MNI ASIA OPEN: Yield Curves Recede, Mixed Tone From Fed Barkin

EXECUTIVE SUMMARY

• MNI INTERVIEW: Wages Hotter Than Labor Dept Data- Atlanta Fed
• MNI BRIEF: GDP Growth Seen At 1.4% In Q3 - Philly Fed Survey
• MNI FED: Mixed Comments From Richmond Fed's Barkin

US

FED: U.S. wages rose even more rapidly last month than the Labor Department's average hourly earnings metric would suggest, as workers remained in short supply, Federal Reserve Bank of Atlanta economist John Robertson said in an interview.

• The Atlanta Fed Wage Growth Tracker, which monitors people who have stayed in their job for at least a year, was steady at 6.7% in July, a gain well in excess of the 5.2% increase in average hourly earnings indicated by Labor Department data. The tracker showed that people who took new jobs last month won an increase of 8.5%, up from 7.9% in June, and much higher than July’s 5.9% rise for stayers.
  
• "The overall level of growth stabilized in July, but is still very strong and rising for job switchers," Robertson told MNI. “The biggest story is still on the supply side. The labor force participation rate is still stuck at a lower level than pre-Covid, even among prime-age workers," he said. "The labor market still seems very tight." For more see MNI Policy main wire at 0935ET Friday.

US TSYS: Bonds Near Highs, Yield Curves Flatter

Bonds finished stronger, near late highs on a quiet second half w/ TYU2 just over 1M well after the bell compared to 815k ahead midday, yield curves unwinding a portion of this week's CPI/PPI induced steepening.

• Muted reaction to early deflationary data: Import (-1.4%)/Export (-13.3%) prices come out weaker than expected. Tsys that were already off highs after the open continued to scale back support, albeit on light volumes, equities turning modest gains.
• Dual react: Tsy support faded after preliminary August reading of consumer sentiment from the University of Michigan climbed to 55.1 vs. 52.5 exp (51.5 in July and all-time low of 50.0 in June for comparison).
• Meanwhile, Richmond Fed Barkin midmorning comments on CNBC deemed mixed with "more rate hikes needed to control inflation" and a "lot of time before Sep meeting, keep an eye on data" weighing. Less hawkish tones in the mix with "TIGHT LABOR MARKET DOESN'T HAVE TO CAUSE INFLATION; DEMAND DEFINITELY SOFTENING, ESP FOR LOW-INCOME CONSUMER; MUST BELIEVE BAL-SHEET SHRINKING HAS TIGHTENING EFFECT."
• Blocks contributed to yield curves paring back from wk's steepening post UofM: -11,421 TUU2 104-20.88, sell through 104-21 post-time bid at 1010:56ET vs. +3,960 UXYU2 128-31.5 buy through 128-28.5 post-time offer; -25,033 FVU2 112-09.5 sell through 112-09.75 post-time bid at 1036:45ET, 112-09.25 last -.25.
• Late curve levels:
  • 3M10Y -4.974, 26.663 (L: 25.199 / H: 33.589)
  • 2Y10Y -7.618, -41.125 (L: -41.125 / H: -32.494)
  • 2Y30Y -9.512, -14.282 (L: -14.364 / H: -5.024)
  • 5Y30Y -4.728, 13.923 (L: 13.604 / H: 18.841)
• Cross asset: Stocks trading strong after the bell, SPX eminis +66.0 (1.41%) at 4275.75; Gold +11.30 at 1801.02; Crude weaker (WTI -2.59 at 91.75).

OVERNIGHT DATA

• US JUL IMPORT PRICES -1.4%
  
• US JUL EXPORT PRICES -3.3%; NON-AG -3.3%; AGRICULTURE -3.0%

• UMICH AUG PRELIM CONS SENTIMENT 55.1 (52.5 EXP., 51.5 PRIOR)
• UMICH AUG PRELIM CURRENT CONDITIONS 55.5 (57.8 EXP., 58.1 PRIOR)
• UMICH AUG PRELIM EXPECTATIONS 54.9 (48.5 EXP, 47.3 PRIOR)
• UMICH AUG PRELIM 1Y INFL EXPECTATIONS 5.0% (5.1% EXP., 5.2% PRIOR)
• UMICH AUG PRELIM 5-10Y INFL EXPECTATIONS 3.0% (2.8% EXP., 2.9% PRIOR)

From the UMich report: All components of the expectations index improved this month, particularly among low and middle income consumers. With continued declines in energy prices, the median expected year-ahead inflation rate fell to 5.0%, its lowest reading since February the share of consumers blaming inflation for eroding their living standards remained near 48%.

MARKETS SNAPSHOT

Key late session market levels:

• DJIA up 332.82 points (1%) at 33668.05
• S&P E-Mini Future up 58.25 points (1.38%) at 4267.75
• Nasdaq up 225.5 points (1.8%) at 13005.83
• US 10-Yr yield is down 4 bps at 2.8476%
• US Sep 10Y are up 5.5/32 at 119-8.5
• EURUSD down 0.0055 (-0.53%) at 1.0265
• USDJPY up 0.47 (0.35%) at 133.49
• WTI Crude Oil (front-month) down $2.46 (-2.61%) at $91.87
• Gold is up $11.93 (0.67%) at $1801.57

US TSY FUTURES CLOSE

• 3M10Y -4.974, 26.663 (L: 25.199 / H: 33.589)
• 2Y10Y -7.618, -41.125 (L: -41.125 / H: -32.494)
• 2Y30Y -9.512, -14.282 (L: -14.364 / H: -5.024)
• 5Y30Y -4.728, 13.923 (L: 13.604 / H: 18.841)
• Current futures levels:
• Sep 2Y down 1.375/32 at 104-19.875 (L: 104-19.375 / H: 104-24.875)
• Sep 5Y down 0.25/32 at 112-9.25 (L: 112-06.75 / H: 112-18)
• Sep 10Y up 5.5/32 at 119-8.5 (L: 118-30.5 / H: 119-15)
• Sep 30Y up 20/32 at 140-20 (L: 139-16 / H: 140-22)
• Sep Ultra 30Y up 1-09/32 at 153-30 (L: 152-04 / H: 154-01)

US 10YR FUTURES TECHS: (U2)‌‌ Trades Through Trendline Support

• RES 4: 122-29+ High Mar 31
• RES 3: 122-16 2.0% 10-dma envelope
• RES 2: 120-29/122-02 High Aug 4 / High Aug 02
• RES 1: 120-22 High Aug 10
• PRICE: 119-07+ @ 15:09 BST Aug 12
• SUP 1: 118-30+/30 Low Aug 12 / Jul 22
• SUP 2: 118-05 50.0% retracement of the Jun 14 - Aug 2 bull cycle
• SUP 3: 117-14+ Low Jul 21 and key near-term support
• SUP 4: 117-07 61.8% retracement of the Jun 14 - Aug 2 bull cycle

Treasuries head into the Friday close near the worst levels of the week. The contract has breached trendline support at 119-16. The trendline is drawn from the Jun 16 low. The recent move lower is still considered corrective, however, the trendline break suggests a deeper retracement is likely near-term. This has opened 118-05, a Fibonacci retracement. Initial resistance to watch is 120-22, the Aug 10 high. A break would signal a possible bullish reversal.

US EURODOLLAR FUTURES CLOSE

• Sep 22 +0.005 at 96.640
• Dec 22 -0.005 at 96.085
• Mar 23 -0.030 at 96.075
• Jun 23 -0.065 at 96.160
• Red Pack (Sep 23-Jun 24) -0.065 to -0.04
• Green Pack (Sep 24-Jun 25) -0.025 to +0.010
• Blue Pack (Sep 25-Jun 26) +0.020 to +0.045
• Gold Pack (Sep 26-Jun 27) +0.055 to +0.065

SHORT TERM RATES

US DOLLAR LIBOR: Latest settlements

• O/N -0.00914 to 2.31486% (+0.00286/wk)
• 1M -0.00414 to 2.38686% (+0.01743/wk)
• 3M +0.01643 to 2.92157% (+0.05486/wk) * / **
• 6M +0.02058 to 3.50292% (+0.08372/wk)
• 12M +0.03086 to 3.95900% (+0.09914/wk)
• * Record Low 0.11413% on 9/12/21; ** New 14Y high: 2.92271% on 8/10/22

• Daily Effective Fed Funds Rate: 2.33% volume: $94B
• Daily Overnight Bank Funding Rate: 2.32% volume: $285B

• Secured Overnight Financing Rate (SOFR): 2.28%, $965B
• Broad General Collateral Rate (BGCR): 2.26%, $392B
• Tri-Party General Collateral Rate (TGCR): 2.26%, $380B
• (rate, volume levels reflect prior session)

FED Reverse Repo Operation

NY Fed reverse repo usage climbs to $2,213.193B w/ 99 counterparties vs. $2,199.247B prior session. Record high still stands at $2,329.743B from Thursday June 30.

PIPELINE

• Date $MM Issuer (Priced *, Launch #)
• 08/11 $3.5B *Santander $1.75B 3Y +195, $1.75B 5Y +230
• 08/11 $750M *Fairfax Financial 10Y +275

EGBs-GILTS CASH CLOSE: Gilts Underperform As Europe Enters Long Weekend

The German curve bear flattened Friday, with the UK's bear steepening.

• While core yields had risen early in the session following an upside surprise in UK GDP data, yields began fading by early afternoon. The nascent rally was nipped in the bud by stronger-than-expected US UMichigan consumer confidence data, and European yields finished close to the middle of the day's ranges.
• UK 10Y spreads vs Germany continued to widen, reaching the widest since March 23 (112bp).
• Periphery spreads widened with the notable exception of Greece, which had been underperforming all week.
• BTP spreads widened suddenly in the afternoon (well before the UMichigan data) but narrowed again into the close, with no obvious catalyst seen.
• Note that several Eurozone countries observe holidays Monday, including France, Germany, Italy, and Spain.

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

• Germany: The 2-Yr yield is up 4.3bps at 0.609%, 5-Yr is up 4.4bps at 0.756%, 10-Yr is up 1.7bps at 0.988%, and 30-Yr is up 0.9bps at 1.238%.
• UK: The 2-Yr yield is up 5bps at 2.052%, 5-Yr is up 4.8bps at 1.93%, 10-Yr is up 5.1bps at 2.11%, and 30-Yr is up 8.6bps at 2.535%.
• Italian BTP spread up 2.1bps at 208bps / Greek down 1.6bps at 225bps

FOREX: Greenback Trades With A Bid Tone, EUR Crosses Under Pressure

• Intra-day price action remained more subdued in currency markets on Friday as the post CPI volatility from Wednesday loses steam. Overall, the USD index is set to post a 0.5% gain as the greenback claws back losses incurred since the US inflation data release.
• The greenback advance was mirrored by weakness in EUR, GBP and JPY, however, notable outperformance was seen in the likes of AUD, NZD and CHF. Antipodean FX benefitting from the continued strength of major equity indices and the price action likely being exacerbated by weakness in EUR crosses with both EURAUD and EURCAD close to one percent lower on Friday, both narrowing the gap with the April lows.
• Further downside momentum in EURCHF throughout the day as the pair continues to trade at the lowest levels since the floor was removed in January 2015 with little in the way of technical support.
• The Swedish Krona is the weakest currency in G10 following the weaker-than-expected CPI data early on Friday. USDSEK is +1.4% higher on the session as well as NOKSEK rising over 1% to a three and a half month high. Norway’s above estimate CPI readings earlier in the week potentially exacerbating the divergence for NOKSEK ahead of next week’s Norges Bank rate decision.
• The other notable events on the calendar are the RBNZ rate decision and the FOMC minutes, both due on Wednesday.
• Chinese activity data headlines on Monday, with CPI prints for the UK and Canada later in the week. In the US, July Retail Sales is due for release.

Monday Data Calendar

Date	GMT/Local	Impact	Flag	Country	Event
15/08/2022	1230/0830	**		CA	Monthly Survey of Manufacturing
15/08/2022	1230/0830	**		CA	Wholesale Trade
15/08/2022	1230/0830	**		US	Empire State Manufacturing Survey
15/08/2022	1300/0900	*		CA	Home Sales – CREA (Canadian real estate association)
15/08/2022	1400/1000	**		US	NAHB Home Builder Index
15/08/2022	1530/1130	*		US	US Treasury Auction Result for 13 Week Bill
15/08/2022	1530/1130	*		US	US Treasury Auction Result for 26 Week Bill
15/08/2022	2000/1600	**		US	TICS