MNI ASIA OPEN: Consumer Credit Higher Than Expected

US TSYS Markets Roundup

• Treasury curves hold steeper profiles after the close with short end rates marking steady to higher vs. weaker intermediates to long end futures: 3M10Y +4.766 at -133.066, 2s10s +4.843 at -68.812.
• FI markets ha a rather whippy session amid modest overall volumes (TYU3 1.1M), not unusual for summer trade with many accounts close to the sidelines, awaiting the first significant data release of July CPI this Thursday.
• Little reaction to an increase in Consumer Credit by more than expected in June at $17.8B (cons $13.55B) after a particularly low $9.5B in May had marked the softest increase since Nov’20.
• Some interesting details, with revolving credit (credit cards and the like) seeing its first decline since Apr’21 at -$0.6B after +$8.5B in what could be down to lower gross issuance under tightening conditions or greater repayments to reduce higher yielding data, or a combination of the two.
  
• Early Morning comments from Fed Gov Bowman: EXPECTS ADDITIONAL RATE INCREASES WILL LIKELY BE NEEDED TO LOWER INFLATION TO TARGET .. WILL BE LOOKING FOR EVIDENCE INFLATION IS ON A 'CONSISTENT AND MEANINGFUL' DOWNWARD PATH IN MAKING DECISIONS, Reuters.

UK

BOE: Higher rates not taking longer, or shorter, to feed through to the economy than previously assumed and neither higher earnings nor higher profit margins are disproportionately driving inflation, according to Bank of England Chief Economist Huw Pill.

• Some US Federal Reserve work has suggested that interest rate hikes may be feeding through more rapidly and pundits have talked about higher inflation being due to firms' widening profit margins, called "greedflation" by some, but Pill was dismissive of both assumptions, saying the Bank still assumes rate hikes will take 18 to 24 months to feed through in full. (MNI POLICY: Fed Worried Shorter Lags Require More Tightening)
• Pill said that the key question the Monetary Policy Committee was tackling was whether higher inflation "last into that 18 month-to-two-year window where interest rate decisions today will begin to work against any inflation that persists," adding that "if we look at the overall shares in national income, how much is going to wage earners, how much is going to profits .. those shares haven't changed very much over the last few years."
• In his remarks Pill again stressed the unreliability of the MPC's longer-term forecasts and left the door open to further tightening if need be.

OVERNIGHT DATA

• MNI: US JUN CONSUMER CREDIT +$17.8B
• US JUN REVOLVING CREDIT -$0.6B
• US JUN NONREVOLVING CREDIT +$18.5B

US DATA: Consumer credit increased by more than expected in June at $17.8B (cons $13.55B) after a particularly low $9.5B in May had marked the softest increase since Nov’20.

• There are some interesting details, with revolving credit (credit cards and the like) seeing its first decline since Apr’21 at -$0.6B after +$8.5B in what could be down to lower gross issuance under tightening conditions or greater repayments to reduce higher yielding data, or a combination of the two.
• Non-revolving debt (vehicle and tuition loans) meanwhile jumped $18.5B after just $0.97B in May, for the highest monthly increase since Oct’22.

US DATA: Manheim used car prices fell -1.6% M/M in July on a mix, mileage and seasonally adjusted basis (or a non-seasonally adjusted -3.8%), building from the mid-month figure of -1.0%.

• It follows a particularly heavy -4.2% from June and two months averaging -2.9% M/M, which in trend terms at least suggests renewed downward pressure on CPI used vehicles prices even if it can be hard to pinpoint M/M changes.
• CPI used cars & trucks were broadly as expected back in June, falling -0.45% M/M after two particularly strong 4.4% increases in April and May, with those increases in turn following prior strength in auction prices.
• Analysts were already expecting sizeable declines for used cars prices at the Thursday’s upcoming CPI release, with GS eyeing -3%, JPM -1.7% and MS -1.4%.

MARKETS SNAPSHOT

• DJIA up 369.98 points (1.06%) at 35436.63
• S&P E-Mini Future up 32.25 points (0.72%) at 4530.75
• Nasdaq up 58.2 points (0.4%) at 13967.8
• US 10-Yr yield is up 5.3 bps at 4.0864%
• US Sep 10-Yr futures are down 3/32 at 111-1.5
• EURUSD down 0.0002 (-0.02%) at 1.1004
• USDJPY up 0.7 (0.49%) at 142.46
• WTI Crude Oil (front-month) down $0.56 (-0.68%) at $82.26
• Gold is down $6.17 (-0.32%) at $1936.75

• EuroStoxx 50 up 4.59 points (0.11%) at 4337.5
• FTSE 100 down 9.88 points (-0.13%) at 7554.49
• German DAX down 1.1 points (-0.01%) at 15950.76
• French CAC 40 up 4.69 points (0.06%) at 7319.76

US TREAURY FUTURES CLOSE

• 3M10Y +4.101, -133.731 (L: -140.525 / H: -130.805)
• 2Y10Y +4.647, -69.008 (L: -75.86 / H: -66.733)
• 2Y30Y +5.589, -51.277 (L: -61.598 / H: -49.316)
• 5Y30Y +3.398, 9.759 (L: 2.32 / H: 10.884)
• Current futures levels:
• Sep 2-Yr futures up 0.625/32 at 101-21.875 (L: 101-17.5 / H: 101-23.125)
• Sep 5-Yr futures up 0.25/32 at 106-29 (L: 106-20 / H: 107-00.25)
• Sep 10-Yr futures down 3/32 at 111-1.5 (L: 110-23 / H: 111-08.5)
• Sep 30-Yr futures down 17/32 at 121-15 (L: 121-01 / H: 122-05)
• Sep Ultra futures down 1-0/32 at 127-2 (L: 126-23 / H: 128-12)

US 10y FUTURE TECHS: (U3) Trend Direction Remains Down

• RES 4: 113-08 High Jul 18 and a bull trigger
• RES 3: 112-31 High Jul 20
• RES 2: 112-19 50-day EMA
• RES 1: 111-20/112-07 20-day EMA / High Jul 27
• PRICE: 111-01 @ 1200 ET Aug 7
• SUP 1: 109-24 Low Aug 04
• SUP 2: 109-14 Low Nov 8 2022 (cont)
• SUP 3: 109-10+ Low Nov 4 2022 (cont)
• SUP 4: 108-26+ Low Oct 21 2022 (cont) and a major support

The trend condition in Treasuries remains bearish and short-term gains appear to be a correction. Friday’s move lower resulted in a break of support at 110-05, the Jul 7 low. This reinforces a bearish theme and confirms a resumption of the downtrend, paving the way for weakness towards 109-14 next, the Nov 8 2022 low (cont). The 20-day EMA, at 111-20, is the resistance to watch.

SOFR FUTURES CLOSE

• Sep 23 steady00 at 94.60
• Dec 23 steady00 at 94.655
• Mar 24 +0.005 at 94.930
• Jun 24 +0.010 at 95.30
• Red Pack (Sep 24-Jun 25) +0.025 to +0.035
• Green Pack (Sep 25-Jun 26) +0.005 to +0.020
• Blue Pack (Sep 26-Jun 27) -0.01 to steady
• Gold Pack (Sep 27-Jun 28) -0.02 to -0.015

SHORT TERM RATES

SOFR Benchmark Settlements:

• 1M -0.00141 to 5.31583 (-.00083 total last wk)
• 3M -0.00315 to 5.36743 (-0.00133 total last wk)
• 6M -0.00664 to 5.42755 (-0.01382 total last wk)
• 12M -0.02284 to 5.33951 (-0.04553 total last wk)

• Daily Effective Fed Funds Rate: 5.33% volume: $112B
• Daily Overnight Bank Funding Rate: 5.32% volume: $270B

• Secured Overnight Financing Rate (SOFR): 5.30%, $1.369T
• Broad General Collateral Rate (BGCR): 5.28%, $580B
• Tri-Party General Collateral Rate (TGCR): 5.28%, $567B
• (rate, volume levels reflect prior session)

FED REVERSE REPO OPERATION

The latest operation climbs up to $1,810.583B, w/102 counterparties, compared to $1,793.804B in the prior session. The high for 2023 stands at $2,375.171B on Friday March 31, 2023; all-time record high of $2,553.716B reached December 30, 2022.

PIPELINE: Goldman Sachs, Williams Co, Caterpillar Debt Launched

• Date $MM Issuer (Priced *, Launch #)
• 08/07 $3B #HSBC $2.3B 4NC3 +145, $700M 4NC3 SOFR+157
• 08/07 $2.95B #Thermo Fisher $600M 3Y +50, $750M 7Y +85, $1B 10Y +100, $600M 20Y +98
• 08/07 $2.75B #Goldman Sachs $2.25B 3NC2 +103, $500M 3NC2 SOFR+106.5
• 08/07 $1.5B #BNP Paribas PerpNC5 8.5%
• 08/07 $1.25B #Williams Cos $350M 3Y +87.5, $900M 5Y +118
• 08/07 $1.15B #Caterpillar $800M 2Y +40, $350M 2Y SOFR+45.5
• 08/07 $1B #ANZ 5Y +120
• 08/07 $600M #San Diego Gas & Electric 5Y +90a
• 08/07 $1.75B Tenneco 5.3Y note, 8%a
• 08/07 $Benchmark Ingersoll Rand investor calls

EGBs-GILTS CASH CLOSE: German Short End Gains Stand Out

The German short-end was the standout outperformer Monday, contrasting with yield rises across the rest of the curve and in the UK.

• With relatively few macro / headline triggers (weak German industrial production data may have helped Bunds strengthen on the margin), the main driver of morning price action was the Bundesbank's remuneration tweak on government deposits.
• Announced late Friday, the news that gov't deposits would receive 0% returns as of October helped fuel a scarcity-related bid for Schatz while widening swap spreads.
• The German curve twist steepened, with the UK's bear steepening, with the space giving up part of Friday's post-US jobs data rally.
• Greece ended up underperforming periphery peers, following early session outperformance after attaining investment grade status from Scope on Friday.
• Tuesday morning brings some final CPI readings, but the main highlight is the ECB Consumer Expectations Survey.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is down 2.7bps at 2.987%, 5-Yr is up 0.9bps at 2.59%, 10-Yr is up 3.9bps at 2.601%, and 30-Yr is up 7bps at 2.694%.
• UK: The 2-Yr yield is up 4.3bps at 4.963%, 5-Yr is up 5.6bps at 4.458%, 10-Yr is up 8.1bps at 4.461%, and 30-Yr is up 8.7bps at 4.656%.
• Italian BTP spread up 1bps at 166bps / Greek up 5.1bps at 127.7bps

FOREX Initial USD Strength Shrugged Off As Yields Reverse Course

• Despite rising around 0.35% following some hawkish remarks from Fed’s Bowman over the weekend, the USD index is now trading close to unchanged levels for Monday’s session. Broad moves for the greenback have been closely correlated with the moves in US yields, which have drifted back towards their post payrolls lows.
• Standing out is the Japanese Yen which has underperformed on the session. USDJPY trades within 10 pips of session highs at 142.58, however remains well short of the Friday high at 142.89 in a relatively thin session. Volumes were notably lower than average across both futures and options markets, keeping focus on risk events set for later in the week, namely US CPI and the prelim UMich set for Friday. The pullback off last week's high found support at the 141.32 50-dma, which has provided some early stability this week. This leaves 143.89 as primary resistance before any test on the cycle best at 145.07.
• Elsewhere, GBP has received a moderate boost as BOE Chief Economist Huw Pill pointed out that latest data shows more persistent inflation. Conversely, the Chinese Yuan has underperformed amid ongoing concerns surrounding the domestic growth outlook.
• In emerging markets, there was some renewed pressure on the EMFX basket, which has declined around 0.2%. The most notable move was a 1.2% advance for USDZAR, which has reversed the entirety of the post payrolls decline and bolsters the likelihood of a move to 18.8587, the Jul 11 high.
• Tuesday contains trade balance data for both China and the US. China will also report inflation data on Wednesday before the market switches focus to July CPI prints from the US. Comments may also arise from Fed’s Harker and Barkin.

TUESDAY DATA CALENDAR

Date	GMT/Local	Impact	Flag	Country	Event
08/08/2023	2301/0001	*		UK	BRC-KPMG Shop Sales Monitor
08/08/2023	0405/1205	***		CN	Trade
08/08/2023	0600/0800	***		DE	HICP (f)
08/08/2023	0645/0845	*		FR	Foreign Trade
08/08/2023	0900/1000	*		UK	Index Linked Gilt Outright Auction Result
08/08/2023	1000/0600	**		US	NFIB Small Business Optimism Index
08/08/2023	1215/0815			US	Philadelphia Fed's Pat Harker
08/08/2023	1230/0830	**		CA	International Merchandise Trade (Trade Balance)
08/08/2023	1230/0830	**		US	Trade Balance
08/08/2023	1230/0830			US	Richmond Fed's Tom Barkin
08/08/2023	1255/0855	**		US	Redbook Retail Sales Index
08/08/2023	1400/1000	**		US	IBD/TIPP Optimism Index
08/08/2023	1400/1000	**		US	Wholesale Trade
08/08/2023	1530/1130	**		US	US Treasury Auction Result for 52 Week Bill
08/08/2023	1530/1130	*		US	US Treasury Auction Result for Cash Management Bill
08/08/2023	1700/1300	***		US	US Note 03 Year Treasury Auction Result