MNI ASIA OPEN: Fed Powell: Don't Rule Out Consecutive Hikes

US

FED: Federal Reserve Chair Jerome Powell said Wednesday interest rates could be raised further to bring inflation back to target and officials are making meeting-by-meeting decisions including a potential return to consecutive increases.

• "We’ve come a long way, we also think there’s a lot of tightening power coming through. We haven’t been restrictive for that long. We believe there’s more restriction coming," said Powell during a panel discussion at European Central Bank's Sintra forum. The Fed hasn't committed to any particular pattern of rate increases such as hiking at every other meeting, he said.
  
• "We have not made a decision to go to that. It may work out that way. It may not work out that way. But I wouldn't take moving at consecutive meetings off the table at all," he said. (See MNI INTERVIEW: Fed's Bostic Wants Rates On Hold Until End 2024)
  
• "A tighter-than-expected labor market is driving spending and demand and "really pulling the economy," he added. "So that tells us that although policy is restrictive, it may not be restrictive enough, and it has not been restrictive for long enough." For more see MNI Policy main wire at 1104ET.

FED: Federal Reserve Chair Jerome Powell said Wednesday interest rates are likely to rise further in the face of a very strong labor market but the pace of hikes is undecided and dependent on data.

• "We think we've come a long way. We also think that there's more tightening power coming through. Really policy hasn't been restricted for very long," he told the European Central Bank's annual conference in Sintra, Portugal, noting a majority of FOMC members saw the need for two or more hikes this year.
• A tighter-than-expected labor market is driving spending and demand and "reallypullingtheeconomy," he added. "Sothattellsusthatalthoughpolicyisrestrictive,itmaynotberestrictiveenough,andithasnotbeenrestrictedforlongenough."

US TSYS: Bonds Near Late Session Highs, Tsy 7Y Note Sale Well Received

• Treasury futures are drifting near late session highs, climbing steadily since marking lows at midmorning, discounting earlier comment from Chairman Powell at ECB CB forum that consecutive rate hikes are not off the table spurred fast sell interest in short to intermediates.
• Modest two-way trade this morning after higher than expected Retail inventories data: MoM (0.8%, 0.2% est; 0.3% prior/rev), Wholesale Inventories in-line MoM (-0.1%, -0.1% est; -0.3% prior/rev), Advance Goods Trade Balance (-$91.1B, -$93.8B est; -$97.1B prior).
• Curves climbed off deeper inversion briefly after a decent $35B 7Y note auction (91282CHJ3) traded through: 3.839% high yield vs. 3.847% WI; 2.65x bid-to-cover vs. 2.61x last month. Indirect take-up 75.31% vs. 72.30% prior; Direct take-up: 16.55% vs. 17.29% prior; Primary dealer take-up to 8.14% vs. 10.42% prior auction.
• Despite the bounce, bears still hold sway at current levels. Recent pullback in 10s held inside the recent range and the contract remains in consolidation mode. The trend outlook is bearish.
• Meanwhile, market confidence of a hike at the July 26 FOMC has climbed to 79% with implied rate of +19.8bp to 5.267%. September cumulative of +24.4bp at 5.315% while November is pricing in just over a 25bp hike with cumulative at 29.3bp at 5.364%. Fed terminal at 5.385% in Nov'23 this morning.

OVERNIGHT DATA

• US MBA: MARKET COMPOSITE +3.0% SA THRU JUN 23 WK
  
• US MBA: REFIS +3% SA; PURCH INDEX +3% SA THRU JUNE 23 WK
• US MBA: UNADJ PURCHASE INDEX -21% VS YEAR-EARLIER LEVEL
• US MBA: 30-YR CONFORMING MORTGAGE RATE 6.75% VS 6.73% PREV

US DATA: The advance goods trade deficit narrowed by more than expected in May to a seasonally adjusted $91.1B (cons $93.7B) from $97.1B (initial $96.8B).

• Exports dipped -0.6% M/M with no sign of a bounce from the -5.3% slide in April, with the monthly improvement in the balance instead led by imports contracting -2.7% M/M (all seasonally adjusted here).
• Price components potentially played a big part, with a -6% decline in industrial supplies (which includes petroleum & petroleum products) and -3% in the broad food & beverages category.
• Other indicators had mixed implications for domestic demand though, with capital goods imports encouragingly seeing the largest monthly increase since Sep (+1.3%) but consumer goods imports sliding -7.3% for one of its largest monthly drops in recent years.

MARKETS SNAPSHOT

• DJIA down 116.27 points (-0.34%) at 33807.07
• S&P E-Mini Future down 7.25 points (-0.16%) at 4411.5
• Nasdaq up 23.5 points (0.2%) at 13578.3
• US 10-Yr yield is down 5.8 bps at 3.7058%
• US Sep 10-Yr futures are up 14/32 at 113-8.5
• EURUSD down 0.004 (-0.36%) at 1.0921
• USDJPY up 0.22 (0.15%) at 144.29
• WTI Crude Oil (front-month) up $1.88 (2.78%) at $69.55
• Gold is down $1.13 (-0.06%) at $1912.56

• EuroStoxx 50 up 39.49 points (0.92%) at 4344.75
• FTSE 100 up 39.03 points (0.52%) at 7500.49
• German DAX up 102.14 points (0.64%) at 15949
• French CAC 40 up 70.74 points (0.98%) at 7286.32

US TREASURY FUTURES CLOSE

• 3M10Y -7.888, -163.103 (L: -163.422 / H: -156.384)
• 2Y10Y -1.47, -101.035 (L: -102.289 / H: -98.26)
• 2Y30Y +0.082, -91.654 (L: -94.954 / H: -89.298)
• 5Y30Y +2.119, -16.885 (L: -20.888 / H: -16.513)
• Current futures levels:
• Sep 2-Yr futures up 2.875/32 at 102-0.375 (L: 101-28.5 / H: 102-00.75)
• Sep 5-Yr futures up 9/32 at 107-27.25 (L: 107-17.5 / H: 107-28)
• Sep 10-Yr futures up 14/32 at 113-8.5 (L: 112-26 / H: 113-09.5)
• Sep 30-Yr futures up 24/32 at 128-10 (L: 127-14 / H: 128-13)
• Sep Ultra futures up 26/32 at 137-20 (L: 136-17 / H: 137-26)

US 10Y FUTURE TECHS: (U3) Trend Needle Points South

• RES 4: 115-00 High Jun 1 and a key resistance
• RES 3: 114-06+/07 High Jun 6 / 50-day EMA
• RES 2: 114-00 High Jun 13
• RES 1: 113.18 High Jun 15
• PRICE: 113-07+ @ 1430ET Jun 28
• SUP 1: 112-12+ Low Jun 14 and the bear trigger
• SUP 2: 112-00 Low Mar 10
• SUP 3: 111-14+ Low Mar 9
• SUP 4: 110-27+ Low Mar 2 and key support

Treasury futures edged lower Tuesday, showing that bears still hold sway at current levels. Nonetheless, the pullback held inside the recent range and the contract remains in consolidation mode. The trend outlook is bearish. Recently, support at 112-29+, the May 26 / 30 low was cleared. This exposes 112-00, Mar 10 low and 110-27+ further out, Mar 2 low and a key support. Initial firm resistance is at 114-00, the Jun 13 high.

SOFR FUTURES CLOSE

• Sep 23 +0.010 at 94.645
• Dec 23 +0.025 at 94.735
• Mar 24 +0.050 at 95.035
• Jun 24 +0.065 at 95.445
• Red Pack (Sep 24-Jun 25) +0.075 to +0.085
• Green Pack (Sep 25-Jun 26) +0.070 to +0.075
• Blue Pack (Sep 26-Jun 27) +0.065 to +0.070
• Gold Pack (Sep 27-Jun 28) +0.070 to +0.075

SHORT TERM RATES

SOFR Benchmark Settlements:

• 1M -0.00287 to 5.10249 (+.01882/wk)
• 3M +0.00255 to 5.24187 (+.00317/wk)
• 6M +0.01237 to 5.33670 (+.00762/wk)
• 12M +0.03611 to 5.29933 (+.01573/wk)

US DOLLAR LIBOR: Latest settlements:

• O/N +0.00228 to 5.06614%
• 1M +0.00129 to 5.19300%
• 3M +0.00915 to 5.53786% */**
• 6M +0.01129 to 5.73100%
• 12M +0.02900 to 5.94329%
• * Record Low 0.11413% on 9/12/21; ** New 16Y high: 5.55743% on 6/12/23

• Daily Effective Fed Funds Rate: 5.07% volume: $132B
• Daily Overnight Bank Funding Rate: 5.06% volume: $282B

• Secured Overnight Financing Rate (SOFR): 5.05%, $1.481T
• Broad General Collateral Rate (BGCR): 5.04%, $594B
• Tri-Party General Collateral Rate (TGCR): 5.04%, $586B
• (rate, volume levels reflect prior session)

FED Reverse Repo Operation

NY Fed reverse repo usage falls to $1,945.211B w/ 101 counterparties, compared to $1,951.098B 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: $2.5B Standard Chartered Launched

• Date $MM Issuer (Priced *, Launch #)
• 06/28 $2.5B #Standard Chartered $1B 4NC3 +185, $500M 4NC3 SOFR+193, $1B 11NC10 +258
• 06/28 $500M #Corebridge Global 3Y +145
• 06/28 $Benchmark Paraguay 10Y low 6%a

EGBs-GILTS CASH CLOSE: Soft Italy Inflation Sets Stage For Rally

The UK curve twist steepened amid a strong short-end rally, while Germany's bull steepened Wednesday.

• Core FI rallied in the morning alongside softer-than-expected Italian June flash inflation data, a positive sign for doves ahead of the next two days' crucial eurozone readings.
• This contrasted with a widening of periphery EGB spreads as a few articles pointed to potentially more aggressive ECB balance sheet normalization (including a comment by Vujcic and various media reports).
• A Sintra panel with Lagarde, Bailey, Powell, and Ueda was more hawkish than expected for the most part, though European core yields still resolved lower by the cash close.
• Attention first thing Thursday morning will be on NRW state inflation in Germany, followed by Spain CPI later in the session.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is down 5.6bps at 3.104%, 5-Yr is down 5.2bps at 2.464%, 10-Yr is down 4.1bps at 2.315%, and 30-Yr is down 3bps at 2.361%.
• UK: The 2-Yr yield is down 12.7bps at 5.146%, 5-Yr is down 10.7bps at 4.568%, 10-Yr is down 5.9bps at 4.316%, and 30-Yr is up 0.3bps at 4.379%.
• Italian BTP spread up 3.5bps at 166.3bps / Greek up 5.4bps at 127.1bps

FOREX: Greenback Trades On Surer Footing, AUD Extends Post-CPI Decline

• The USD index has risen 0.4% on Wednesday and price action remained supportive throughout the European session and across the first half of US trade. We note the potential link to value date month end flows, with the index putting in the top around the WMR fix.
• AUD & NZD are among the session's poorest performers, both declining over 1%, after a lower-than-expected CPI print from Australia. Headline CPI slowed unexpectedly to 5.6% versus a 6.1% estimate - the lowest reading in just over a year. In response, traders marked down AUDUSD from ~0.6690 to ~0.6619 before stabilising through the European morning.
• The broad greenback strength in the second half of the session saw AUDUSD extend declines, with the pair briefly breaching the 0.66 handle, the lowest level seen since June 05.
• GBPUSD (-0.80%) also moved lower, picking up momentum through last week’s lows around 1.2685/90. Stagflationary concerns since last week’s BOE decision continue to temporarily weigh on sterling and it appears a short-term corrective technical cycle may be in play for the pair. Having breached initial support, the focus is on firm support at the 50-day EMA, at 1.2539.
• Energy prices trade on the front foot, helping aide NOK toward the top-end of the G10 pile. A better-than-expected retail sales release has also helped, with May sales including auto fuel rising by 1.2% M/M vs. Exp. 0.2%. EUR/NOK reversed off a weekly high of 11.8537 in response.
• A busy day in Sweden on Thursday is marked by a slew of economic data releases before the June policy rate decision. The Riksbank are expected to hike by 25bps, however there may be upside risks. Elsewhere on Thursday, second tier releases in the form of Australia and Japan retail sales precede the more significant German and Spanish CPI data.

Thursday Data Calendar

Date	GMT/Local	Impact	Flag	Country	Event
29/06/2023	2350/0850	*		JP	Retail sales (p)
29/06/2023	0130/1130	**		AU	Retail Trade
29/06/2023	0530/0730	***		DE	North Rhine Westphalia CPI
29/06/2023	0600/0800	**		SE	Retail Sales
29/06/2023	0630/0230			US	Fed Chair Jerome Powell
29/06/2023	0700/0900	***		ES	HICP (p)
29/06/2023	0700/0900	**		SE	Economic Tendency Indicator
29/06/2023	0730/0930	**		SE	Riksbank Interest Rate
29/06/2023	0800/1000	***		DE	Bavaria CPI
29/06/2023	0830/0930	**		UK	BOE M4
29/06/2023	0830/0930	**		UK	BOE Lending to Individuals
29/06/2023	0900/1100	**		EU	EZ Economic Sentiment Indicator
29/06/2023	0900/1100	***		DE	Saxony CPI
29/06/2023	1200/1400	***		DE	HICP (p)
29/06/2023	1230/0830	**		US	Jobless Claims
29/06/2023	1230/0830	**		US	WASDE Weekly Import/Export
29/06/2023	1230/0830	*		CA	Payroll employment
29/06/2023	1230/0830	***		US	GDP
29/06/2023	1400/1000	**		US	NAR Pending Home Sales
29/06/2023	1430/1030	**		US	Natural Gas Stocks
29/06/2023	1530/1130	**		US	US Bill 04 Week Treasury Auction Result
29/06/2023	1530/1130	*		US	US Bill 08 Week Treasury Auction Result
29/06/2023	1600/1800			EU	ECB Lagarde Closing Remarks at ECB Forum
29/06/2023	1630/1730			UK	BOE Tenreyro Speech at SPE