone and price is trading closer to the top of this month's range. Attention is on the bull trigger at 120-16+, the Jul 6 low. A break of this hurdle would confirm a resumption of the uptrend that started Jun 14, and open 121-10, a Fibonacci projection. On the downside, key short-term support has been defined at 117-14+, the Jul 21 low. A break would highlight a potential reversal.

US EURODOLLAR FUTURES CLOSE

  • Sep 22 +0.055 at 96.665 well off 96.59 low
  • Dec 22 +0.060 at 96.320
  • Mar 23 +0.050 at 96.495
  • Jun 23 +0.035 at 96.650
  • Red Pack (Sep 23-Jun 24) +0.040 to +0.050
  • Green Pack (Sep 24-Jun 25) +0.055 to +0.080
  • Blue Pack (Sep 25-Jun 26) +0.070 to +0.080
  • Gold Pack (Sep 26-Jun 27) +0.045 to +0.065

SHORT TERM RATES

US DOLLAR LIBOR: Latest settlements

  • O/N +0.00400 to 1.56343% (-0.00114/wk)
  • 1M +0.02629 to 2.37229% (+0.12000/wk)
  • 3M +0.01300 to 2.80586% (+0.03957/wk) * / **
  • 6M +0.02428 to 3.37071% (+0.04785/wk)
  • 12M -0.00500 to 3.81200% (-0.00229/wk)
  • * Record Low 0.11413% on 9/12/21; ** New 3.5Y high: 2.80586% on 7/27/22
STIR: FRBNY EFFR for prior session:
  • Daily Effective Fed Funds Rate: 1.58% volume: $97B
  • Daily Overnight Bank Funding Rate: 1.57% volume: $293B
US TSYS: Repo Reference Rates
  • Secured Overnight Financing Rate (SOFR): 1.53%, $951B
  • Broad General Collateral Rate (BGCR): 1.51%, $376B
  • Tri-Party General Collateral Rate (TGCR): 1.50%, $369B
  • (rate, volume levels reflect prior session)

FED Reverse Repo Operation

NY Federal Reserve/MNI

NY Fed reverse repo usage recedes to $2,188.994B w/ 102 counterparties vs. $2,189.474B prior session. Record high still stands at $2,329.743B from Thursday June 30.

PIPELINE: Issuers Sidelined Ahead FOMC

Issuers sidelined ahead today's FOMC annc, running total for wk at $14.3B:

  • Date $MM Issuer (Priced *, Launch #)
  • 07/26 $800M *Swedish Export Credit 4Y SOFR+57
  • $13.5B Priced Monday
  • 07/25 $3.5B *American Express $2.25B 3Y +100, $1.25b 11NC10 +160
  • 07/25 $2.75B *RBC $1.5B 2Y +95, $1.25B 5Y +135
  • 07/25 $2.5B *Truist Financial $1.5B 4NC3 +128, $1B 11NC10 +210
  • 07/25 $2.25B *Capital One $1.35B 4NC3 +200, $900M 8NC7 +235
  • 07/25 $1.5B *Kinder Morgan $750M each: 10Y +200, 30Y +240
  • 07/25 $1B *Fifth Third 8NC7 +187.5

EGBs-GILTS CASH CLOSE: Pre-Fed Bear Flattening

European curves bear flattened ahead of the Federal Reserve decision after the cash close.

  • A positive risk tone (equities green across the board) helped underpin Bund yields.
  • In the last hour of the session, short-end yields sold off sharply, with some desks pointing a possible early release of the Rhineland-Palatinate July CPI (German state/national due out tomorrow) which showed a strong M/M reading.
  • German 2s10s hit the flattest level since June 14.
  • UK instruments underperformed beyond the short end, with the 10Y spread to Germany nearing the April high of 106.1bp.
  • Italian spreads widened following Tuesday's downward S&P outlook revision.

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

  • Germany: The 2-Yr yield is up 9.8bps at 0.444%, 5-Yr is up 4.6bps at 0.708%, 10-Yr is up 2.1bps at 0.946%, and 30-Yr is down 0.2bps at 1.198%.
  • UK: The 2-Yr yield is up 5.2bps at 1.882%, 5-Yr is up 4.7bps at 1.732%, 10-Yr is up 4.4bps at 1.961%, and 30-Yr is up 4.7bps at 2.524%.
  • Italian BTP spread up 6bps at 238.2bps / Spanish up 0.7bps at 119.3bps

Greenback Sharply Lower As No Guidance For September Sparks Risk Rally

  • The US Dollar has traded significantly lower on Wednesday, following the July FOMC decision and subsequent press conference.
  • The greenback received only a modest downtick following the decision to hike rates by 75bps, with the statement flagging softer spending and production indicators. However, Chair Powell’s signal that the September meeting has no particular guidance and that rate hikes will eventually slow, has sparked a relief rally across equity markets and in turn weighed heavily on the USD.
  • EURUSD made light work of the day’s highs through 1.0172, trading as high as 1.0221 towards the end of the presser. The pair hovers just below the highs approaching the APAC crossover.
  • Price remains below immediate resistance at 1.0278, the Jul 21 high of which a break above would once again resume short-term bullish conditions and signal scope for an extension higher within the bull channel - the top intersects at 1.0441.
  • Broad dollar weakness (DXY -0.78%) and the overall firm dovish effect on risk sees the likes of GBP and AUD atop the major currency leaderboard, mirroring gains of close to 1% and USDJPY roughly 100 pips off its best levels around 136.50.
  • Despite Chair Powell essentially cementing the idea that the FOMC won't pay much attention to tomorrow's GDP number, markets will inevitably eagerly await the data for clues as to the ongoing trajectory for US growth. As a reminder, Treasury Secretary Yellen is due to speak following the data.
  • Aussie retail sales will hit the wires overnight before preliminary regional German CPI data will be released throughout the European morning.

Thursday Data Calendar

DateGMT/LocalImpactFlagCountryEvent
28/07/20220130/1130**AURetail Trade
28/07/20220130/1130***AURetail trade quarterly
28/07/20220130/1130**AUTrade price indexes
28/07/20220600/0800***SEGDP
28/07/20220600/0800**SERetail Sales
28/07/20220645/0845**FRPPI
28/07/20220700/0900**SEEconomic Tendency Indicator
28/07/20220800/1000***DEBavaria CPI
28/07/20220800/1000***DEHesse CPI
28/07/20220900/1100**EUEconomic Sentiment Indicator
28/07/20220900/1100*EUConsumer Confidence, Industrial Sentiment
28/07/20220900/1100*EUBusiness Climate Indicator
28/07/20220900/1100***DESaxony CPI
28/07/20221200/1400***DEHICP (p)
28/07/20221230/0830*CAPayroll employment
28/07/20221230/0830**USJobless Claims
28/07/20221230/0830***USGDP (adv)
28/07/20221230/0830**USWASDE Weekly Import/Export
28/07/20221430/1030**USNatural Gas Stocks
28/07/20221530/1130**USUS Bill 04 Week Treasury Auction Result
28/07/20221530/1130*USUS Bill 08 Week Treasury Auction Result
28/07/20221700/1300**USUS Treasury Auction Result for 7 Year Note
28/07/20221730/1330USTreasury Secretary Janet Yellen

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