MNI ASIA OPEN: Euro Pullback Puts Focus On EZ Inflation Data

EXECUTIVE SUMMARY

• US DATA (MNI): US PCE Preview: Spending In Focus
• MNI US DATA: Relaunched Atlanta Fed Wage Tracker Shows Signs Of Softening
• Eurozone (MNI): MNI EZ Inflation Preview – Aug 2024: Olympic Effect Eyed
• BRAZIL (MNI): Gabriel Galipolo Appointed As New BCB Chief

US TSYS: Modest Bear Steepening

Treasuries closed Wednesday flat, having traded throughout the session well within the week's ranges amid a lack of major catalysts.

• Late in the session, the December TY contract was up 1.5 ticks at 114-01+, near the low end of the day's 8 tick range (114-01 to 114-09). The subdued price action contrasted with fairly sharp moves for equities throughout the session on tech stock volatility, as well as notable US dollar strength (DXY +0.6% for one of its strongest sessions of the summer).
• The cash curve leaned bear steeper: the 2-Yr yield is up 1.6bps at 3.8733%, 5-Yr is up 2.1bps at 3.6688%, 10-Yr is up 2.3bps at 3.8444%, and 30-Yr is up 2.1bps at 4.1338%.
• Data was limited: MBA mortgage applications showed flat weekly growth, while the re-started Atlanta Fed Wage Tracker provided further evidence of gradually softening labor market conditions.
• There was little reaction to the $70B 5Y Note auction which went relatively smoothly, with a 0.3bp tail offset by strong peripheral statistics.
• Overnight, attention will be on chipmaker Nvidia's earnings results after the market close, an appearance by Atlanta Fed Pres Bostic, and German inflation data early Thursday morning.
• Thursday's data calendar includes US GDP revisions and weekly jobless claims, as well as the final Treasury coupon supply of the month in the form of 7Y Note.

NEWS

US (MNI): US PCE Preview: Spending In Focus

• Core PCE is seen increasing 0.15% M/M in July, cementing a third month just below 2% annualized. 
• The Y/Y is expected to increase a tenth to 2.7% Y/Y but is exaggerated by rounding – base effects will increasingly come into effect into Q4.
• The consumer spending data could have a greater impact than inflation this month - analysts look for solid personal consumption growth after surprise strength in retail sales.
• A firm print can pressure the 104bp of cuts over the three meetings left this year, but we expect particular sensitivity to surprise weakness in discretionary consumer spending. Any outturn will be viewed knowing that next week’s NFP report on Sep 6 is likely to ultimately guide a 25bp or 50bp FOMC cut on Sep 18. 

Full report here: https://roar-assets-auto.rbl.ms/files/67017/USPCEPrevAug2024.pdf
 

Eurozone (MNI): MNI EZ Inflation Preview – Aug 2024: Olympic Effect Eyed

• The Eurozone August flash inflation round is not likely to deter the ECB from delivering a 25bp rate cut at its September 12 meeting, but will help inform the guidance around the likely path for policy into year-end. 
• Headline inflation is expected to ease to 2.2% Y/Y (vs 2.6% prior) in August, with downward energy base effects making a (brief) return. 
• Core inflation meanwhile is seen easing slightly to 2.8% Y/Y (vs 2.9% prior), driven by another slight moderation in core goods inflation, with services set to remain steady or even accelerate on an annual basis.
• The Olympic Games in Paris did not appear to have a meaningful impact on French (and therefore Eurozone) services inflation in July, but several analysts are wary that such effects will show up in August’s data. 
• Our preview includes analysis of price categories to watch, assessments of underlying inflation trends, outlooks for the French, German, Spanish, and Italian national inflation prints, and sell-side analyst previews.

PDF analysis here

BRAZIL (MNI): Gabriel Galipolo Appointed As New BCB Chief

• "*GABRIEL GALIPOLO IS APPOINTED NEXT BRAZIL CENTRAL BANK CHIEF" - BBG
• The announcement just made by Finance Minister Haddad was widely expected by the market.
• Galipolo will replace Roberto Campos Neto when his mandate ends in December. The appointment needs to be approved by the Senate.

OVERNIGHT DATA

US DATA: Relaunched Atlanta Fed Wage Tracker Shows Signs Of Softening

The Atlanta Fed's Wage Growth Tracker restarted today after a lengthy hiatus triggered by a change in Census Bureau methodology starting with the April 2024 data. Having tested the data for 4 months, the Atlanta Fed researchers "are confident that the WGT will continue to be a reliable measure of wage growth for the labor market."

• The headline tracker (3M moving avg of median hourly wage growth) showed that July posted the joint-slowest rise since December 2021 at 4.7% (equal to March 2024), well down from the 5.3% in each of the previous 3 months.
• Job switchers' wage growth eased 0.5pp to 5.0%, lowest since August 2021, while for job stayers it fell 0.7pp to 4.5%, joint-lowest since December 2021. That kept the premium for switchers at around the same levels seen over the past year, vs the large 2-3pp premia seen when the job market was at its tightest in 2022-23.
• The return of the Atlanta Fed tracker is especially welcome as the Fed looks to start an easing cycle in September, with its focus firmly on labor market data developments. The moderation in the Atlanta tracker collaborates other data seen in the past few months. 
• Per Chair Powell's speech at Jackson Hole last week, "It seems unlikely that the labor market will be a source of elevated inflationary pressures anytime soon. We do not seek or welcome further cooling in labor market conditions." 

US DATA: Further Relative Tightening To Jumbo Mortgage Loans

• MBA composite mortgage applications were near flat in the week to Aug 23 with a seasonally adjusted 0.5% increase after some large swings with -10.1% and 16.8% in the prior two weeks. 
• The 30Y conforming mortgage rate fell 6bps to a new recent low of 6.44%, now down 85bps since late April. 
• Refis (-0.1% after -15.2% and 34.5%) continued to hold onto the majority of their recent jump higher on this move. 
• However, new purchase applications (0.9% after -5.2% and 2.8%) continue to fade the decline in rates. 
• The conforming to jumbo spread meanwhile hit new recent lows of -31bps in a sign of a marginal trend tightening in conditions. 

MARKETS SNAPSHOT

Below gives key levels of markets in afternoon  NY trade:
- DJIA  down 171.66 points (-0.42%) at 41081
- S&P E-Mini Future  down 32.5 points (-0.58%) at 5614
- Nasdaq  down 163.9 points (-0.9%) at 17591.31
- US  10-Yr yield is up 2.1 bps at 3.8425%
- US Sep 10-Yr futures (TY) are down 1/32 at 113-15.5    
- EURUSD  down 0.007 (-0.63%) at 1.1113
- USDJPY up 0.78 (0.54%) at 144.74
- WTI Crude Oil (front-month)  down $0.78 (-1.03%) at $74.73
- Gold is  down $16.55 (-0.66%) at $2508.42

Prior European bourses closing levels:
- EuroStoxx 50 up 14.25 points (0.29%) at 4913.03
- FTSE 100  down 1.61 points (-0.02%) at 8343.85
- German DAX up 100.48 points (0.54%) at 18782.29
- French CAC 40 up 11.89 points (0.16%) at 7577.67
 

US TREASURY FUTURES CLOSE

Curve update:
* 3M10Y  +2.418, -127.012 (L: -132.417 / H: -126.752)
* 1Y10Y  +1.045, -55.902 (L: -58.594 / H: -55.173)
* 2Y10Y  +4.893, -3.281 (L: -9.209 / H: -2.664)
* 2Y30Y  +4.694, 25.579 (L: 19.924 / H: 26.532)
* 5Y30Y  +0.172, 46.232 (L: 45.349 / H: 46.892)
Current futures levels:
* Sep 2-Yr futures (TU) down 0.75/32  at 103-11.625 
* Sep 5-Yr futures (FV) down 1.25/32  at 109-4.75 
* Sep 10-Yr futures (TY) down 0.5/32  at 113-16 
* Sep 30-Yr futures (US) down 6/32  at 123-31 
* Sep Ultra futures (WN) down 4/32  at 132-09

PRIOR SESSION REFERENCE RATES

REPO REFERENCE RATES (rate, change from prev. day, volume):

• Secured Overnight Financing Rate (SOFR): 5.35%, 0.01%, $2227B
• Broad General Collateral Rate (BGCR): 5.34%, 0.02%, $783B
• Tri-Party General Collateral Rate (TGCR): 5.34%, 0.02%, $753B
• SOFR continues recent increases to 5.35% but remains within recent ranges over the past two months. 

New York Fed EFFR for prior session (rate, chg from prev day):

• Daily Effective Fed Funds Rate: 5.33%, no change, volume: $86B
• Daily Overnight Bank Funding Rate: 5.33%, no change, volume: $249B
  RRP usage increased $45bn to $389bn today, drifting higher ahead of month-end for technically the highest since Jul 24 as it pulls away from a period closer to a little above $300bn. 
• The number of counterparties increased by 6 to 74, its highest since Aug 20 and before that Jul 24 as well. 

EGBs-GILTS CASH CLOSE: Bunds Outperform Ahead Of Inflation Data

Bunds outperformed global peers Wednesday ahead of the latest round of Eurozone inflation data.

• Core FI enjoyed a modest rally in early trade, helped in part by weaker crude oil prices. 
• Eurozone money and lending data pointed to a continuation of soft credit dynamics.
• Yields bounced back from the session lows set in early afternoon, however, amid hedging activity as EUR issuance priced.
• Gilt yields were little changed, with no market-moving data, and a panel appearance by BoE's Mann produced no headlines.
• Periphery EGB spreads closed slightly wider for the most part.
• The schedule gets busier Thursday with an appearance by ECB's Lane, and the August Eurozone inflation data round kicking off with Spain and Germany - MNI's preview is here (PDF).

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is down 1.9bps at 2.385%, 5-Yr is down 2.1bps at 2.165%, 10-Yr is down 2.7bps at 2.261%, and 30-Yr is down 3.4bps at 2.503%.
• UK: The 2-Yr yield is up 0.5bps at 4.114%, 5-Yr is up 0.3bps at 3.914%, 10-Yr is up 0.3bps at 4.001%, and 30-Yr is up 0.9bps at 4.519%.
• Italian BTP spread up 0.6bps at 138.6bps / Spanish up 1.3bps at 83.1bps 

FOREX: EURUSD Slides Back Towards 1.11 Amid Broad Greenback Recovery

• The US dollar has stabilised on Wednesday and the USD index stands 0.56% higher on the session, putting a pause on the steep weakening trend across August. With bunds outperforming global peers ahead of the latest round of Eurozone inflation data tomorrow, EURUSD has weakened 0.65%, steadily edging towards the 1.1100 handle as we approach the APAC crossover.
• Eurozone money and lending data pointed to a continuation of soft credit dynamics, and this has likely weighed on the single currency at the margin.
• The move lower for EURUSD is considered corrective given last week’s appreciation reinforcing a bullish technical set-up. Moving average studies are in a bull-mode position too, highlighting a rising trend. The trend is overbought, a pullback would allow this condition to unwind. Key short-term support to watch is 1.1036, the 20-day EMA.
• Single currency weakness was also notable against the Swiss Franc, which relatively outperforms on the session. EURCHF is set to increase its losing streak to three sessions, extending the pull lower from the August highs to over 200 pips.
• Vols are further biased against the greenback, with EUR, GBP and JPY 1m risk reversals posting a Z-score north of 2 points in favour of USD puts. This is more extreme in the USD/CHF curve, in which 1m risk reversals cleared 1.5 points in favour of puts today for the first time since the onset of COVID in March 2020. This makes the USD weakness this month distinct from the USD-selling phase into end-Dec'23.
• Eurozone inflation data kicks off on Thursday with releases for Germany and Spain in focus. Revisions to US GDP and PCE for Q2 highlight the US data calendar.

COMMODITIES: Crude Recovers Some Losses, Precious Metals Trade Weaker

• Crude recovered some of the earlier losses after a small US crude inventory draw according to the update EIA weekly petroleum data. Crude has jettisoned some of the Libya-related gains, amid high spare capacity from OPEC and upcoming cut unwinding.
• WTI Oct 24 is down 1.2% at $74.6/bbl.
• For WTI futures, a resumption of gains would refocus attention on key resistance at $78.54, the Aug 12 high. For bears, an extension lower would once again expose the $70.88 key support.
• Spot gold has fallen by 0.6% to $2,509/oz today, amidst a strengthening of the US dollar in Wednesday’s session.
• From a technical perspective, bullish conditions in gold remain intact, with focus on a climb towards $2,536.4 next, a Fibonacci projection. Initial support to watch lies at $2,475.4, the 20-day EMA. Short-term weakness would be considered corrective.
• Meanwhile, silver has underperformed, falling by 2.3% to $29.3/oz.
• For silver, a medium-term bearish cycle is still intact and recent gains appear to be a correction - for now.
• Key support is seen at $26.018, the May 2 low, while on the upside the 50-day EMA has been cleared and is a concern for bears. A continuation higher would cancel the bearish theme and expose $30.502 next, a Fibonacci retracement.
• Copper is also down by 2.2% today, at $414/lb.

MNI (NEW YORK)

Date	GMT/Local	Impact	Country	Event
28/08/2024	2200/1800		US	Atlanta Fed's Raphael Bostic
29/08/2024	0130/1130	*	AU	Private New Capex and Expected Expenditure
29/08/2024	0600/0800	**	SE	Retail Sales
29/08/2024	0600/0800	***	SE	GDP
29/08/2024	0700/0900	***	ES	HICP (p)
29/08/2024	0700/0900	**	SE	Economic Tendency Indicator
29/08/2024	0800/1000	***	DE	North Rhine Westphalia CPI
29/08/2024	0800/1000	***	DE	Bavaria CPI
29/08/2024	0900/1100	**	EU	EZ Economic Sentiment Indicator
29/08/2024	0900/1100	*	EU	Consumer Confidence, Industrial Sentiment
29/08/2024	0915/1115		EU	ECB's Lane in panel "Inflation - challenges..."
29/08/2024	1200/1400	***	DE	HICP (p)
29/08/2024	1230/0830	***	US	Jobless Claims
29/08/2024	1230/0830	**	US	WASDE Weekly Import/Export
29/08/2024	1230/0830	***	US	GDP
29/08/2024	1230/0830	*	CA	Current account
29/08/2024	1230/0830	*	CA	Payroll employment
29/08/2024	1230/0830	**	US	Advance Trade, Advance Business Inventories
29/08/2024	1400/1000	**	US	NAR Pending Home Sales
29/08/2024	1430/1030	**	US	Natural Gas Stocks
29/08/2024	1530/1130	*	US	US Bill 08 Week Treasury Auction Result
29/08/2024	1530/1130	**	US	US Bill 04 Week Treasury Auction Result
29/08/2024	1700/1300	**	US	US Treasury Auction Result for 7 Year Note
29/08/2024	1930/1530		US	Atlanta Fed's Raphael Bostic
30/08/2024	2330/0830	**	JP	Tokyo CPI
30/08/2024	2330/0830	*	JP	Labor Force Survey
30/08/2024	2350/0850	*	JP	Retail Sales (p)
30/08/2024	2350/0850	**	JP	Industrial Production
30/08/2024	0030/1030	**	AU	Retail Trade
30/08/2024	0600/0800	**	DE	Retail Sales
30/08/2024	0600/0800	**	DE	Import/Export Prices
30/08/2024	0630/0730		GB	UK DMO to release FQ3 issuance calendar
30/08/2024	0645/0845	***	FR	HICP (p)
30/08/2024	0645/0845	**	FR	PPI
30/08/2024	0645/0845	***	FR	GDP (f)
30/08/2024	0645/0845	**	FR	Consumer Spending
30/08/2024	0700/0900	**	CH	KOF Economic Barometer
30/08/2024	0705/0905		EU	ECB's Schnabel at Ragnar Nurkse Lecture
30/08/2024	0735/0935		EU	ECB's Schnabel in panel at Ragnar Nurkse
30/08/2024	0755/0955	**	DE	Unemployment
30/08/2024	0800/1000	**	IT	ISTAT Business Confidence
30/08/2024	0800/1000	**	IT	ISTAT Consumer Confidence
30/08/2024	0830/0930	**	GB	BOE M4
30/08/2024	0830/0930	**	GB	BOE Lending to Individuals
30/08/2024	0900/1100	***	EU	HICP (p)
30/08/2024	0900/1100	**	EU	Unemployment
30/08/2024	0900/1100	***	IT	HICP (p)
30/08/2024	1230/0830	***	US	Personal Income and Consumption
30/08/2024	1230/0830	***	CA	GDP - Canadian Economic Accounts
30/08/2024	1230/0830	***	CA	Gross Domestic Product by Industry
30/08/2024	1230/0830	***	CA	CA GDP by Industry and GDP Canadian Economic Accounts Combined
30/08/2024	1230/0830	***	CA	Gross Domestic Product by Industry
30/08/2024	1345/0945	***	US	MNI Chicago PMI
30/08/2024	1400/1000	**	US	U. Mich. Survey of Consumers
30/08/2024	1500/1100		CA	Finance Dept monthly Fiscal Monitor (expected)
30/08/2024	1700/1300	**	US	Baker Hughes Rig Count Overview - Weekly
31/08/2024	0130/0930	***	CN	CFLP Manufacturing PMI
31/08/2024	0130/0930	**	CN	CFLP Non-Manufacturing PMI