MNI ASIA OPEN: CPI Below Est/Likely Not Enough to Alter Policy

US

FED: The Federal Reserve will need to raise interest rates by at least another full percentage point in order to contain inflation pressures that remain out of its control, former Philadelphia Fed President Charles Plosser told MNI.

• “I’ve said for a long time that I thought rates would have to get over 6% and I still believe that. It may be that it takes more than that,” said Plosser, an FOMC member from 2006 to 2015. He said the Fed’s decision last month to hold interest rates rates steady at 5-5.25% while policymakers revised up their views of the terminal fed funds rate to 5.6% was a confusing way to delay the inevitable.
  
• “I worry they’ve undermined their own credibility. The decision conveyed a potential lack of seriousness or commitment to the task at hand,” said Plosser, who is widely published in monetary policy scholarship and was seen as a hawk during his time as a policymaker.
• The decision to pause smacks of an undue obsession with consensus, he said. It would have been better to see dissents than for policymakers to effectively express their general disagreements with the policy action through rate forecasts in the Summary of Economic Projections, he said. For more see MNI Policy main wire at 0949ET.

US: President Joe Biden's Federal Reserve nominees Philip Jefferson, Lisa Cook and Adriana Kugler garnered bipartisan support and enough votes Wednesday in the Senate Banking Committee to advance to be considered by the full Senate. Philip Jefferson, who would be the next Fed vice chair if confirmed, received unanimous approval in the Senate Banking Committee. Lisa Cook and Adriana Kugler were supported by all Democrats and one Republican for a total of 13-10 in favor.

US TSYS: CPI Inflation Metric Cools, PPI Up Next

• Treasury futures have traded sideways since noon after extending highs in the hours following lower than expected June CPI: MoM (0.2% vs. 0.3% est), YoY (3.0% vs. 3.1% est); Ex Food and Energy MoM (0.2% vs. 0.3% est), YoY (4.8% vs. 5.0% est).
• Traders debated whether it's a trend shift or a one-off move as a proportion of volatile categories (lodging, airfare and used cars) accounted for the slow-down in core inflation.
• Some moderately hawkish Fed speak from Barkin ("comfortable with more hikes") and Kashkari ("entrenched inflation could prompt Fed to hike further") did little to stem the post-data rally. Reminder, Fed goes into policy blackout this Friday at midnight.
• Cross asset summary: Equities are in the green but off high (SPX eminis +33.0 at 4506.5), US$ index broadly lower (DXY -1.208 at 100.524). Curves steeper but well off highs after some late block selling in 2s. Currently, 2s10s +2.798 at -88.096 vs. -83.371 high) compares to 40+ year inverted low of -111.0 tapped in March.
• Short end rally saw projected rate hike by year end recede slightly: July 26 FOMC is 89% w/ implied rate of +22.2bp to 5.298%. September cumulative of 26.2bp vs. +28bp earlier at 5.338%, November cumulative of 30.9 vs 35bp at 5.425%, December cumulative 25.3 vs. 30bp at 5.380%.
• Treasury futures slip off highs briefly, rebound after the $32B 10Y note auction re-open (91282CHC8) tails: 3.857% high yield vs. 3.850% WI; 2.53x bid-to-cover vs. 2.36x prior
• Focus turns to Thursday's weekly claims and June PPI.

OVERNIGHT DATA

US: Looking at the major pandemic reopening categories, many of which were key to expectations for a disinflationary figure in June vs May: Used Car prices fell but well short of the big drop that some had expected, while Airfares fell at their fastest pace since July 2022. Lodging / New Car / Car and Truck rental prices were all basically in line.

• It's also the first month since April 2020 that all of the following categories have been negative M/M:
  • USED CARS -0.5% Expected: flat to -1.6% M/M (vs +4.4% in both May and April)
  • LODGING -2.0% Expected: flat to -2.5% (vs +1.8% May)
  • AIRFARES -8.1% Expected: -0.5% M/M (vs -3% in May)
  • NEW CARS: -0.2% (after -0.4% in May)
  • CAR/TRUCK RENTAL: -1.4% (after -3%+ each of last 3 months)

US: With housing inflation slipping, the overall core services print was the softest since April 2021 at +0.3% M/M, vs 0.4% in May. As recently as Dec 2022 the monthly rate was double this (0.6%).

• Some key categories dragged including airfares (-8.1%) and communications (-0.5%), while some categories that saw strong gains in May had smaller contributions this month (eg motor vehicle insurance 1.7% vs 2.0% prior).
• Core Goods were flat on the month (actually slightly below zero unrounded) after two consecutive gains of 0.6% M/M, which was largely expected, helped by vehicle price inflation (both new and used) softening.

• US MBA: REFIS -1% SA; PURCH INDEX +2% SA THRU JULY 7 WK
• US MBA: UNADJ PURCHASE INDEX -26% VS YEAR-EARLIER LEVEL
• US MBA: 30-YR CONFORMING MORTGAGE RATE 7.07% VS 6.85% PREV
• US MBA: MARKET COMPOSITE +0.9% SA THRU JUL 07 WK

MARKETS SNAPSHOT

• DJIA up 102.63 points (0.3%) at 34364.57
• S&P E-Mini Future up 35.25 points (0.79%) at 4509
• Nasdaq up 170.4 points (1.2%) at 13931.46
• US 10-Yr yield is down 11.1 bps at 3.8593%
• US Sep 10-Yr futures are up 32/32 at 112-8.5
• EURUSD up 0.0128 (1.16%) at 1.1138
• USDJPY down 1.96 (-1.4%) at 138.39
• WTI Crude Oil (front-month) up $1.14 (1.52%) at $75.97
• Gold is up $26.36 (1.36%) at $1958.63

• EuroStoxx 50 up 73.9 points (1.72%) at 4360.46
• FTSE 100 up 133.59 points (1.83%) at 7416.11
• German DAX up 232.66 points (1.47%) at 16023
• French CAC 40 up 113 points (1.57%) at 7333.01

US TREASURY FUTURES CLOSE

• 3M10Y -7.597, -153.692 (L: -155.462 / H: -146.891)
• 2Y10Y +2.84, -88.054 (L: -92.407 / H: -83.371)
• 2Y30Y +7.996, -79.166 (L: -88.065 / H: -72.442)
• 5Y30Y +10.038, -12.342 (L: -22.428 / H: -8.991)
• Current futures levels:
• Sep 2-Yr futures up 9.75/32 at 101-29.375 (L: 101-20.125 / H: 101-30.625)
• Sep 5-Yr futures up 23.25/32 at 107-13 (L: 106-22.25 / H: 107-15.25)
• Sep 10-Yr futures up 1-00/32 at 112-8.5 (L: 111-09.5 / H: 112-12)
• Sep 30-Yr futures up 1-12/32 at 125-24 (L: 124-13 / H: 126-00)
• Sep Ultra futures up 1-16/32 at 133-29 (L: 132-12 / H: 134-09)

US 10Y FUTURE TECHS: (U3) Corrective Bounce Extends

• RES 4: 113-13+ 50-day EMA
• RES 3: 112-17+ High Jul 3
• RES 2: 112-12+ Low Jun 14 and key short-term resistance
• RES 1: 112-09 20-day EMA
• PRICE: 111-17 @ 11:06 BST Jul 12
• SUP 1: 110-05 Low Jul 6 and the bear trigger
• SUP 2: 110-00 Low Nov 9 2022 (cont)
• SUP 3: 109-14 Low Nov 8 2022 (cont)
• SUP 4: 109-10+ Low Nov 4 2022 (cont)

Treasury futures continue to trade above last week’s low of 110-05 (Jun 6) and a corrective cycle remains in play. The trend outlook is bearish and the break lower last week confirmed a resumption of the downtrend. Note that moving average studies are in a bear mode position, highlighting current conditions. The focus is on the 110-00 handle next. Initial firm resistance is seen at 112-12+, the Jun 14 low.

SOFR FUTURES CLOSE

• Sep 23 +0.045 at 94.615
• Dec 23 +0.085 at 94.680
• Mar 24 +0.150 at 94.995
• Jun 24 +0.195 at 95.415
• Red Pack (Sep 24-Jun 25) +0.20 to +0.215
• Green Pack (Sep 25-Jun 26) +0.190 to +0.20
• Blue Pack (Sep 26-Jun 27) +0.135 to +0.180
• Gold Pack (Sep 27-Jun 28) +0.090 to +0.125

SHORT TERM RATES

SOFR Benchmark Settlements:

• 1M +0.00579 to 5.20222 (+.02521/wk)
• 3M +0.00996 to 5.31105 (+.01258/wk)
• 6M +0.00863 to 5.41106 (-.00394/wk)
• 12M -0.00199 to 5.38328 (-.07114/wk)

• Daily Effective Fed Funds Rate: 5.08% volume: $121B
• Daily Overnight Bank Funding Rate: 5.06% volume: $274B

• Secured Overnight Financing Rate (SOFR): 5.06%, $1.439T
• Broad General Collateral Rate (BGCR): 5.04%, $590B
• Tri-Party General Collateral Rate (TGCR): 5.04%, $582B
• (rate, volume levels reflect prior session)

FED REVERSE REPO OPERATION: First Bounce Since June 30

Latest operation bounces to $1,820.146B, w/ 102 counterparties, compared to $1,775.796B in the prior session (lowest since early May'22). 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 Canada Pension Plan Inv Board 5Y Debt on Tap

• Date $MM Issuer (Priced *, Launch #)
• 07/12 $Benchmark CPPIB (Canada Pension Plan Inv Board) Capital 5Y +60a
• 07/12 $Benchmark FHLB 5Y +8a
• $9.75B Priced Tuesday
• 07/11 $4B *KFW 10Y SOFR+45
• 07/11 $1.5B #John Deere 5Y +75
• 07/11 $1.5B *JBIC (Japanese Bank for Int Cooperation) 5Y +69
• 07/11 $1.5B #Rabobank $850M 2Y +65, $650M 2Y SOFR+70
• 07/11 $750M #Abu Dhabi Islamic Bank NC5.5 Sukuk +165
• 07/11 $500M #Korea Hydro/Nuclear Power 5Y +90

EGBs-GILTS CASH CLOSE: UK Short End Leads Rally

Gilts outperformed Bunds Wednesday, as global core FI soared following a softer-than-expected US June inflation reading.

• Having strengthened in European morning trade, a solid drop in UK and German yields accelerated sharply on the US core CPI slowdown.
• While the rally paused briefly, it resumed after the expected 25bp hike from the Bank of Canada was out of the way.
• The UK short end soared as rates markets almost fully took out a 25bp hike from the BoE path (a sharp reversal after Tuesday's rise on UK wage data), with the curve bull steepening.
• Germany couldn't keep up, with ECB terminal rate pricing remaining fairly stubbornly riveted on 4.00%, but the belly outperforming with Bobl yields down ~12%.
• Periphery EGBs strengthened sharply following the US data amid a broader risk-on rally.
• Thursday's schedule begins with UK GDP and final June French inflation data.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is down 8.7bps at 3.229%, 5-Yr is down 11.6bps at 2.653%, 10-Yr is down 10.1bps at 2.578%, and 30-Yr is down 6.9bps at 2.591%.
• UK: The 2-Yr yield is down 19.7bps at 5.229%, 5-Yr is down 19.4bps at 4.692%, 10-Yr is down 14.9bps at 4.514%, and 30-Yr is down 9.2bps at 4.605%.
• Italian BTP spread down 5.7bps at 171.2bps / Greek down 3bps at 141bps

FOREX: Greenback Plummets Following Soft CPI Report, Antipodean FX Surges

• Broad USD weakness has prevailed across global currency markets on Wednesday following the softer-than-expected US CPI data, both for headline and core readings. The USD index has fallen 1.15% as we approach the APAC crossover, with narrowing yield differentials further bolstering the JPY and firmer risk sentiment providing particularly strong tailwinds for Antipodean FX.
• Both AUD & NZD have risen over 1.5% as the optimistic equity backdrop further complements the weaker greenback theme and underpins higher beta currencies. NZDUSD specifically has surged to a 7-week high, just hours after the RBNZ decision in which the central bank left policy unchanged for the first time since August 2021.
• USDJPY has also extended its most recent downtrend, with the lower core yields allowing the pair to widen the gap to around 700 pips from the 145.07 highs seen just two weeks ago. The recent sell-off has resulted in a break of both the 20- and 50-day EMAs and price is again inside the bull channel drawn from the Jan 16 low. The move signals scope for an extension towards support at 137.47, the 4.0% 10-dma envelope - not crossed since 2020.
• A notable mention for EURUSD which has risen to fresh highs for the year above 1.1125 and while GBP underperforms its G10 peers, cable did print a high of 1.3000, an important pivot point dating back to March 2022.
• UK GDP data kicks off Thursday’s data calendar, as well as industrial production for both the UK and the Eurozone. The ECB minutes will be published before markets look for further signals on US inflation within the June PPI report.

THURSDAY DATA CALENDAR

Date	GMT/Local	Impact	Flag	Country	Event
13/07/2023	0600/0700	**		UK	UK Monthly GDP
13/07/2023	0600/0700	**		UK	Index of Services
13/07/2023	0600/0700	***		UK	Index of Production
13/07/2023	0600/0700	**		UK	Trade Balance
13/07/2023	0600/0700	**		UK	Output in the Construction Industry
13/07/2023	0645/0845	***		FR	HICP (f)
13/07/2023	0900/1100	**		EU	Industrial Production
13/07/2023	-	***		CN	Trade
13/07/2023	-			EU	ECB Lagarde & Panetta in Eurogroup Meeting
13/07/2023	1230/0830	**		US	Jobless Claims
13/07/2023	1230/0830	**		US	WASDE Weekly Import/Export
13/07/2023	1230/0830	***		US	PPI
13/07/2023	1430/1030	**		US	Natural Gas Stocks
13/07/2023	1530/1130	*		US	US Bill 08 Week Treasury Auction Result
13/07/2023	1530/1130	**		US	US Bill 04 Week Treasury Auction Result
13/07/2023	1700/1300	***		US	US Treasury Auction Result for 30 Year Bond
13/07/2023	1800/1400	**		US	Treasury Budget
13/07/2023	2245/1845			US	Fed Governor Christopher Waller