MNI ASIA OPEN: Preparing for Hawkish CB Eco-Summit

US

FED: Reuters reports Barkin (’24 voter typically at the middling/leaning hawkish part of the FOMC spectrum) as saying consumer spending and economic strength make it possible the US economy could reaccelerate before inflation cools.

• If inflation remains high and demand gives ‘no signal’ that it is likely to drop then it would require tighter monetary policy, and recent bond yield moves are not a sign of inappropriate market tightening but rather likely a response to strong economic data.
• He doesn’t offer a view for the Sept FOMC decision, for which there is currently just +3bp priced.
• It follows earlier remarks that if the US has a recession it would likely be a less severe one whilst seeing the Fed risking credibility if it were to consider changing its 2% inflation target.

US: White House National Security Advisor Jake Sullivan has confirmed to reporters that President Biden will travel to India to attend the G20 leaders summit taking place September 9-10.

• Sullivan said that Vice President Kamala Harris will separately attend the ASEAN summit in September.
• According to Sullivan, Biden will focus on, "modernization of development banks," adding, "Biden's supplemental budget request for World Bank and IMF is 'strategically necessary' to support developing countries."
• Sullivan says, "US support for world bank, IMF are not against China," but "institutions like IMF, World Bank are best way to mobilize substantial capital in non-coercive manner, compared to China's belt and road initiative."
• The summit will be a rare opportunity for Biden to engage bilaterally with Chinese President Xi Jinping, also expected to be in attendance. At last year's G20 summit in Bali, the two leaders held a nearly-four-hour meeting and agreed to roll back tensions.
• A similar meeting may happen on the margins of the Delhi conference. Especially considering recent overtures by both Beijing and Washington suggesting pragmatic competition may be preferable to the fissures which have emerged in the US-China relationship since the 'spy balloon' incident in January.

US TSYS Markets Roundup

• Rates are trading mixed after the bell, curves scaling back Monday's curve steepening with short end rates underperformed all day. Contributing Block/cross in late trade was a large Tsy 5Y/30Y Ultra flattener posted at 1517:53ET: -20,852 FVU3 105-14.25, sell through 105-16.5 post-time bid (DV01 $857k) vs. +4,363 WNU3 123-20, post-time bid (DV01 $856.8).
• Front month Sep'23 Treasury futures extended cycle lows with 10s tapping 109-28 (-6.5) overnight and again at midmorning before see-sawing back to 109-01 at the moment, yield marking 4.3618% this morning, the highest level since late 2007.
• Rate hike projections through year end inched higher: Sep 20 FOMC is 16% w/ implied rate change of +4bp to 5.369%. November cumulative of +11.6bp at 5.445, December cumulative of 10.8bp at 5.437%. Fed terminal at 5.44% in Nov'23.
• Little react to morning data: Philly Fed non-manufacturing survey saw regional activity slip in August, falling to -13.1 vs +1.4 prior, while a drop in Existing home sales -2.2% M/M (cons -0.2%) spurred some short covering.
• Trading desks are anticipating a hawkish tone from Fed Chairman Powell at the economic summit in Jackson Hole that informally kicks off Thursday evening and runs through Saturday.

OVERNIGHT DATA

• US AUG. PHILADELPHIA FED NON-MANUFACTURING INDEX -13.1
  
• FIRM-LEVEL BUSINESS ACTIVITY INDEX -0.5 IN AUG VS 2.0 IN JULY
• NEW ORDERS INDEX -16.0 IN AUG VS -13.3 IN JULY
• FULL-TIME EMPLOYMENT INDEX 8.1 IN AUG VS 11.9 IN JULY
• WAGE AND BENEFIT COST INDEX 33.7 IN AUG VS 39.8 IN JULY

The Philly Fed non-manufacturing survey saw regional activity slip in August, falling to -13.1 vs +1.4 prior, whilst new orders printed its third consecutive negative reading with -16.0 (-3pts).

• Own prices: 3.0% over the past four quarters, down from the 4.0% in May. However, they still expect prices to rise 4.0% over the next four quarters for unchanged from when last asked in May.
• Employee compensation costs (wages plus benefits on a per employee basis): seen rising 4.0% over the next four quarters, unchanged from May.
• Slight progress on consumer inflation expectations with one-year median forecast 4.8% down slightly from 5.0% in May. More progress in the long-run (10-year average) rate at 3.0% vs 4.0% in May.

Existing Home Sales: Existing home sales saw a larger decline than expected in July, falling -2.2% M/M (cons -0.2%) after an unrevised -3.3% M/M.

• Sales have now fallen more than 10% since a surprise 14% surge back in February and close in on cycle lows again, hindered by a renewed increase in long-run Treasury yields and with them mortgage rates, with the 30Y conforming rate since pushing to joint highs since 2001 in weekly August data.
• This downtrend, with the level of sales 20% below pre-pandemic levels, remains in stark contrast with new build sales back at pre-pandemic averages.

• US REDBOOK: AUG STORE SALES +1.3% V YR AGO MO
• US REDBOOK: STORE SALES +2.9% WK ENDED AUG 19 V YR AGO WK

MARKETS SNAPSHOT

• DJIA down 124.8 points (-0.36%) at 34338.18
• S&P E-Mini Future down 6.25 points (-0.14%) at 4406.25
• Nasdaq up 27.8 points (0.2%) at 13525.05
• US 10-Yr yield is down 1.2 bps at 4.3261%
• US Sep 10-Yr futures are down 1/32 at 109-1.5
• EURUSD down 0.0047 (-0.43%) at 1.0849
• USDJPY down 0.34 (-0.23%) at 145.88
• WTI Crude Oil (front-month) down $0.37 (-0.46%) at $80.35
• Gold is up $2.42 (0.13%) at $1897.36

• EuroStoxx 50 up 35.5 points (0.84%) at 4260.37
• FTSE 100 up 12.94 points (0.18%) at 7270.76
• German DAX up 102.34 points (0.66%) at 15705.62
• French CAC 40 up 42.82 points (0.59%) at 7240.88

US TREASURY FUTURES CLOSE

• 3M10Y -1.814, -112.462 (L: -119.089 / H: -108.232)
• 2Y10Y -4.878, -71.57 (L: -71.769 / H: -65.47)
• 2Y30Y -7.603, -63.338 (L: -63.553 / H: -54.131)
• 5Y30Y -5.378, -7.426 (L: -7.673 / H: -0.608)
• Current futures levels:
• Sep 2-Yr futures down 3/32 at 101-6.375 (L: 101-06 / H: 101-09.875)
• Sep 5-Yr futures down 3.75/32 at 105-16 (L: 105-14.25 / H: 105-23)
• Sep 10-Yr futures down 1/32 at 109-1.5 (L: 108-28 / H: 109-09)
• Sep 30-Yr futures up 15/32 at 118-11 (L: 117-18 / H: 118-16)
• Sep Ultra futures up 25/32 at 123-21 (L: 122-20 / H: 123-25)

US 10Y FUTURE TECHS: (U3) Bears Remain In The Driver’s Seat

• RES 4: 111-29 High Aug 10
• RES 3: 111-21+ 50-day EMA
• RES 2: 110-29 High Aug 11
• RES 1: 109-28/110-16+ High Aug 18 / 20-day EMA
• PRICE: 109-05.5 @ 1215 ET Aug 22
• SUP 1: 108-26+ Low Oct 21 2022 (cont) and a major support
• SUP 2: 108-12 1.00 proj of the Jul 18 - Aug 4 - Aug 10 price swing
• SUP 3: 107-29+ 2.0% 10-dma envelope
• SUP 4: 107.17 1.236 proj of the Jul 18 - Aug 4 - Aug 10 price swing

The trend direction in Treasuries remains down and the contract started the week on a bearish note, breaking to a fresh cycle low. The move down confirms a resumption of the downtrend and maintains the bearish price sequence of lower lows and lower highs. Last week’s break of support at 109.24, Aug 4 low, also confirmed a continuation of the trend. The focus is on 108.12, a Fibonacci projection. Firm resistance is 110-16+, the 20-day EMA.

SOFR FUTURES CLOSE

• Sep 23 -0.008 at 94.578
• Dec 23 -0.020 at 94.565
• Mar 24 -0.040 at 94.725
• Jun 24 -0.055 at 950
• Red Pack (Sep 24-Jun 25) -0.065 to -0.05
• Green Pack (Sep 25-Jun 26) -0.045 to -0.02
• Blue Pack (Sep 26-Jun 27) -0.01 to +0.010
• Gold Pack (Sep 27-Jun 28) +0.010 to +0.025

SHORT TERM RATES

SOFR Benchmark Settlements:

• 1M -0.00248 to 5.31530 (+.00103/wk)
• 3M +0.00573 to 5.38307 (-0.00010/wk)
• 6M +0.01788 to 5.44690 (+0.00236/wk)
• 12M +0.03244 to 5.38815 (+0.00477/wk)

• Daily Effective Fed Funds Rate: 5.33% volume: $100B
• Daily Overnight Bank Funding Rate: 5.31% volume: $263B

• Secured Overnight Financing Rate (SOFR): 5.30%, $1.322T
• Broad General Collateral Rate (BGCR): 5.27%, $549B
• Tri-Party General Collateral Rate (TGCR): 5.27%, $540B
• (rate, volume levels reflect prior session)

FED REVERSE REPO OPERATION

Repo operation recedes to $1,812.294B w/98 counterparties, compared to $1,824.788B 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 $2.35B Charles Schwab 2Pt Launched, 3Y SOFR Leg Dropped

• Date $MM Issuer (Priced *, Launch #)
• 08/22 $4B *EIB 5Y SOFR+33
• 08/22 $2.35B #Charles Schwab $1B 3Y +115, $1.35B 11NC10 +180
• 08/22 $600M #DBJ (Development Bank of Japan) 3Y SOFR+62
• Expected this week:
• 08/23 $Benchmark Kommunalbanken Norway 5Y SOFR+45a
• 08/-- $Benchmark Asian Development Bank (ADB) 5Y TBA

EGBs-GILTS CASH CLOSE: Bullish Tone Ahead Of PMIs

The UK curve bull steepened with Germany's bull flattening Tuesday, with yields closing near session lows as the rally accelerated in late afternoon.

• Gilts outperformed Bunds, with the UK short- and long-ends outperforming the belly. The 30Y segment in Europe outperformed overall (the case was the same in the US, suggesting duration was back in style).
• At the margins, the afternoon rally was probably assisted by soft US existing home sales data, but perhaps moreso with an eye on Wednesday's release of flash August PMIs, which are expected to show a further deterioration in economic activity in the Eurozone and UK.
• The core FI rally was even more impressive considering today saw the busiest day of primary Euro issuance in over 6 weeks (E13.7bln per BBG calculations). Additionally, Finland and the EFSF announced syndications which could take place Wednesday.
• Periphery EGB spreads to Bunds closed tighter, again led by BTPs.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is down 2.9bps at 3.087%, 5-Yr is down 5.1bps at 2.654%, 10-Yr is down 5.8bps at 2.645%, and 30-Yr is down 7.5bps at 2.725%.
• UK: The 2-Yr yield is down 9bps at 5.146%, 5-Yr is down 6.7bps at 4.683%, 10-Yr is down 8.4bps at 4.645%, and 30-Yr is down 9bps at 4.835%.
• Italian BTP spread down 3.4bps at 166bps / Spanish down 1.6bps at 103.2bps

FOREX USD Advances, EURJPY Retraces Monday Rally

• With US 2-year yields consolidating above 5%, the greenback has made furtive gains on Tuesday with the USD index advancing around a quarter of a percent. However, outperformance at the long-end of the curve has propped up the Japanese yen, which has traded in a more constructive manner throughout the session.
• EURJPY's reversal off highs has been notable, after the cross touched 159.49, the highest rate since Sept'08. The moves strengthen the importance of resistance layered in the cross at 159.21-49. A break and close above these levels is needed to resume the underlying bull trend.
• In similar vein, EURUSD (-0.39%) trades just 20 pips above the daily lows of 1.0833, cementing the single currency's status as the poorest G10 performer Tuesday. Volumes across futures have been solid: EUR futures have seen strong participation across US hours, putting daily cumulative volumes over 30% above average around the European close - countering more muted trade on Monday. Equity markets have rolled off highs, putting the e-mini S&P through yesterday's close and into negative territory - underpinning further strength in haven FX and the greenback.
• The New Zealand dollar is the strongest in G10, prompting a near 0.75% retracement lower for EURNZD, following an impressive 4.2% rally across August.
• The strong early performance for equities and the positive session for metals have maintained a more supportive tone for some higher beta emerging market currencies, namely the South African Rand and the Brazilian Real, both rising around 1%. The latter has also benefitted from the headlines regarding an imminent vote in the lower house to pass the new fiscal framework.
• New Zealand retail sales headline the docket overnight before European flash PMIs will give the latest indication of the health of Eurozone economies. Canada retail sales, US PMIs and new home sales data is also scheduled.

WEDNESDAY DATA CALENDAR

Date	GMT/Local	Impact	Flag	Country	Event
23/08/2023	2300/0900	***		AU	Judo Bank Flash Australia PMI
23/08/2023	0030/0930	**		JP	Jibun Bank Flash Japan PMI
23/08/2023	0715/0915	**		FR	S&P Global Services PMI (p)
23/08/2023	0715/0915	**		FR	S&P Global Manufacturing PMI (p)
23/08/2023	0730/0930	**		DE	S&P Global Services PMI (p)
23/08/2023	0730/0930	**		DE	S&P Global Manufacturing PMI (p)
23/08/2023	0800/1000	**		EU	S&P Global Services PMI (p)
23/08/2023	0800/1000	**		EU	S&P Global Manufacturing PMI (p)
23/08/2023	0800/1000	**		EU	S&P Global Composite PMI (p)
23/08/2023	0830/0930	***		UK	S&P Global Manufacturing PMI flash
23/08/2023	0830/0930	***		UK	S&P Global Services PMI flash
23/08/2023	0830/0930	***		UK	S&P Global Composite PMI flash
23/08/2023	1100/0700	**		US	MBA Weekly Applications Index
23/08/2023	1230/0830	**		CA	Retail Trade
23/08/2023	1345/0945	***		US	IHS Markit Manufacturing Index (flash)
23/08/2023	1345/0945	***		US	S&P Global Services Index (flash)
23/08/2023	1400/1000	***		US	New Home Sales
23/08/2023	1400/1600	**		EU	Consumer Confidence Indicator (p)
23/08/2023	1430/1030	**		US	DOE Weekly Crude Oil Stocks
23/08/2023	1530/1130	**		US	US Treasury Auction Result for 2 Year Floating Rate Note
23/08/2023	1700/1300	**		US	US Treasury Auction Result for 20 Year Bond