MNI ASIA OPEN: Spotlight on KC Fed Eco-Summit

EXECUTIVE SUMMARY

MNI INTERVIEW: Fed's Harker Wants Rates Above 3.4% By Year-End
MNI BRIEF: No Decision Yet On Size of Sept Hike - Fed's Harker

US

FED: Philadelphia Fed President Patrick Harker on Thursday told MNI the U.S. central bank should raise its benchmark interest rate above 3.4% by December to combat soaring inflation, adding that rates could continue rising next year or hold at that level for some time.

• The Fed has moved aggressively this year to lift the fed funds rate to a 2.25% to 2.5% range, with another 50 basis point or 75 basis point hike expected next month as its preferred PCE inflation gauge climbed to 6.8% in June, a four-decade high.
• "I'd like to see us get to a clearly restrictive stance by the end of the year -- north of 3.4%, which was the median in the last SEP -- and then maybe continue to increase depending on the data, or just sit there for a while," Harker told MNI's FedSpeak podcast on the sidelines of the Kansas City Fed's annual Jackson Hole Symposium. For more see MNI Policy main wire at 1113ET.
  

US TSYS: Fed Speak Flattens Yld Curves Ahead Jackson Hole Eco-Summit

• Modest reaction to early data: Tsys bounced after setting session lows on lower than expected weekly claims at 243k vs. 252k est, first revision of Q2 GDP is -0.6% vs. -0.7% est. Yield curves briefly extended session highs (2s10s tapped -25.669) before mixed Fed speak:
• Trading desks citing Philly Fed Harker comment on a 50bp hike is "still a substantial move" for latest bounce after conceding there is no decision yet on the size of a hike at the Sep FOMC. That said, Harker told MNI the Fed should hike above 3.4% by Dec to combat soaring inflation, adding that rates could continue rising next year or hold at that level for some time. Atlanta Fed Bostic said strong data could tip Fed toward 75bp, while KC Fed George: rates could exceed 4%.
• Yield curves flatter/near lows after Tsys extend highs on strong $37B 7Y note auction (91282CFJ5) stopped through: 3.130% high yield vs. 3.159% WI; 2.65x bid-to-cover vs. 2.60x last month
• Heavy session volumes (TYZ>2.6M) tied to surge in Sep/Dec rolling ahead next Wed's First Notice date (Dec takes lead).
• Currently, 2-Yr yield is down 2bps at 3.3701%, 5-Yr is down 7.9bps at 3.1539%, 10-Yr is down 8.2bps at 3.0221%, and 30-Yr is down 8.1bps at 3.2314%.

OVERNIGHT DATA

• US JOBLESS CLAIMS -2K TO 243K IN AUG 20 WK
  
• US PREV JOBLESS CLAIMS REVISED TO 245K IN AUG 13 WK
• US CONTINUING CLAIMS -0.019M to 1.415M IN AUG 13 WK

• US PRELIM Q2 GDP -0.6% (CONSENSUS -0.8%), PREV -0.9%; FINAL SALES +1.3%, PREV +1.1%

MARKETS SNAPSHOT

Key late session market levels:

• DJIA up 118.49 points (0.36%) at 33086.58
• S&P E-Mini Future up 30 points (0.72%) at 4173
• Nasdaq up 122.6 points (1%) at 12553.98
• US 10-Yr yield is down 8.2 bps at 3.0221%
• US Sep 10Y are up 17/32 at 117-25
• EURUSD up 0.0002 (0.02%) at 0.9969
• USDJPY down 0.64 (-0.47%) at 136.47
• Gold is up $4.75 (0.27%) at $1755.95

US TSY FUTURES CLOSE

• 3M10Y -9.179, 22.213 (L: 21.185 / H: 34.13)
• 2Y10Y -6.133, -35.004 (L: -35.411 / H: -25.669)
• 2Y30Y -5.878, -13.908 (L: -14.617 / H: -5.314)
• 5Y30Y +0.007, 7.747 (L: 6.02 / H: 12.16)
• Current futures levels:
• Sep 2Y down 0.125/32 at 104-14.5 (L: 104-14 / H: 104-17.25)
• Sep 5Y up 6.5/32 at 111-11.75 (L: 111-03.25 / H: 111-13)
• Sep 10Y up 16.5/32 at 117-24.5 (L: 117-03.5 / H: 117-26)
• Sep 30Y up 1-12/32 at 137-26 (L: 136-00 / H: 137-29)
• Sep Ultra 30Y up 2-10/32 at 150-08 (L: 147-23 / H: 150-17)

US 10YR FUTURE TECHS: (U2)‌‌ Bearish Price Action

• RES 4: 120-22 High Aug 10 and a key near-term resistance
• RES 3: 119-31 High Aug 15
• RES 2: 119-14+ High Aug 17
• RES 1: 117-29/118-26+ High Aug 24 / 20-day EMA
• PRICE: 117-12 @ 11:24 BST Aug 25
• SUP 1: 117-03+ Low Aug 24
• SUP 2: 116-26+ Low Jun 29
• SUP 3: 116-11 Low Jun 28
• SUP 4: 116-02+ 76.4% retracement of the Jun 14 - Aug 2 bull run

Treasuries maintain a bearish tone and the contract is trading closer to its recent lows. 117-07, 61.8% of the Jun 14 - Aug 2 bull cycle, has been pierced. A clear break of this area of support would strengthen the bearish case and signal scope for an extension lower towards 116-26+ next, the Jun 29 low. On the upside, initial firm resistance is seen at the 20-day EMA, at 118-26+.

US EURODOLLAR FUTURES CLOSE

• Sep 22 -0.003 at 96.625
• Dec 22 steady00 at 95.995
• Mar 23 +0.015 at 95.970
• Jun 23 +0.010 at 96.030
• Red Pack (Sep 23-Jun 24) +0.020 to +0.045
• Green Pack (Sep 24-Jun 25) +0.040 to +0.050
• Blue Pack (Sep 25-Jun 26) +0.055 to +0.065
• Gold Pack (Sep 26-Jun 27) +0.075 to +0.080

SHORT TERM RATES

US DOLLAR LIBOR: Latest settlements

• O/N -0.00100 to 2.32043% (-0.00071/wk)
• 1M +0.03857 to 2.49343% (+0.06815/wk)
• 3M +0.03314 to 3.04314% (+0.08543/wk) * / **
• 6M +0.03343 to 3.52686% (-0.02071/wk)
• 12M +0.01815 to 4.09729% (+0.08143/wk)
• * Record Low 0.11413% on 9/12/21; ** New 14Y high: 3.01000% on 8/24/22

• Daily Effective Fed Funds Rate: 2.33% volume: $94B
• Daily Overnight Bank Funding Rate: 2.32% volume: $278B

• Secured Overnight Financing Rate (SOFR): 2.27%, $969B
• Broad General Collateral Rate (BGCR): 2.26%, $388B
• Tri-Party General Collateral Rate (TGCR): 2.26%, $375B
• (rate, volume levels reflect prior session)

FED Reverse Repo Operation

NY Fed reverse repo usage continues to recede, latest at $2,187.907B w/ 97 counterparties vs. $2,237.072B prior session. Record high still stands at $2,329.743B from Thursday June 30.

EGBs-GILTS CASH CLOSE: Some Relief Ahead Of Jackson Hole

EGBs and Gilts enjoyed a relief rally Thursday following a selloff earlier in the week, and ahead of Friday's highly anticipated speech by Fed Chair Powell.

• Little in the way of obvious headline drivers Thursday, with trading within the prior session's ranges, and only a modest and brief reaction to data (stronger-than-expected German IFO in the morning and US GDP / jobless claims in the afternoon).
• As losses have been led earlier this week by the short end and belly of the UK and German curves, those segments outperformed today.
• Euribor futures rose for the first time since Aug 14 (Dec23 down 9bp implied), while UK rate futures enjoyed their biggest jump of the month (down 13.5bp implied).
• Periphery EGB spreads fell sharply: 10Y BTPs down nearly 8bp to Bunds (the biggest narrowing since Aug 3), while GGBs were 4+bp tighter.

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

• Germany: The 2-Yr yield is down 5bps at 0.871%, 5-Yr is down 7.3bps at 1.085%, 10-Yr is down 5.3bps at 1.317%, and 30-Yr is down 0.8bps at 1.496%.
• UK: The 2-Yr yield is down 13.2bps at 2.806%, 5-Yr is down 12.6bps at 2.577%, 10-Yr is down 8.3bps at 2.615%, and 30-Yr is down 4.4bps at 2.89%.
• Italian BTP spread down 7.7bps at 224.1bps / down 4.2bps at 258.3bps

FOREX: AUD Outperforms As Equities Edge Higher

• Growth proxy currencies have outperformed on Thursday, with AUD/USD (+1.01%) holding onto the majority of overnight gains, narrowing the gap with $0.70. A break above this mark opens initial firm resistance at 0.7040, the Aug 16 high where a break is required to ease the current bearish pressure.
• The greenback trades generally weaker putting the USD Index further off the recovery high printed earlier this week at 109.27, but pullbacks are expected to remain shallow ahead of the Jackson Hole Policy Symposium which has formally kicked off with Fed officials giving interviews throughout he US session. Markets watch for confirmation of the full agenda, with a speech from Fed's Powell the focus on Friday.
• NZD (+0.61%) is gaining in sympathy with the AUD, while EUR rallies continue to meet stiff supply, explaining the pair being unchanged on Thursday. Energy costs continue to add to the stagflation narrative, with 2023 power costs across Germany rising to new record highs ahead of the NY open.
• Elsewhere, the greenback weakness has been broad based and the likes of JPY, GBP, CAD, CHF and CNH have all posted modest gains ahead of tomorrow’s main event. Overall, price action has been expectedly subdued.
• Aside from Powell, potential comments from RBNZ Governor Orr who is due to speak in an interview conducted by Bloomberg TV at Jackson Hole overnight. Although data will likely take a back seat tomorrow, we have US Core PCE Price Index, personal spending and UniMich consumer sentiment on the docket.

Friday Data Calendar

Date	GMT/Local	Impact	Flag	Country	Event
26/08/2022	0600/0800	*		DE	GFK Consumer Climate
26/08/2022	0600/0800	**		SE	Unemployment
26/08/2022	0600/0800	**		SE	PPI
26/08/2022	0645/0845	**		FR	Consumer Sentiment
26/08/2022	0800/1000	**		IT	ISTAT Business Confidence
26/08/2022	0800/1000	**		IT	ISTAT Consumer Confidence
26/08/2022	0800/1000	**		EU	M3
26/08/2022	1230/0830	**		US	Personal Income and Consumption
26/08/2022	1230/0830	**		US	Advance Trade, Advance Business Inventories
26/08/2022	1400/1000	***		US	Final Michigan Sentiment Index
26/08/2022	1400/1000			US	Fed Chair Jerome Powell at Jackson Hole
26/08/2022	1500/1100			CA	Finance Dept monthly Fiscal Monitor (expected)