MNI ASIA OPEN: Tsys Retreat Near Pre-Jobs Data Levels

US TSYS Back Near Pre-Jobs Data Lows

• Treasuries are broadly lower after the bell, futures nearly back to Friday's pre-jobs levels as imminent recession concerns continued to cool Tuesday. In turn -- projected rate cut pricing into year end continue to cool, current vs. early Tuesday levels (*): Sep'24 cumulative -44.3bp (-45.3bp), Nov'24 cumulative -75.9bp (-80.8bp), Dec'24 -105.8bp (-110.8bp).
• The NY Fed’s Q2 household debt & credit report showed only a modest increase in transition rates to delinquency and serious delinquency after more marked increases in Q1, ruling out a sharper increase that could have been associated with more recessionary conditions.
• The trade deficit narrowed by less than expected in June to a seasonally adjusted $73.1bn (cons $72.5bn) after $75.0bn. It leaves a deficit still tracking at the ~3.1% GDP seen in May for a widening from the 2.9% GDP in Q1.
• Treasury futures held near lows (TYU4 113-11, -23.5) after $58B 3Y note auction (91282CLG4) came out on the screws: 3.810% high yield vs. 3.809% WI; 2.55x bid-to-cover vs. 2.67x prior.
• Look ahead: limited data Wednesday includes MBA Mortgage Apps and Consumer Credit, Boston Fed Collins roadshow not expected to discuss policy, no Q&A, US Tsy $42B 10Y Note auction (91282CLF6).

NEWS

US (MNI): Kamala Harris Approval Ties Trump, Eclipses Biden
Vice President Kamala Harris' approval rating has surged since taking the presumptive, and subsequent formal, Democratic Party presidential nomination, tying former President Donald Trump's 43.4% approval rating and eclipsing President Biden's current approval rating of 39.1%

• Harris' current level of approval has only been bettered by Biden on one occasion (March 13, 2023) since late 2021.
• Harris' strength appears to counter concerns from some Democrats, prior to Biden's withdrawal from the race, that Harris suffers the same, or worse, approval than Biden.
• Her approval is likely to increase further during the Democratic National Convention, which kicks off in just under two weeks and is usually associated with a positive news cycle and polling bounce.

Figure 1: Vice President Kamala Harris Favourability, Over Time

US (MNI): Harris Chooses Walz As VP Running Mate, CNN
CNN reporting that Vice President Kamala Harris has selected Minnesota Governor Tim Walz (D-MN) as her running mate for the 2024 Democratic Party Presidential ticket.

• Walz's selection edges out Pennsylvania Governor Josh Shapiro (D-PA), who had been touted as the preferred option of the Democratic Party establishment but faced backlash from progressives for his stance on Israel and a centrist position on several core Democrat policies.
• Walz, a moderate from a key midwestern state - albeit one that is unlikely to be a swing state in November - is a safe choice who could derisk Republican attack lines that Harris is too liberal.
• The Minnesota Governor may also extend the appeal of the Harris campaign to White working-class voters in the Rust Belt who could ultimately determine the outcome of the election.

LATAM (MNI): VENEZUELA-Top Prosecutor Launches Criminal Investigation Into Opposition:
Venezuela's top prosecutor, Attorney General Tarek William Saab, has announced a criminal investigation into opposition leaders Maria Corina Machado and Edmundo González. The case involves an open letter sent by the pair calling for the country's armed forces to turn on President Nicolas Maduro, claiming that they had won an 'avalanche' victory in the 28 July presidential election.

UKRAINE (MNI): FSB Claim Ukrainian 'Provocation' Repelled On Kursk Border:
The interim governor of Russia's Kursk region, bordering Ukraine to the south, has claimed that Russian armed forces and the FSB security services have repelled an attempted incursion by around 100 fighters from within Ukraine.

US DATA

US DATA (MNI): Trade Data Show Signs Of Solid Domestic Demand In June
The trade deficit narrowed by less than expected in June to a seasonally adjusted $73.1bn (cons $72.5bn) after $75.0bn. It leaves a deficit still tracking at the ~3.1% GDP seen in May for a widening from the 2.9% GDP in Q1.

• The widening in recent months has been goods led, moving out to a deficit of 4.2% GDP, whilst the services surplus continues to hold at 1.0% GDP.
• However, compared to pre-pandemic historical averages, it’s the services surplus that has failed to return to pre-pandemic levels (averaged 1.4% GDP) whereas the goods deficit is consistent.
• In real terms, goods exports and imports bounced on the month, with exports 3.2% M/M after -0.7% and imports +0.9% M/M after -0.4%.
• The import components point to increasingly positive signs for domestic demand, with consumer import volumes rising 5.6% Y/Y and capital goods volumes rising 14.5% Y/Y.
• The latter have continued what’s been an impressive upturn in levels since the turn of the year.

US DATA (MNI): Delinquencies Only Saw Marginal Drift Higher In Q2
The NY Fed’s Q2 household debt & credit report showed only a modest increase in transition rates to delinquency and serious delinquency after more marked increases in Q1, ruling out a sharper increase that could have been associated with more recessionary conditions.

• Credit cards are the most notable, with transition to 30+ days at 9.05% (+0.1pp on the quarter) and 7.2% for 90+ days (+0.3pp).
• These are notably above pre-pandemic levels but aggregate delinquencies remain favorable historically, with the greatest relative change in student loans after debt relief measures.
• Aggregate for 30+ days at 3.95% in Q2 from 3.88% in Q1 vs 4.65% averaged in 2019; 90+ days at 1.59% from 1.54% in Q1 vs 2.34% average in 2019 - see chart for longer term comparisons.
• The press release noted that homeowners continued to increase balances on HELOC as an alternative way to extract home equity. Our policy team notes researchers gave reporters additional color: Home equity lines of credit, after having declined steadily in the post-financial crisis period through 2021 began increasing in 2022 and has grown about 20% since. However, it's unclear if the trend will continue and will depend on the direction of home prices, the researchers said.
• More broadly, overall consumer debt is overwhelmingly high quality and bankruptcies and foreclosures are low compared to historical values, meaning consumers are still in a decent place, Fed bank researchers told reporters.

MARKETS SNAPSHOT

• Key market levels of markets in late NY trade:
• DJIA up 566.46 points (1.46%) at 39259.93
• S&P E-Mini Future up 94.5 points (1.81%) at 5311.25
• Nasdaq up 304.3 points (1.9%) at 16500.21
• US 10-Yr yield is up 9.8 bps at 3.8862%
• US Sep 10-Yr futures are down 22.5/32 at 113-12
• EURUSD down 0.0026 (-0.24%) at 1.0926
• USDJPY up 0.85 (0.59%) at 145.02
• WTI Crude Oil (front-month) up $0.22 (0.3%) at $73.15
• Gold is down $20.84 (-0.86%) at $2389.93
• European bourses closing levels:
• EuroStoxx 50 up 3.62 points (0.08%) at 4575.22
• FTSE 100 up 18.46 points (0.23%) at 8026.69
• German DAX up 15.32 points (0.09%) at 17354.32
• French CAC 40 down 18.95 points (-0.27%) at 7130.04

US TREASURY FUTURES CLOSE

• 3M10Y +10.507, -132.239 (L: -142.302 / H: -130.605)
• 2Y10Y +3.466, -10.122 (L: -15.259 / H: -8.939)
• 2Y30Y +3.876, 18.657 (L: 11.496 / H: 19.99)
• 5Y30Y +1.456, 44.28 (L: 38.632 / H: 45.759)
• Current futures levels:
• Sep 2-Yr futures down 6.625/32 at 103-11.125 (L: 103-08.875 / H: 103-16.75)
• Sep 5-Yr futures down 14/32 at 109-2 (L: 108-30.25 / H: 109-16)
• Sep 10-Yr futures down 23/32 at 113-11.5 (L: 113-07 / H: 114-03)
• Sep 30-Yr futures down 1-23/32 at 123-22 (L: 123-13 / H: 125-14)
• Sep Ultra futures down 2-09/32 at 132-3 (L: 131-23 / H: 134-18)

US 10YR FUTURE TECHS: (U4) Bull Cycle Remains In Play

• RES 4: 116-00 Round number resistance
• RES 3: 115-30+ 2.764 proj of the Apr 25 - May 16 - 29 price swing
• RES 2: 115-17 2.618 proj of the Apr 25 - May 16 - 29 price swing
• RES 1: 115-03+ High Aug 5
• PRICE: 113-11+ @ 1355 ET Aug 6
• SUP 1: 112-21/01+ Low Aug 2 / 1
• SUP 2: 111-21+/110-27+ 20- and 50-day EMA values
• SUP 3: 109-17+ Low Jul 5
• SUP 4: 109-05 Trendline drawn from the Apr 25 low

Treasuries traded sharply higher last week and remain firm. Monday's gains reinforce the current bullish condition. Note that MA studies are in a bull-mode position too and the recent breach of 111-01, Jun 14 high, confirmed a resumption of the uptrend. Scope is seen for 115-17, a Fibonacci projection. Initial support is 112-21, Friday’s intraday low. The contract has pulled back from yesterday’s high, a move lower is considered corrective.

SOFR FUTURES CLOSE

• Sep 24 -0.080 at 95.205
• Dec 24 -0.130 at 95.795
• Mar 25 -0.150 at 96.260
• Jun 25 -0.125 at 96.545
• Red Pack (Sep 25-Jun 26) -0.10 to -0.07
• Green Pack (Sep 26-Jun 27) -0.09 to -0.08
• Blue Pack (Sep 27-Jun 28) -0.095 to -0.085
• Gold Pack (Sep 28-Jun 29) -0.095 to -0.09

SOFR FIXES AND PRIOR SESSION REFERENCE RATES

SOFR Benchmark Settlements:

• 1M -0.03788 to 5.28952 (-0.06252/wk)
• 3M -0.07590 to 5.05651 (-0.17122/wk)
• 6M -0.13020 to 4.65546 (-0.35217/wk)
• 12M -0.14659 to 4.14598 (-0.45010/wk)

• Secured Overnight Financing Rate (SOFR): 5.32% (-0.03), volume: $2.199T
• Broad General Collateral Rate (BGCR): 5.32% (-0.01), volume: $809B
• Tri-Party General Collateral Rate (TGCR): 5.32% (-0.01), volume: $789B
• (rate, volume levels reflect prior session)

• Daily Effective Fed Funds Rate: 5.33% (+0.00), volume: $86B
• Daily Overnight Bank Funding Rate: 5.32% (+0.00), volume: $231B

FED Reverse Repo Operation:

RRP usage falls below $300B for the first time since mid-May 2021 to $291.958B vs. $316.246B on Monday. Number of counterparties slips to 60 from 63 prior.

PIPELINE: $2.5B Toyota Motor Credit 3Pt Debt Launched 

• Date $MM Issuer (Priced *, Launch #)
• 8/6 $2.5B #Toyota Motor Credit $750M 2Y +60, $750M 2Y SOFR+77, $1B 5Y +87.5
• 8/6 $1.2B #Virginia Electric & Power $600M 10Y +120, $600M 30Y +140
• 8/6 $1B #Targa Resources +10Y +160
• 8/6 $700M #Entergy Louisiana 10Y +130
• 8/6 $Benchmark PPL Capital Funding 10Y +143

FOREX Risk Stabilization Prompts Relatively Contained Currency Ranges

• The more stable session for risk sentiment and slightly firmer equity benchmarks have prompted less volatility in currency markets on Tuesday. Ranges throughout the US session have been relatively contained, with the Japanese yen on the back foot following yesterday’s surge higher.
• USDJPY stands 0.85% on the day and after a strong rally overnight, the pair has been confined within its APAC trading range. 144.00 appears to be offering some short-term support with price action consolidating above 145.00 as we approach Wednesday’s APAC crossover.
• The bounce off Monday lows for USD/JPY has provided a sense of stability in the pair, but prices remain at risk of a resumption of the short-covering JPY rally, with both leveraged funds and asset managers still maintaining a deep net short JPY position.
• The likes of AUD and NZD have recovered around half a percent, with the former relatively outperforming following a modest hawkish lean to Tuesday’s RBA meeting.
• Despite RBA Governor Bullock downplaying this week's financial market volatility, Monday’s price action emphasised the Aussie’s sensitivity to a turn in risk, with AUDJPY exhibiting a huge 5.75% range. Furthermore, price action across several AUD crosses highlight the vulnerability to a further deterioration for global market sentiment.
• EURUSD sits 0.25% in the red, which reinforces the close negative correlation with the DXY this week, whereas GBP has underperformed on the session. Cable is down 0.6% and given the extreme focus on the yen Monday, today’s move might reflect positioning dynamics, with GBP still the standout bullish bet among investors, according to CFTC data.
• This has helped EURGBP climb back above 0.8600, as the cross remains in bull mode following the weekly close back above the 0.8500 pivot area.
• New Zealand employment and China trade data in focus on Wednesday, before German IP and the BOC minutes highlight a relatively quiet economic calendar.

WEDNESDAY DATA CALENDAR

Date	GMT/Local	Impact	Flag	Country	Event
07/08/2024	0600/0800	**		DE	Trade Balance
07/08/2024	0600/0800	**		DE	Industrial Production
07/08/2024	0645/0845	*		FR	Foreign Trade
07/08/2024	0900/1000	**		UK	Gilt Outright Auction Result
07/08/2024	1100/0700	**		US	MBA Weekly Applications Index
07/08/2024	-	***		CN	Trade
07/08/2024	1400/1000	*		CA	Ivey PMI
07/08/2024	1430/1030	**		US	DOE Weekly Crude Oil Stocks
07/08/2024	1700/1300	**		US	US Note 10 Year Treasury Auction Result
07/08/2024	1730/1330			CA	BOC Minutes (Summary of Deliberations)
07/08/2024	1900/1500	*		US	Consumer Credit