MNI (LONDON) - Highlights:
- CPI in focus, but weekly claims data also of key importance
- USD on the backfoot, helping EUR/USD, GBP/USD crest at new multi-week highs
- NOK underperformance extends as markets extend reaction to soft CPI
US TSYS: CPI Headlines An Important Docket With TY Resistance Intact For Now
- Treasuries trade narrowly twist flatter and within recent ranges ahead of US CPI.
- Analysts look for core CPI at 0.2% M/M but with an unusually wide range to unrounded estimates owing to volatility in various transportation-related service components that could swing supercore figures around. See the full MNI preview here.
- Weekly jobless claims are also watched after the recent trend higher with continuing claims at their highest since late 2021. The data are followed by appearances from the more hawkish FOMC participants and 30Y supply in a test for the very long end after the week’s 3Y and 10Y auctions both stopped through.
- Cash yields are 0.8bp higher (2s and 3s) to 0.5bp lower (30s). 2s10s at -34.2bps keeps to the week’s narrow range as it consolidates a trimming of last week’s high of -27.4bps having swung strongly from a YTD low of -50.8bps in late June.
- TYU4 is little changed on the day at 110-16 on solid volumes (certainly for a pre-CPI overnight session) approaching 300k. Yesterday saw 110-20 probe latest resistance at 110-20+ (Jul 8 high) with attention on the bull trigger at 111-01 (Jun 14 high).
- Data: CPI Jun (0830ET), Weekly jobless claims (0830ET), Real av earnings Jun (0830ET), Monthly budget statement Jun (1400ET)
- Fedspeak: Bostic on economic inclusion (1115ET, just Q&A), Musalem on economy/mon pol (1300ET, just Q&A)
- Note/bond issuance: US Tsy $22B 30Y Bond auction re-open - 912810UA4 (1300ET)
- Bill issuance: US Tsy $90B 4W, $85B 8W bill auctions (1130ET)
STIR: Fed Rates Rangebound Ahead Of CPI, Hawkish FOMC Members Follow
- Fed Funds implied rates hold at familiar levels ahead of US CPI although with September cut odds trimmed fractionally.
- Cumulative cuts from 5.33% effective: 1bp Jul, 19bp Sep, 31bp Nov, 51bp Dec and 66bp Jan.
- Gov Cook (voter) overnight said her baseline is for a soft landing where there is continued disinflation toward target over time without much of a rise in unemployment. Leaning dovish, she said the Fed is “very attentive” to changes in unemployment and with “nonlinearities” a risk in the job market slowdown.
- Today’s Fedspeak comes after US CPI (and jobless claims) and from some of the more hawkish members of the FOMC, although with Bostic’s topic perhaps limiting monetary policy relevant headlines at first.
- 1115ET - Bostic (’24 voter) speaks on economic inclusion (no text). He last spoke on Jun 27 (i.e. post FOMC, pre payrolls) saying he still expected one rate cut this year, in Q4, before four cuts in 2025. He saw risks becoming more balanced but with inflation still the biggest concern.
- 1300ET - Musalem (’25 voter) in a Q&A on the economy/mon pol (no text). The somewhat new St Louis Fed president was hawkish on Jun 18: it could take “quarters” to see data that supports a cut and he’d support a hike if inflation progress stalls or reverses.
US TSY FUTURES: OI Points To Little Movement In Positioning Ahead Of CPI
Yesterday’s twist flattening of the Tsy futures curve and preliminary OI data points to a mix of net long cover, long setting and short cover.
- Overall, positioning adjustments were relatively modest, with the largest DV01 equivalent swing coming via net long setting in WN futures.
- We still believe that a ‘hawkish’ CPI surprise presents the greatest risk to prevailing market positioning, raising the bar for dovish market interpretation of today’s data.
| 10-Jul-24 | 09-Jul-24 | Daily OI Change | OI DV01 Equivalent Change ($) | |
| TU | 4,287,272 | 4,307,196 | -19,924 | -758,495 |
| FV | 6,366,603 | 6,356,117 | +10,486 | +442,825 |
| TY | 4,499,355 | 4,500,287 | -932 | -60,307 |
| UXY | 2,069,398 | 2,072,622 | -3,224 | -288,896 |
| US | 1,668,143 | 1,670,426 | -2,283 | -300,400 |
| WN | 1,668,180 | 1,662,491 | +5,689 | +1,153,350 |
| Total | -10,188 | +188,076 |
STIR: OI Points To Net Long Setting In Most SOFR Futures Ahead Of CPI
The uptick in most SOFR futures and preliminary OI data points to net long setting in all packs through the blues on Wednesday.
- Some pockets of net short cover were seen in individual contracts.
- Fed funds futures were little changed on the day, showing just under 20bp of cuts through the September FOMC ~50bp of cuts through year end.
- We still believe that a ‘hawkish’ CPI surprise presents the greatest risk to prevailing market positioning, raising the bar for dovish market interpretation of today’s data.
| 10-Jul-24 | 09-Jul-24 | Daily OI Change | Daily OI Change In Packs | ||
| SFRM4 | 1,203,850 | 1,195,809 | +8,041 | Whites | +35,546 |
| SFRU4 | 1,108,476 | 1,115,158 | -6,682 | Reds | +7,558 |
| SFRZ4 | 1,111,952 | 1,083,103 | +28,849 | Greens | +4,517 |
| SFRH5 | 836,385 | 831,047 | +5,338 | Blues | +6,558 |
| SFRM5 | 771,847 | 771,215 | +632 | ||
| SFRU5 | 699,139 | 679,877 | +19,262 | ||
| SFRZ5 | 837,003 | 843,569 | -6,566 | ||
| SFRH6 | 554,369 | 560,139 | -5,770 | ||
| SFRM6 | 486,437 | 484,881 | +1,556 | ||
| SFRU6 | 435,104 | 426,333 | +8,771 | ||
| SFRZ6 | 389,539 | 391,996 | -2,457 | ||
| SFRH7 | 247,822 | 251,175 | -3,353 | ||
| SFRM7 | 249,767 | 248,858 | +909 | ||
| SFRU7 | 192,783 | 188,906 | +3,877 | ||
| SFRZ7 | 182,161 | 181,453 | +708 | ||
| SFRH8 | 118,157 | 117,093 | +1,064 |
RUSSIA: Kremlin-NATO 'Fully Involved' In Ukraine War
(MNI) London - Russian state media carrying comments from Kremlin spox Dmitry Peskov regarding the NATO summit and the war in Ukraine. Peskov claims that Russia sees NATO military infrastructure approaching the borders of the Russian Federation, that NATO 'wants to suppress Russia', that 'it is a very serious national security threat', and that Russia will have to respond to such actions. Says that NATO is 'fully involved' in the war in Ukraine, claiming " it's time to call a spade a spade"
- Following the adoption of a final declaration at the ongoing NATO summit, Peskov says "We see that our opponents in Europe and the United States are not supporters of dialogue. Judging by the documents adopted at the NATO summit, they are not supporters of peace [...] the North Atlantic Alliance is an instrument of confrontation, not a security measure."
- The NATO declaration used its strongest language to-date in condemning China as allegedly a “decisive enabler” of Russia in conducting its invasion of Ukraine. The declaration says “We urge all countries not to provide any kind of assistance to Russia’s aggression. We condemn all those who are facilitating and thereby prolonging Russia’s war in Ukraine,”
- Liu Pengyu at the Chinese Embassy in Washington, D.C., said in an emailed statement that “China does not provide weapons to the parties to the conflict and strictly controls the export of dual-use articles.”
EUROPE ISSUANCE UPDATE:
UK auction results
* Little movement in gilts following the 3.75bn 4.00% Oct-31 auction, despite the solid cover and tight tail metrics. Futures +5 ticks, while the yield on the 4.00% Oct-31 is 0.5-1.0bp lower, when compared to 10:00 London levels.
* GBP3.75bln of the 4.00% Oct-31 Gilt. Avg yield 4.074% (bid-to-cover 3.29x, tail 0.3bp).
Italy auction results
* E1.5bln of the 1.10% Apr-27 BTP. Avg yield 3.23% (bid-to-cover 1.77x).
* E2bln of the 3.45% Jul-27 BTP. Avg yield 3.24% (bid-to-cover 2.22x).
* E1.25bln of the 0.90% Apr-31 BTP. Avg yield 3.51% (bid-to-cover 1.84x).
* E2bln of the 3.45% Jul-31 BTP. Avg yield 3.57% (bid-to-cover 1.61x).
* E1.75bln of the 4.45% Sep-43 BTP. Avg yield 4.3% (bid-to-cover 1.61x).
FOREX: Greenback on Backfoot in Pre-CPI Trade
- The dollar remains on the backfoot headed into NY hours - despite very light newsflow and very little data of note. Moves in the greenback are relatively contained against the rest of G10 FX, however EUR/USD is now approaching more interesting levels. The Monday high has now been topped, and 1.0852 is unlikely to provide any significant resistance ahead of 1.0857, the 76.4% retracement for the downleg off the June high.
- Any USD-negative outcome from today's CPI will turn focus to 1.0961 - the prevailing high just before Macron's snap election call that undermined the EUR and French bond markets at the beginning of June. Similarly for GBP, 1.2894 is the level to watch - marking the mid-March high. Strength through here would be the best levels of 2024.
- NOK remains an underperformer, leading losses in G10 and helping EUR/NOK rally well above the 11.60 mark - trading the best levels since mid-May in the process. While oil prices are generally flat, this week's softer-than-expected CPI print is still weighing on local markets - seen counteracting the bank's recent hawkish shift in communications.
- Focus for the duration of the Thursday session turns to US CPI data for June. Markets expect topline Y/Y to slow to 3.1% from 3.3%, however core inflation is expected to hold at 3.4% this month. Central bank speakers today include Fed's Bostic and Musalem.
FX OPTIONS: Expiries for Jul11 NY cut 1000ET (Source DTCC)
- EUR/USD: $1.0700(E2.6bln), $1.0735-45(E2.4bln), $1.0760-80(E3.3bln), $1.0785-90(E641mln), $1.0800-15(E1.2bln), $1.0830-50(E1.1bln), $1.0860-65(E1.3bln), $1.0900(E1.1bln), $1.0985-00(E2.2bln)
- USD/JPY: Y161.00($1.5bln), Y161.50($514mln), Y162.25-35($715mln)
- EUR/GBP: Gbp0.8450-60(E2.0bln), Gbp0.8530(E750mln)
- NZD/USD: $0.6150(N$867mln)
- USD/CAD: C$1.3650($542mln)
- USD/CNY: Cny7.3000($688mln)
GERMAN DATA: CPI Details Show Disinflation Tapering Off for High-Rate Items (1/2)
German final June HICP was unrevised from the flash readings at +2.5% Y/Y(+2.8% May) and +0.2% M/M (+0.2% May). The final reading of CPI was also unrevised at +2.2% Y/Y (+2.4% May) and +0.1% M/M (+0.1% May). Core CPI printed at +2.9% Y/Y (+3.0% May), the lowest since February 2022.
- Overall, the data confirms the main conclusions from the flash reading - services remain sticky and momentum in the next months will be subject to uncertainty.
- Developments within the services subcategories were mixed, as projected by MNI after state-level data: While transport and recreation and culture inflation decelerated (+1.6% Y/Y vs +2.6% May and +1.4% vs +1.8%, respectively), healthcare came in at +2.9% (+2.7%), hospitality at +6.5% (+6.3%), and education at +4.9% (+4.9%). Insurance inflation meanwhile declined a bit from its all-time high, to +12.3% Y/Y (vs +13.0%; transport insurance noteworthy at +26.0%).
- Food prices, which were one of the main inflation upside drivers through 2023 but had cooled towards the end of the year, printed firmer than in May, at +1.1% Y/Y (+0.5%).
- MNI's inflation breadth tracker (see chart below) shows disinflation almost stalling in the high-inflation categories in June, with the percentage of COICOP (Classification of Individual Consumption according to Purpose, a standardized category split) items printing at or above 6% falling only 0.4pp to 14.4% from 14.8% in May. In the low-inflation categories, disinflation appears to be progressing (although at a slightly lower pace than before), with the percentage of categories printing below 2% Y/Y increasing to 49.4% vs 47.2% in May.
MNI, Destatis
E-Mini S&P Trading Close to Wednesday's Fresh Cycle Highs
- A bull cycle in Eurostoxx 50 futures is intact. Attention is on resistance at 5039.84, 61.8% of the May 16 - Jun 14 sell-off. It was pierced last week, a clear break of it would be a positive development and suggest scope for an extension of the bull cycle that started Jun 14. This would open 5082.32, the 76.4% retracement. A stronger reversal would instead expose 4846.00, the Apr 19 low and a key support.
- The trend condition in S&P E-Minis is bullish and the contract traded to fresh cycle high once again yesterday. The continuation higher confirms a resumption of the uptrend and maintains the bullish sequence of higher highs and higher lows. Moving average studies are in a clear bull-mode set-up too and this continues to highlight positive market sentiment. Sights are on the 5700.00 handle next. Support is at 5551.21, the 20-day EMA.
Gold Trades Near Intial Resistance, Undermining Bearish Theme
- WTI futures have recovered from yesterday’s low and the recent bear leg appears to have been a correction. Recent cycle highs reinforced bullish conditions, signalling scope for a continuation higher near-term. Moving average studies are in a bull-mode set-up too, highlighting a rising trend. Sights are on $85.27, the Apr 12 high and a bull trigger. Initial firm support to watch is $79.80, the 50-day EMA.
- Gold remains constructive. Recent gains resulted in a print above resistance at $2387.8, the Jun 7 high. This undermines a recent bearish theme and a clear break would be viewed as a bullish development and open the key resistance at $2450.1, the May 20 high. Initial support to watch lies at the 50-day EMA, at 2329.5. A clear break of this average would instead confirm a resumption of the reversal from May 20 and expose $2277.4, May 3 low.
| Date | GMT/Local | Impact | Country | Event |
| 11/07/2024 | 1230/0830 | *** |  US | Jobless Claims |
| 11/07/2024 | 1230/0830 | ** | US | WASDE Weekly Import/Export |
| 11/07/2024 | 1230/0830 | *** | US | CPI |
| 11/07/2024 | 1430/1030 | ** | US | Natural Gas Stocks |
| 11/07/2024 | 1515/1115 | US | Atlanta Fed's Raphael Bostic | |
| 11/07/2024 | 1530/1130 | ** | US | US Bill 04 Week Treasury Auction Result |
| 11/07/2024 | 1530/1130 | * | US | US Bill 08 Week Treasury Auction Result |
| 11/07/2024 | 1700/1300 | US | St. Louis Fed's Alberto Musalem | |
| 11/07/2024 | 1700/1300 | *** | US | US Treasury Auction Result for 30 Year Bond |
| 11/07/2024 | 1800/1400 | ** | US | Treasury Budget |
| 12/07/2024 | 0430/1330 | ** |  JP | Industrial Production |
| 12/07/2024 | 0600/0800 | *** |  SE | Inflation Report |
| 12/07/2024 | 0645/0845 | *** |  FR | HICP (f) |
| 12/07/2024 | 0700/0900 | *** |  ES | HICP (f) |
| 12/07/2024 | - | *** |  CN | Trade |
| 12/07/2024 | - | *** | CN | Money Supply |
| 12/07/2024 | - | *** | CN | New Loans |
| 12/07/2024 | - | *** | CN | Social Financing |
| 12/07/2024 | 1230/0830 | *** | US | PPI |
| 12/07/2024 | 1230/0830 | * |  CA | Building Permits |
| 12/07/2024 | 1300/0900 | * | CA | CREA Existing Home Sales |
| 12/07/2024 | 1400/1000 | ** | US | U. Mich. Survey of Consumers |
| 12/07/2024 | 1600/1200 | *** | US | USDA Crop Estimates - WASDE |
| 12/07/2024 | 1700/1300 | ** | US | Baker Hughes Rig Count Overview - Weekly |
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