MNI ASIA OPEN: Fed On Hold, Powell Leaves Sep Cut Door Open

US TSYS Late Risk-Off Adds to Post-Powell Tsy Rally

• Treasury futures surged to the highest levels since mid-March late Tuesday, strong safe haven buying evident after Iran orders attack on Israel for Tuesday's killing of Hamas political leader Haniyeh.
• Tsy Sep'24 10Y futures blew through a couple resistance levels to a high of 112-08 (+22), with 112-10 (1.50 proj of the Apr 25 - May 16 - 29 price swing)
• The late surge saw projected rate cut pricing into year end look steady to firmer vs. early Wednesday levels (*): Sep'24 cumulative -28.8bp, Nov'24 cumulative -46.9bp (-44.6bp), Dec'24 -72.4bp (-68.2bp).
• Tsys had extended session highs prior to the Iran/Israel headlines after Fed Chairman Powell left the door open to a rate cut at the next FOMC meeting in September if inflation continues to cool and the labor market remains.
• While keeping a close eye on data that suggests a normalizing labor market -- Chairmen Powell said "we have a lot of room to respond. If we were seeing weakness. That's not what we're seeing."
• Early data support: Treasury futures extending gains after lower than expected private payroll ADP jobs figures. Tsy futures gap higher following Tsy refunding annc w/ no plan on increasing auction sizes for now, increase weekly buybacks. ECI slightly lower than expected.

US

US FED (MNI): Fed Holds Rates; Flags Inflation Progress, Weaker Jobs
The Federal Reserve kept interest rates on hold for an eighth straight meeting Wednesday but flagged progress on inflation and concerns about the employment outlook, a possible sign that policymakers are coalescing around the idea of a September rate cut.

• The Fed left its forward guidance saying it did not expect it would be appropriate to start lowering borrowing costs “until it has gained greater confidence” inflation is moving back to the 2% target. But the central bank did nod to recent improvements in inflation and some softening in the job market, indicating officials are increasingly open to rate cuts.
  
• "There has been some further progress toward the committee’s 2% inflation objective," the Fed said in its statement, dropping the word “modest” from the June version of the statement.

US FED (MNI): Lack Of Forward Guidance Change Marks A Modestly Net Hawkish Outcome
The changes made to the Statement vs June are in a dovish direction. The first paragraph notes that job gains have "moderated" (vs "remained strong) with unemployment having "moved up but remains" low (vs "has remained low"), with inflation remaining "somewhat" elevated, and "some" further progress in inflation toward 2%. FOMC Statement Comparison: July vs June

US TSYS (MNI): No Plans To Increase Auction Sizes For Now; Buybacks Ramp Up

• No Increase In Auction Sizes. Treasury said in Wednesday's quarterly refunding announcement it "doesn't anticipate needing to increase nominal coupon or FRN auction sizes for at least the next several quarters." Analysts expect the next increase to come some time in 2025 or 2026.
• Buybacks Ramp Up. Treasury plans to conduct weekly liquidity support buybacks of up to $4 billion per operation in nominal coupon securities. In longer-maturity buckets, Treasury will conduct two operations, each up to $2 billion, over the refunding quarter. Treasury also plans to conduct two operations, each up to $500 million, in each of the TIPS buckets.

NEWS

US (MNI): VP Harris Gaining Momentum In Recent Opinion Polls
The latest opinion polling both at the national level and in crucial swing states appears to paint an increasingly positive picture for Vice President and likely Democratic presidential nominee Kamala Harris. An Economist/YouGov poll released 31 July shows Harris leading Republican nominee former President Donald Trump by 2%. It must be noted that, firstly, the significant amount of time between now and the November election means notable shifts in polling are possible. Secondly, almost all national and swing state polls are putting results within the margin of error, making them statistical dead-heats.

US (MNI): PA Gov. Shapiro Soars In Dem VP Market As Philly Set For 1st Event w/Harris
Political betting markets have shown a strong rally in bettors opting for Pennsylvania Governor Josh Shapiro as the most likely running mate for likely Democratic nominee Vice President Kamala Harris. It comes after the Harris campaign confirmed that the first joint event between Harris and her veep pick will take place in the crucial swing state's largest city, Philadelphia, on Tuesday 6 August.

EU (MNI): Next Commission Continues To Take Shape As Austria Nominates Fin Min:
The Austrian governing coalition has put forward Finance Minister Magnus Brunner from the conservative Austrian People's Party (ÖVP) to be the country's next European Commissioner.

MIDEAST (MNI): Blinken-US Uninvolved & Unaware Of Haniyeh Elimination Beforehand:
US Secretary of State Antony Blinken has said that "We were not involved in the elimination of Haniyeh and were not informed beforehand." The killing of Hamas' political leader in the Iranian capital Tehran has seen conflict risks spike in the Middle East at a time when the conflict in Gaza, Houthi strikes on shipping in the Red Sea, and escalating strikes between Hezbollah and Israel had already caused significant tensions.

OVERNIGHT DATA

US DATA (MNI): Modest Miss For ADP Employment, Pay Growth Slowly Moderating
ADP employment growth was softer than expected in July at 122k (cons 150k) after a modestly upward revised 155k in June (initial 150k). We’d be surprised if there were any meaningful changes to estimates for Friday’s private payrolls, with consensus currently at 141k.

• ADP’s Chief Economist: “With wage growth abating, the labor market is playing along with the Federal Reserve's effort to slow inflation. If inflation goes back up, it won't be because of labor."
• Arguably of more note, job stayer pay gains slowed a tenth to 4.8% Y/Y in July, “the slowest pace of growth in three years” whilst job-changers “saw a big drop” from 7.7% to 7.2% Y/Y for the slowest since May 2021.

US DATA (MNI): Employment Costs Softer Than Expected In Q2, Broadly Matching AHE Moderation
The Employment Cost Index came in softer than expected at 0.91% Q/Q non-annualized (cons 1.0 but had averaged 0.96 with the analyst range heavily concentrated between 0.9-1.0). It follows an unrevised 1.17% in Q1 and is back close to the 0.93% in Q4 that marked the softest quarterly print since 2Q21.

• For a cleaner read, the overall ECI was up 3.7% annualized after 4.8% in Q1 and 3.8% in Q4.
• Wages & salaries helped drive the moderation on the quarter, from 4.5% to 3.7% in what’s more clearly the softest quarter since 2Q21.
• The private sector offers a marginally softer take, with total costs rising 3.5% and with the wages & salaries component at 3.4%.
• The quarterly moderation aligns with that seen in the average hourly earnings data from the payrolls release, notable considering the pause in the Atlanta Fed’s wage tracker has limited the number of alternative wage metrics to look at.
• For a historical comparison, the overall ECI growth of 3.7% compares with an average 2.7% in 2019 but the 3.4% for private sector wages & salaries looks more favorable when compared to the 2019 average of 3.0%.

US DATA (MNI): Chicago Business Barometer™ - Decreases to 45.3 in July
The Chicago Business Barometer™, produced with MNI slipped 2.1 points to 45.3 in July, after rising in June for the first time since November 2023.

• The fall was broad based with four out of five subcomponents down, in comparison to all five components rising last month. Production led the deterioration this month, with New Orders, Order Backlogs and Employment also lower. Meanwhile, Supplier Deliveries edged up.

MARKETS SNAPSHOT

• Key market levels of markets in late NY trade:
• DJIA up 99.46 points (0.24%) at 40842.79
• S&P E-Mini Future up 96.75 points (1.77%) at 5568.75
• Nasdaq up 452 points (2.6%) at 17599.4
• US 10-Yr yield is down 9.6 bps at 4.043%
• US Sep 10-Yr futures are up 21.5/32 at 112-7.5
• EURUSD up 0.0009 (0.08%) at 1.0823
• USDJPY down 2.59 (-1.7%) at 150.18
• WTI Crude Oil (front-month) up $3.8 (5.09%) at $78.53
• Gold is up $38.59 (1.6%) at $2449.44
• European bourses closing levels:
• EuroStoxx 50 up 31.94 points (0.66%) at 4872.94
• FTSE 100 up 93.57 points (1.13%) at 8367.98
• French CAC 40 up 56.55 points (0.76%) at 7531.49

US TREASURY FUTURES CLOSE

• 3M10Y -9.043, -124.621 (L: -124.813 / H: -114.416)
• 2Y10Y -1.183, -23.296 (L: -27.14 / H: -20.1)
• 2Y30Y +0.25, 3.675 (L: -2.874 / H: 8.974)
• 5Y30Y +2.572, 38.572 (L: 32.266 / H: 42.2)
• Current futures levels:
• Sep 2-Yr futures up 5.125/32 at 102-25.875 (L: 102-18.5 / H: 102-26.75)
• Sep 5-Yr futures up 14.25/32 at 108-6.25 (L: 107-21.5 / H: 108-07.5)
• Sep 10-Yr futures up 22/32 at 112-8 (L: 111-15 / H: 112-08)
• Sep 30-Yr futures up 1-15/32 at 121-21 (L: 119-31 / H: 121-24)
• Sep Ultra futures up 1-27/32 at 129-02 (L: 126-30 / H: 129-06)

US 10YR FUTURE TECHS: (U4) Trend Needle Points North

• RES 4: 112-25   High Mar 8 
• RES 3: 112-10   1.50 proj of the Apr 25 - May 16 - 29 price swing
• RES 2: 111-31   1.382 proj of the Apr 25 - May 16 - 29 price swing
• RES 1: 111-28   High Jul 31 
• PRICE:‌‌ 111-25+ @ 16:57 BST Jul 31
• SUP 1: 110-28/110-13+ 20- and 50-day EMA values 
• SUP 2: 109-17+ Low Jul 5 
• SUP 3: 109-01+ Trendline drawn from the Apr 25 low 
• SUP 4: 108-31   Low May 31

Treasuries rallied in the hours ahead of the Fed decision, clearing the Tuesday high with very little difficulty. This keeps the bull theme intact. MA studies are in a bull-mode position and the recent breach of 111-01, the Jun 14 high, confirmed a resumption of the uptrend that started Apr 25. Note that Monday’s gains resulted in a print above 111-15, the Jul 17 high. This reinforces the bullish theme and  opens 111-31, a Fibonacci projection. Support is at 110-25+, the 20-day EMA.

SOFR FUTURES CLOSE

• Sep 24 +0.005 at 94.970
• Dec 24 +0.045 at 95.425
• Mar 25 +0.085 at 95.860
• Jun 25 +0.105 at 96.180
• Red Pack (Sep 25-Jun 26) +0.110 to +0.115
• Green Pack (Sep 26-Jun 27) +0.10 to +0.105
• Blue Pack (Sep 27-Jun 28) +0.10 to +0.10
• Gold Pack (Sep 28-Jun 29) +0.10 to +0.10

SOFR FIXES AND PRIOR SESSION REFERENCE RATES

SOFR Benchmark Settlements:

• 1M +0.00022 to 5.34255 (-0.00415/wk)
• 3M -0.00658 to 5.24110 (-0.01417/wk)
• 6M -0.00364 to 5.07558 (-0.01587/wk)
• 12M -0.00934 to 4.73547 (-0.01743/wk)

• Secured Overnight Financing Rate (SOFR): 5.33% (+0.00), volume: $1.978T
• Broad General Collateral Rate (BGCR): 5.32% (-0.01), volume: $808B
• Tri-Party General Collateral Rate (TGCR): 5.32% (-0.01), volume: $786B
• (rate, volume levels reflect prior session)

• Daily Effective Fed Funds Rate: 5.33% (+0.00), volume: $87B
• Daily Overnight Bank Funding Rate: 5.32% (+0.00), volume: $240B

FED Reverse Repo Operation

RRP usage rebounds up to $413.200B from $367.054B on Tuesday. Number of counterparties at 66 from 70 prior. Today's usage compares to $327.066B on Monday, April 15 -- the lowest level since mid-May 2021.

PIPELINE $25B Corporate Issuance Roundup

• Date $MM Issuer (Priced *, Launch #)
• 7/30 $4B *Citibank $1.5B 2Y +57, $1B 2Y SOFR+70, $1.5B 5Y +80
• 7/30 $1.8B *Netflix $1B 10Y +80, $800M 30Y +100
• 7/30 $1.2B *GLP Capital $800M 10Y +160, $400M 30Y +190
• 7/30 $750M *Synchrony Financial 6NC5 +190
• 7/30 $600M *Omnicom +10Y +120

EGBs-GILTS CASH CLOSE: Gilts Outperform With BoE Decision On Knife's Edge

Gilts easily outperformed Bunds Wednesday, on the eve of a key BoE decision.

• Eurozone flash July HICP came in slightly above what had been expected entering the week, though this had limited impact on ECB cut pricing which continues to see two full cuts by year end (MNI's Euro Inflation Insight is here - PDF).
• Gilts stole the show, with the belly outperforming ahead of the Bank of England decision Thursday: 5Y yields outperformed, with both they and 10Y yields notably closed below the Mar/April lows and 2Y yields closing at then lowest since May 2023.
• US data was on the soft side and the US Treasury refunding announcement brought no negative surprises, extending a nascent rally through the European afternoon.
• The German curve bull flattened on the day. Periphery EGB spreads tightened modestly.
• The Federal Reserve decision Wednesday evening is the most immediate event risk, but attention thereafter will firmly be on the BoE where a decision to cut 25bp or hold is on a knife's edge - MNI's preview is here (PDF).

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is down 2bps at 2.531%, 5-Yr is down 3.2bps at 2.232%, 10-Yr is down 3.6bps at 2.304%, and 30-Yr is down 5.3bps at 2.514%.
• UK: The 2-Yr yield is down 5.1bps at 3.826%, 5-Yr is down 8.1bps at 3.765%, 10-Yr is down 7.3bps at 3.97%, and 30-Yr is down 6.4bps at 4.536%.
• Italian BTP spread down 1bps at 134.6bps / Spanish down 0.9bps at 81.2bps

FOREX: Powell’s Dovish Lean / Risk Off Prompts Renewed USDJPY Weakness

• Moves in currency markets on Wednesday’s were wholly focused on the substantial moves for the Japanese Yen following the overnight rate hike from the Bank of Japan. After reaching as high as 153.88 in the direct aftermath of the decision, USDJPY has traded with an overwhelming offered tone, with the pair reaching as low as 149.64.
• The greenback traded in a more supportive manner ahead of the month-end WMR fix, edging around 30 pips higher as we approached the July FOMC decision and statement release, primarily driven by the near 1% bounce for USDJPY, approaching back toward 151.00.
• The pair popped to 151.26 as the Fed failed to adjust its forward guidance, however, a dovish leaning Powell hinting that a September cut will likely be on the table prompted renewed weakness. USDJPY grinded back below 150.00 and sits close to session lows as we approach the APAC crossover.
• Given the sharp post-BOJ moves, initial resistance moves down to 151.94, the July 25 low. A close below this point would be an important development reinforcing the current bearish trend. On the downside, renewed weakness would place the focus on 148.54, a Fibonacci retracement point.
• Late headlines from the New York Times claiming Iran has ordered a retaliatory attack on Israel may have exacerbated the price action, taking the shine off an otherwise stellar day for major equity indices.
• With that said, NZD has also outperformed, rising 0.85% against the greenback, while the yen strength has also filtered through to a more moderate bid for the Swiss Franc and sees USDCHF 0.58% in the red.
• Action continues to come thick and fast Thursday with the Bank of England decision and US ISM manufacturing data for July.

THURSDAY DATA CALENDAR

Date	GMT/Local	Impact	Flag	Country	Event
01/08/2024	2300/0900	**		AU	S&P Global Manufacturing PMI (f)
01/08/2024	0030/0930	**		JP	S&P Global Final Japan Manufacturing PMI
01/08/2024	0130/1130	**		AU	Trade Balance
01/08/2024	0130/1130	**		AU	Trade price indexes
01/08/2024	0145/0945	**		CN	S&P Global Final China Manufacturing PMI
01/08/2024	0715/0915	**		ES	S&P Global Manufacturing PMI (f)
01/08/2024	0745/0945	**		IT	S&P Global Manufacturing PMI (f)
01/08/2024	0750/0950	**		FR	S&P Global Manufacturing PMI (f)
01/08/2024	0755/0955	**		DE	S&P Global Manufacturing PMI (f)
01/08/2024	0800/1000	**		EU	S&P Global Manufacturing PMI (f)
01/08/2024	0830/0930	**		UK	S&P Global Manufacturing PMI (Final)
01/08/2024	0900/1100	**		EU	Unemployment
01/08/2024	1100/1200	***		UK	Bank Of England Interest Rate
01/08/2024	1100/1200	***		UK	Bank Of England Interest Rate
01/08/2024	1130/1230			UK	BoE Press Conference
01/08/2024	-	***		US	Domestic-Made Vehicle Sales
01/08/2024	1230/0830	***		US	Jobless Claims
01/08/2024	1230/0830	**		US	WASDE Weekly Import/Export
01/08/2024	1230/0830	**		US	Preliminary Non-Farm Productivity
01/08/2024	1300/1400			UK	BOE Monthly Decision Maker Panel Data
01/08/2024	1345/0945	***		US	S&P Global Manufacturing Index (final)
01/08/2024	1400/1000	***		US	ISM Manufacturing Index
01/08/2024	1400/1000	*		US	Construction Spending
01/08/2024	1430/1030	**		US	Natural Gas Stocks
01/08/2024	1530/1130	*		US	US Bill 08 Week Treasury Auction Result
01/08/2024	1530/1130	**		US	US Bill 04 Week Treasury Auction Result
01/08/2024	1615/1715			UK	BOE's Pill MPR virtual Q&A