MNI ASIA OPEN: Nearing Rate Cut, Sep In Play, Fed Gov Waller

US

US FED (MNI): Fed Getting Closer To Being Able To Cut Rates-Waller
The Federal Reserve is approaching the point where easing inflation and a softening labor market should allow it to begin cutting interest rates, Governor Christopher Waller said Wednesday, though he cautioned continued progress is not assured.

• “While I don’t believe we have reached our final destination, I do believe we are getting closer to the time when a cut in the policy rate is warranted,” Waller said in prepared remarks. “The data over the past couple months shows the economy growing at a more moderate pace, labor supply and demand apparently in balance, and inflation slowing from earlier this year.”

US FED (MNI): Gov Waller Hints Strongly That September Cut Is In Play
In a speech at the Kansas City Fed today, Gov Waller is about as clearly pointing to potential for a rate cut in September as he can get without explicitly identifying a timeline (the speech in question is called "Getting Closer" - link here).

• While he acknowledges risk scenarios in either direction to the outlook, overall he is eyeing rising upside risks to unemployment, and clearly pointing to "a couple" of months of data (ie July and August CPI / payrolls which are out before the September FOMC): "I believe current data are consistent with achieving a soft landing, and I will be looking for data over the next couple months to buttress this view". Regarding inflation progress, Waller "need[s] to see a bit more evidence that this will be sustained."

US FED (MNI): Latest Beige Book Highlights Moderating Activity And Inflation
The July edition of the Fed's Beige Book (link) out today depicts a US economy in which activity and inflation have recently grown in "modest" fashion, with employment rising at a "slight pace" and labor market supply/demand in better balance. That isn't significantly different from the language used in the previous edition in May: that report noted activity "continued to expand", "employment rose at a slight pace overall", prices increased at a modest pace". But a notable change this time is that district-by-district activity appeared weaker.

• In combination with recent inflation and jobs data, the July FOMC meeting will likely bring tweaks to the characterization of current economic conditions in the 1st paragraph: this may include the language saying activity continues to expand at a "solid pace", job gains remaining "strong", and inflation remaining "elevated". Some Beige Book highlights below:

NEWS

US (MNI): Democrat Rep Schiff Calls On Biden To Withdraw From Presidential Race
Democratic House Representative, Adam Schiff (D-CA), has become the most senior Democrat to publicly urge President Biden to withdraw from the 2024 presidential race. Schiff said in a statement to the LA Times: “President Biden has been one of the most consequential presidents in our nation’s history..."But our nation is at a crossroads. A second Trump presidency will undermine the very foundation of our democracy, and I have serious concerns about whether the President can defeat Donald Trump in November.

US (MNI): Two-Thirds Of Democrats Say Biden Should Withdraw, AP-NORC
A new survey from The Associated Press-NORC has found that two-thirds of Democrats say President Biden should withdraw from the presidential race to allow the party to nominate an alternative candidate. AP notes that the survey, "sharply undercut[s] [Biden's] post-debate claim that “average Democrats” are still with him even if some “big names” are turning on him."

US (MNI): Alternative Dem Candidates Run Ahead Of Biden By 3 Points In Swing States
Democrats opposed to President Biden’s candidacy are circulating a memofrom BlueLabs Analytics that details negative polling for the president, drawn from interviews with 15,000 voters in seven swing states. The memo’s topline findings: “Alternative Democratic candidates run ahead of President Biden by an average of three points across the battleground states. Nearly every tested Democrat performs better than the President. This includes Vice President Kamala Harris who runs better than the President (but behind the average alternative).

US (MNI): Virtual Roll Call On Biden Nomination To Take Place In August-CBS:
CBS News is reporting that according to a letter sent by the Democratic National Committee to the heads of the convention rules committee a virtual roll call to formally nominate President Joe Biden as the Democratic party's presidential nominee will take place in August. There remain significant divisions within the party about the prospective date for a virtual roll call, and indeed whether one should even take place.

EUROPE (MNI): UK Seeks To Begin Reset w/EU At 18 July EPC Meeting:
The European Political Community (EPC) holds it biannual meeting at Blenhiem Palace in Oxfordshire, UK on 18 July. The EPC was established by French President Emmanuel Macron in 2022 in an effort to foster dialogue between European countries both within and without the EU on major geopolitical issues.

UK (MNI): King's Speech Outlines New Gov'ts Legislative Priorities:
King Charles III has delivered his Gracious Address in the House of Lords, outlining the legislative priorities of the new government of PM Sir Keir Starmer and his centre-left Labour party. The King says that the gov't will be "mission led and based upon the principles of security, fairness and opportunity for all".

FRANCE (MNI): Key NFP Member Lambasts Other Alliance Parties Over PM Nomination Battle:
Marine Tondelier, leader of the left-wing environmentalist Les Écologistes (The Ecologists, LE), has this morning strongly criticized fellow parties within the leftist New Popular Front (NFP) alliance amid an inability to agree on a candidate to put forward for prime minister.

ITALY (MNI): Fin Min Hopes EU Will Give Leeway In EDP Assesment To Boost Def Spending:
Reuters reporting that Italian Finance Minister Giancarlo Giorgetti has said that he hopes the European Commission will provide some leeway with regards to the excessive deficit procedure (EDP) set to be launched against Italy (and eight other EU members) on 26 July as the gov't seeks to boost defence spending.

US Treasuries Bull Flatten, Fed Beige Book Points to Slowing Economy

• Treasury futures near late session highs after bell, Fed Beige Book for July supportive amid expectations of slower economic growth tied to election uncertainty, domestic policy, inflation and geopolitical uncertainty.
• Opaque at times, Fed speak from Richmond Fed Barkin and Fed Gov Waller leaned dovish. “While I don’t believe we have reached our final destination, I do believe we are getting closer to the time when a cut in the policy rate is warranted,” Waller said in prepared remarks.
• TYU4 trades 111-13.5 last (+3) vs. -111-15 session high, nearing initial technical resistance of 111-17+ (1.382 of Apr 25-May 16-29 swing), next level at 111-31 (1.382 proj of the Apr 25 - May 16 - 29 price swing).
• Curves hold flatter profile with short end lagging late session gains, 2s10s -2.412 at -28.582. As a result, projected rate cut pricing into year end slightly cooler vs. late Tuesday levels (*): July'24 at -6.5% w/ cumulative at -1.6bp at 5.313%, Sep'24 cumulative -25.7bp (-26.6bp), Nov'24 cumulative -41.1bp (-42.9bp), Dec'24 -63.6bp (-65.4bp).
• Tsy futures dip slightly then recover (TYU4 111-11.5 last) after $13B 20Y bond auction reopen (912810UB2) comes out on the screws: 4.466% high yield vs. 4.466% WI; 2.68x bid-to-cover vs. prior month's 2.74x.
• Focus turns to Thursday's Weekly Claims, 10Y TIPS Sale, TIC Flows and upcoming earnings from M&T Bank and Blackstone on Thursday; Fifth Third, Regions Financial, Comerica, American Express and Huntington next Friday.

OVERNIGHT DATA

US DATA (MNI): Building Permits Bounce Modestly After Weak Patch
Building permits were higher than expected in June at 1446k (cons 1400k) in June after an already known upward revised 1399k (initial 1386k).

• It saw permits rise 3.4% M/M, although it’s relatively tepid after three heavy declines worth more than 10% through Mar-May, leaving permits -3.1% Y/Y.
• The increase on the month was led by a spike in the typically volatile multi-unit sector (+15.6%) whereas single unit permits were -2.3%, a fifth consecutive monthly decline.
• This rolling over in single family permits has helped narrow what was an increasingly wide gap between the two - see chart - arguably of note with single unit home construction potentially having a higher multiplier to GDP than each unit in a multi-unit setting.
• Actual starts meanwhile were also higher than expected at 1353k (cons 1300k) after an upward revised 1314k (initial 1277k).

US DATA (MNI): Mortgage Refi Applications Highest Since Aug 2022
MBA composite mortgage applications bounced a seasonally adjusted 3.9% last week after two weeks down a combined -2.8%.

• The broad trend is still intact, with applications at 45% of 2019 levels vs ~40% in late May.
• That modest uplift has come as 30Y mortgage rates have fallen from a peak of 7.29% in late April to recent averages a little below 7% (it most recently fell from 7.00% to 6.87%, the lowest since early March).
• The breakdown of applications was particularly mixed in the latest week though, with refis jumping 15% (to the highest level since Aug’22 but only to 35% of 2019 levels) in contrast to purchase applications -2.7% (54% of 2019 levels).

MARKETS SNAPSHOT

• Key market levels of markets in late NY trade:
• DJIA up 255.28 points (0.62%) at 41209.7
• S&P E-Mini Future down 70 points (-1.22%) at 5647.5
• Nasdaq down 470.5 points (-2.5%) at 18040.31
• US 10-Yr yield is down 1 bps at 4.1479%
• US Sep 10-Yr futures are up 3.5/32 at 111-14
• EURUSD up 0.0039 (0.36%) at 1.0938
• USDJPY down 2.2 (-1.39%) at 156.15
• WTI Crude Oil (front-month) up $2.14 (2.65%) at $82.90
• Gold is down $11.6 (-0.47%) at $2457.67
• European bourses closing levels:
• EuroStoxx 50 down 56.37 points (-1.14%) at 4891.46
• FTSE 100 up 22.56 points (0.28%) at 8187.46
• German DAX down 80.73 points (-0.44%) at 18437.3
• French CAC 40 down 9.22 points (-0.12%) at 7570.81

US TREASURY FUTURES CLOSE

• 3M10Y -1.414, -119.716 (L: -120.295 / H: -115.071)
• 2Y10Y -2.202, -28.372 (L: -29.914 / H: -26.743)
• 2Y30Y -1.872, -6.597 (L: -9.953 / H: -5.529)
• 5Y30Y -0.455, 29.19 (L: 26.258 / H: 29.304)
• Current futures levels:
• Sep 2-Yr futures up 0.5/32 at 102-20 (L: 102-17.25 / H: 102-21)
• Sep 5-Yr futures up 2/32 at 107-21 (L: 107-14.25 / H: 107-21.75)
• Sep 10-Yr futures up 3.5/32 at 111-14 (L: 111-03.5 / H: 111-15)
• Sep 30-Yr futures up 4/32 at 120-13 (L: 119-27 / H: 120-17)
• Sep Ultra futures up 3/32 at 127-31 (L: 127-07 / H: 128-06)

US 10Y FUTURE TECHS: (U4) Trend Structure Remains Bullish

• 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: 111-15/17+ Intraday High / 1.382 of Apr 25-May 16-29 swing
• PRICE: 111-13.5 @ 1520 ET Jul 17
• SUP 1: 110-15+/110-03 20- and 50-day EMA values
• SUP 2: 109-02+/109-00+ Low Jul 1 / Low Jun 10 and key support
• SUP 3: 108-27+ Low Jun 3
• SUP 4: 108-25+ Trendline drawn from the Apr 25 low

A bullish theme in Treasuries remains intact and this week’s gains reinforce the current set-up. Short-term pullbacks are proving to be corrective. The contract has traded through resistance at 111-10+, the Jul 8 high. This confirms a resumption of the bull cycle and has opened 111-17+ and 111-31, the 1.236 and 1.382 projection of the Apr 25 - May 16 - 29 price swing. Initial support is 110-15+, the 20-day EMA.

SOFR FUTURES CLOSE

• Sep 24 -0.015 at 94.945
• Dec 24 -0.010 at 95.355
• Mar 25 -0.005 at 95.740
• Jun 25 steady00 at 96.040
• Red Pack (Sep 25-Jun 26) +0.015 to +0.025
• Green Pack (Sep 26-Jun 27) +0.025 to +0.030
• Blue Pack (Sep 27-Jun 28) +0.020 to +0.025
• Gold Pack (Sep 28-Jun 29) +0.015 to +0.020

SOFR FIXES AND PRIOR SESSION REFERENCE RATES

SOFR Benchmark Settlements:

• 1M +0.00720 to 5.34119 (+0.01339/wk)
• 3M +0.00023 to 5.27947 (-0.00664/wk)
• 6M +0.00226 to 5.13081 (-0.03399/wk)
• 12M -0.00084 to 4.79975 (-0.06579/wk)

• Secured Overnight Financing Rate (SOFR): 5.35% (+0.01), volume: $2.061T
• Broad General Collateral Rate (BGCR): 5.34% (+0.01), volume: $790B
• Tri-Party General Collateral Rate (TGCR): 5.33% (+0.00), volume: $776B
• (rate, volume levels reflect prior session)

• Daily Effective Fed Funds Rate: 5.33% (+0.00), volume: $85B
• Daily Overnight Bank Funding Rate: 5.32% (+0.00), volume: $234B

FED Reverse Repo Operation

RRP usage recedes up to $399.401B from $409.594B on Tuesday. Number of counterparties at 69 from 67 prior. Today's usage compares to $327.066B on Monday, April 15 -- the lowest level since mid-May 2021.

PIPELINE $8B Morgan Stanley 4Pt Priced

• Date $MM Issuer (Priced *, Launch #)
• 7/17 $8B *Morgan Stanley $1.5B 4NC3 +77, $1B 4NC3 SOFR+94, $2.25B 6NC5 +97, $3.25B 11NC10 +117
• 7/17 $3B #Greensaif Pipelines $1.4B 12Y +170, $1.6B 18Y +195
• 7/17 $2.7B #World Bank (IBRD) $2B 3Y SOFR+27, $700M 2031 Tap SOFR+45
• 7/17 $2.5B #Blackrock Funding $800M 3Y +40, $500M +10Y +80, $1.2B +30Y +100
• 7/17 $Benchmark State Street PerpNC5 6.875%a
• 7/17 $1Y #Gvt of Hong Kong 3Y 12
• 7/17 $500M #Mitsubishi 5.25Y +110

EGBs-GILTS CASH CLOSE: Curves Flatten Post-UK CPI, Pre-ECB

The Gilts underperformed Wednesday after firmer-than-expected UK CPI data, with EGBs trading mixed ahead of Thursday's ECB decision.

• The UK curve bear flattened modestly after inflation aggregates came in above expected amid a "noisy" report.
• Trade was mixed for the rest of the session, with highs for yields hit in early afternoon on a 2nd consecutive day of solid US data (this time, housing starts).
• But sliding equities helped boost Bunds and Gilts toward the end of the session, with the German curve twist flattening and the UK's bear flattening.
• Periphery spreads widened modestly, mirroring the risk-off move in equities.
• Thursday kicks off with UK labour market data (MNI preview is here), with the ECB the focus of the session (preview here).

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is up 1.2bps at 2.775%, 5-Yr is up 0.4bps at 2.397%, 10-Yr is down 0.6bps at 2.421%, and 30-Yr is down 1.9bps at 2.597%.
• UK: The 2-Yr yield is up 3.2bps at 4.017%, 5-Yr is up 2.8bps at 3.915%, 10-Yr is up 2.7bps at 4.076%, and 30-Yr is up 1.8bps at 4.566%.
• Italian BTP spread up 2.5bps at 129.7bps / Spanish up 0.8bps at 77.5bps

FOREX JPY & CHF Main Beneficiaries of Risk Off Sentiment

• JPY remains considerably stronger against all others, as a multitude of triggers push USDJPY (-1.30%) to fresh pullback lows. Considerable weakness for global equity indices, the string of recent weak data in the US and the threat of BOJ intervention continue to be primary drivers behind the USDJPY selloff.
• Nearby support in USDJPY has been cleared, with the pace of the decline picking up on the break of Y156.83 - the 38.2% retracement of the Dec'23 - Jul'24 bull leg. USDJPY’s low so far on the move has been 156.10. Further out, 155.72 (Jun 12 low) will be in focus.
• A weaker dollar backdrop pervades, with the USD index 0.4% lower on the session. Desks have noted Trump's appearance in Bloomberg Businessweek posted late yesterday, within which he flagged his concern with the strong dollar exchange rate, citing weakness in both JPY and CNY as causing issues with international trade.
• With analysts also noting that carry trade strategies may be losing their attractiveness due to the narrowing of rate differentials, other funding currencies such as the CHF also exhibited significant strength. USDCHF sits 1% lower on the session, and price action may have been exacerbated by a break of trendline support, drawn from the December lows. Concurrently, USDCHF has also broken below the 200-day MA, which intersects at 0.8880. Spot now trades at a 4-week low around 0.8850. Below here, the June lows and strong pivot support is seen between 0.8820/27. 50-day EMA resistance moves down to 0.8980.
• Notably, GBPUSD broke above the 1.30 level and touched a year-to-date high on the back of a moderate beat for UK CPI. Additionally, EURUSD rose to its highest level since March 14. A clear break of key resistance at 1.0916, Jun 4 high, had been the next key hurdle for bulls and price action confirms the bullish trend structure for the pair.
• Focus Thursday turns to Australian employment data, UK labour market figures and the July ECB meeting and press conference.

THURSDAY DATA CALENDAR

Date	GMT/Local	Impact	Flag	Country	Event
18/07/2024	2350/0850	**		JP	Trade
18/07/2024	0130/1130	***		AU	Labor Force Survey
18/07/2024	0600/0700	***		UK	Labour Market Survey
18/07/2024	-			US	ECB Meeting
18/07/2024	0900/1100	**		EU	Construction Production
18/07/2024	1215/1415	***		EU	ECB Deposit Rate
18/07/2024	1215/1415	***		EU	ECB Main Refi Rate
18/07/2024	1215/1415	***		EU	ECB Marginal Lending Rate
18/07/2024	1230/0830	***		US	Jobless Claims
18/07/2024	1230/0830	**		US	WASDE Weekly Import/Export
18/07/2024	1230/0830	**		US	Philadelphia Fed Manufacturing Index
18/07/2024	1245/1445			EU	ECB Monetary Policy Press Conference
18/07/2024	1415/1615			EU	ECB's Lagarde presents MonPol decision on podcast
18/07/2024	1430/1030	**		US	Natural Gas Stocks
18/07/2024	1530/1130	*		US	US Bill 08 Week Treasury Auction Result
18/07/2024	1530/1130	**		US	US Bill 04 Week Treasury Auction Result
18/07/2024	1605/1205			US	San Francisco Fed's Mary Daly
18/07/2024	1700/1300	**		US	US Treasury Auction Result for TIPS 10 Year Note
18/07/2024	1745/1345			US	Dallas Fed's Lorie Logan
18/07/2024	2000/1600	**		US	TICS