MNI ASIA OPEN: CPI Inflation Metric W/ Fed in Blackout

EXECUTIVE SUMMARY

MNI US CPI Preview: Watch Services For Terminal Implications
MNI US OUTLOOK/OPINION: Citi: Even A Core CPI Miss Could See 75bp Hike
MNI US OUTLOOK/OPINION: GS Look For CPI Strength In Services Bar Airfares

US

US CPI Preview: Released Sep 13 0830ET, the August CPI print is expected to see similar sequential figures as July, with a second month of core at a ‘lower’ 0.3% M/M (0.31% in July) and headline at -0.1% M/M (-0.02%) after another drag from energy.

• It will take a sizeable miss to knock the FOMC off an almost fully priced 75bp hike next week, especially after VC Brainard said last week she wants to see “several” months of lower inflation before Waller upped it with wanting to see a permanent, longer-term decline having been burned by last year’s apparent easing.
• Risk of potentially larger reaction in the event of a miss after last week's Fed push of higher rates for longer saw an implied terminal Fed Funds effective rate briefly north of 4% and 2Y Ts yields hit fresh post-2007 highs, but there is scope for sizeable moves in either direction.

US OUTLOOK/OPINION: Citi: Even A Core CPI Miss Could See 75bp Hike

• Citi see core CPI inflation at 0.36% M/M and headline -0.1% M/M in August. At this point, even a weaker reading (e.g., a large decline in used-car prices delivering closer to zero monthly core inflation) could still be consistent with a 75bp hike on Sep 21 after Brainard suggested it would take "several" (more than two) months of softer inflation data to convince her that inflation has slowed.
• They believe that cooling core goods pressure from easing supply chains, waning domestic demand and lower commodity prices will exert a disinflationary force in coming months, but risks are to the upside.
• Shelter should in time respond to higher mortgage rates and so it is other services, and by extension wages, that will determine whether underlying inflation remains above-target. The Atlanta Fed Wage tracker indicates wage growth just below 7% - far higher than the 3-4% that might be consistent with 2% price inflation.

US OUTLOOK/OPINION: GS Look For CPI Strength In Services Bar Airfares

• Goldman are in line with consensus as they see core CPI 0.32% M/M in August, pushing up from 5.9% to 6.06% Y/Y. Lower gasoline prices should push headline to -0.13% M/M for -0.5pps to 8.02% Y/Y..
• They see core weakness being led by a further drop in airfares on back of llower oil as well as net softness in autos due to easing supply chain constraints and 2023 model year arrivals.
• However, they see continued strength in services due to wage pressures, labor shortages and elevated short-term inflation expectations, especially shelter (rent +0.65%, OER +0.55%), plus 0.6% for education and another gain in car insurance as carriers push try to offset higher repair and replacement costs.

US TSYS: Tsy Yld Curve Bear Steepening Ahead August CPI

Tsys trading near late session lows after starting off near highs - bonds experienced a wide range (30YY 3.5284% late high vs. 3.4102% low) on light overall volumes (TYZ2 <985k) with no economic data to trade off of - participants close to the sidelines ahead Tuesday's CPI read for August MoM (0.00% prior, -0.10% est); YoY (8.5% prior, 8.0% est).

• Rush of Treasury issuance Mon-Tue due to Thu settle, maintains 2 day gap between last auction and settle generated some midday interest:
• Treasury futures pare gains slightly after $41B 3Y note auction (91282CFK2) tail: 3.564% high yield vs. 3.545% WI; 2.49x bid-to-cover vs. 2.50x last month.
• Futures sale accelerated after $32B 10Y note auction re-open (91282CFF3) underperformed: large tail w/ 3.330% high yield vs. 3.302% WI; 2.37x bid-to-cover vs. last month's 2.53x.
• Despite a late Block sale of 7,531 FVZ2 at 110-03.75, yield curves extended steepener move w/ 2s10s tapping -20.167 high.
• Note on short end Eurodollar futures expiration: The CME Group has confirmed the final settlement price for Sep'22 Eurodollar (EDU2) futures (and 3M Sep options expiration) will be based on the 3M USD Libor fix published this Friday, Sep 16 due to UK bank closure for the Queen's funeral next Monday Sep 19.
• Currently, the 2-Yr yield is up 0.9bps at 3.5652%, 5-Yr is up 1.9bps at 3.4545%, 10-Yr is up 4.6bps at 3.3558%, and 30-Yr is up 5.6bps at 3.503%.

OVERNIGHT DATA

No new data Monday, market awaits Aug CPI on Tue (-0.1% MoM est; 8.0% YoY est) and PPI on Wed (final demand MoM -0.1% est; YoY 8.8% est).

MARKETS SNAPSHOT

• DJIA up 224.72 points (0.7%) at 32376.72
• S&P E-Mini Future up 42 points (1.03%) at 4127.75
• Nasdaq up 145.3 points (1.2%) at 12257.55
• US 10-Yr yield is up 5.2 bps at 3.3616%
• US Sep 10Y are down 5/32 at 115-18.5
• EURUSD up 0.0072 (0.72%) at 1.0114
• USDJPY up 0.29 (0.2%) at 142.76
• WTI Crude Oil (front-month) up $1.08 (1.24%) at $87.87
• Gold is up $8.5 (0.5%) at $1725.33

US TSY FUTURES CLOSE

• 3M10Y +3.607, 28.704 (L: 15.85 / H: 28.704)
• 2Y10Y +3.883, -21.418 (L: -26.005 / H: -20.167)
• 2Y30Y +5.216, -6.318 (L: -11.951 / H: -5.52)
• 5Y30Y +4.471, 5.514 (L: 0.785 / H: 6.316)
• Current futures levels:
• Sep 2Y down 0.125/32 at 104-0.875 (L: 104-00.75 / H: 104-04)
• Sep 5Y down 0.25/32 at 110-5.75 (L: 110-07.25 / H: 110-15.5)
• Sep 10Y down 5/32 at 115-18.5 (L: 115-18 / H: 116-04.5)
• Sep 30Y down 20/32 at 132-27 (L: 132-29 / H: 134-04)
• Sep Ultra 30Y down 1-13/32 at 143-7 (L: 143-03 / H: 145-13)

‌‌US 10YR FUTURE TECHS: (Z2)‌‌ Remains Vulnerable

• RES 4: 119-01 High Aug 18
• RES 3: 118-03 50-day EMA
• RES 2: 117-07+/118-00 20-day EMA / High Aug 26
• RES 1: 116-26 High Sep 2
• PRICE: 115-19 @ 1430ET Sep 12
• SUP 1: 115-13+ Low Sep 7 and the bear trigger
• SUP 2: 114-26 Low Jun 16
• SUP 3: 114-06 Low Jun 14 and a key support
• SUP 4: 114-00 Round number support

Treasuries remain vulnerable and are trading closer to last week’s lows. The contract has recently traded breached 116-01+, 61.8% of the Jun 14 - Aug 2 rally as well as the recent 115-23 low (Sep 1). The break lower maintains a bearish theme and the price sequence of lower lows and lower highs. Sights are on 114-06, the Jun 14 low and key support. Initial firm resistance has been defined at 116-26, the Sep 2 high.

US EURODOLLAR FUTURES CLOSE

• Sep 22 +0.008 at 96.590
• Dec 22 +0.030 at 95.825
• Mar 23 +0.015 at 95.795
• Jun 23 +0.015 at 95.850
• Red Pack (Sep 23-Jun 24) -0.01 to steady
• Green Pack (Sep 24-Jun 25) -0.02 to -0.01
• Blue Pack (Sep 25-Jun 26) -0.02 to -0.02
• Gold Pack (Sep 26-Jun 27) -0.04 to -0.025

SHORT TERM RATES

US DOLLAR LIBOR: Settlements resume

• O/N +0.00314 to 2.31771% (-0.00014 total last wk)
• 1M +0.01029 to 2.78343% (+0.11743 total last wk)
• 3M +0.02471 to 3.27014% (+0.08729 total last wk) * / **
• 6M -0.00471 to 3.80643% (+0.07457 total last wk)
• 12M +0.05657 to 4.24557% (-0.03157 total last wk)
• * Record Low 0.11413% on 9/12/21; ** New 14Y high: 3.27014% on 9/12/22

• Daily Effective Fed Funds Rate: 2.33% volume: $101B
• Daily Overnight Bank Funding Rate: 2.32% volume: $299B

• Secured Overnight Financing Rate (SOFR): 2.28%, $958B
• Broad General Collateral Rate (BGCR): 2.26%, $395B
• Tri-Party General Collateral Rate (TGCR): 2.26%, $386B
• (rate, volume levels reflect prior session)

FED Reverse Repo Operation

NY Fed reverse repo usages climbs to $2,218.546B w/ 102 counterparties vs. $2,209.714B prior session. Record high still stands at $2,329.743B from Thursday June 30.

PIPELINE: $3B T-Mobile 3Pt, $3B Home Depot 3Pt Both Launch

• Date $MM Issuer (Priced *, Launch #)
• 09/12 $3B #T-Mobile WNG $1.25B +10Y +185, $1B +30Y +212.5, $750M 40Y +230
• 09/12 $3B #Home Depot $750M 3Y +40a, $1.25B 10Y +115, $1B 30Y +150
• 09/12 $800M #CenterPoint Energy Houston $500M 10Y +115, $300M 30Y +137.5
• 09/12 $Benchmark Bank of Ireland 4NC3 +265a
• 09/12 $1B #Swedbank 5Y +190

EGBs-GILTS CASH CLOSE: German Short End Reverses Early Weakness

Bunds outperformed and the German curve bull flattened to start the week, with UK yields also trading lower.

• Core EGBs enjoyed a bounce from large losses late last week, amid a risk-on session for equities (most Eurozone bourses were up around 2%) and FX, with the Euro and Sterling bouncing. Periphery EGB spreads tightened, led by Greece.
• Early attention was on the weekend's hawkish ECB speaker commentary, following on from various media sources pieces late last week that largely pointed to ECB tightening ambitions for the rest of the year.
• Even so, short-end German yields reversed lower over the course of the session.
• ECB hike pricing finished flat and BoE marginally softer, with Tuesday's U.S. inflation report awaited to set the near-term direction.

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

• Germany: The 2-Yr yield is down 0.8bps at 1.319%, 5-Yr is down 4.6bps at 1.492%, 10-Yr is down 4.5bps at 1.653%, and 30-Yr is down 5.8bps at 1.75%.
• UK: The 2-Yr yield is down 2bps at 3.034%, 5-Yr is up 0.2bps at 2.989%, 10-Yr is down 1.3bps at 3.082%, and 30-Yr is down 2.6bps at 3.45%.
• Italian BTP spread down 1bps at 231bps / Greek down 4.3bps at 253.9bps

FOREX: Early USD Weakness Consolidates Ahead of Inflation Data

• The USD index is registering 0.6% losses on Monday, extending the most recent pullback from last week’s cycle highs to 2.3%.
• Greenback weakness has largely been driven by a firmer Euro, rallying alongside broadly hawkish tones from a number of ECB members both over the weekend as well as early Monday. Bundesbank chief Nagel flagged a persistent tightening bias at the ECB, stating that more clear ECB steps are needed if inflation lingers. Other speakers including de Guindos have suggested that another 75bps move is possible depending on data outcomes between now and the October meeting.
• EURUSD did breach the channel top, drawn from the Feb 10 high, which intersected at 1.0149 and represents a key resistance. Despite some early momentum, the Aug 17 high at 1.0203 has capped the topside and the pair has reversed back to 1.0110 ahead of the APAC crossover.
• Jumping on the coat tails of the single currency, GBP and CHF are the best performers, both rising over 0.7% against the greenback, with a notable 0.7% reversal lower in EURGBP after making a new marginal high for the year at 0.8722.
• A degree of optimism continues to filter through to risk sentiment, bolstering recent gains for major equity benchmarks. This has provided more moderate gains for the likes of AUD, NZD and CAD. The Japanese Yen is also underperforming alongside the greenback following another volatile session. USDJPY sits in the middle of today’s 142-143.50 range and will likely be the focus for investors approaching tomorrow’s significant US inflation readings given the pair's recent volatility over data releases.
• August CPI print is expected to see similar sequential figures as those in July, with a second month of core at a ‘lower’ 0.3% M/M (0.31% in July) and headline at -0.1% M/M (-0.02%) after another drag from energy.
• Before US CPI, we have the release of UK employment data and German/Eurozone ZEW sentiment readings.

Tuesday Data Calendar

Date	GMT/Local	Impact	Flag	Country	Event
13/09/2022	0600/0700	***		UK	Labour Market Survey
13/09/2022	0600/0800	***		DE	HICP (f)
13/09/2022	0700/0900	***		ES	HICP (f)
13/09/2022	0900/1100	***		DE	ZEW Current Expectations Index
13/09/2022	0900/1100	***		DE	ZEW Current Conditions Index
13/09/2022	1000/0600	**		US	NFIB Small Business Optimism Index
13/09/2022	1230/0830	***		US	CPI
13/09/2022	1255/0855	**		US	Redbook Retail Sales Index
13/09/2022	1400/1000	**		US	IBD/TIPP Optimism Index
13/09/2022	1700/1300	***		US	US Treasury Auction Result for 30 Year Bond
13/09/2022	1800/1400	**		US	Treasury Budget