MNI US MARKETS ANALYSIS - Equity Fallout Prompts Haven Surge

MNI (LONDON) - Highlights:

• JPY surges on confluence of bullish factors
• Equity fallout led by chipmakers as US could take a tougher stance on China trade
• Waller speech eyed ahead of 20y supply for next step in Treasuries

US TSYS: Waller Watched Along With 20Y Supply After Renewed Flattening

• Treasuries have bear flattened overnight, extending yesterday’s flattening in a move that continued after stronger than expected retail sales.
• The front end is pushing new lows, back through short-lived levels seen initially after a beat for UK CPI inflation but still within the week’s range.
• The longer end meanwhile remains near yesterday’s highs whilst equities are under tech-related pressure today, but with the 20Y re-open still to come after last week’s 30Y saw a sizeable 2.1bp tail.
• Cash yields sit 0.2bp (30s) to 4.2bps (2s) higher. The 2YY at 4.46% remains below the ~4.50% seen after sliding on last week’s softer than expected US CPI report.
• Curves pull further back from recent multi-month highs, with 2s10s at -28.4bps and 2s30s at -8.5bps after Monday’s +1.7bps saw the first positive slope since January.
• TYU4 is at 111-08 (- 02+) on solid volumes of 350k. The trend structure remains bullish with resistance at 111-13+ (Jul 16 high) closely followed by 111-17+ (Fibo projection of Apr 25 May 16-29 price swing).
• Data: MBA mortgage data Jul 12 (0700ET), Building permits/housing starts Jun (0830ET), IP/Cap util (0915ET)
• Fedspeak: Barkin (0900ET), Waller (0935ET) and Fed’s Beige Book (1400ET)
• Note/bond issuance: US Tsy $13B 20Y Bond reopen - 912810UB2 (1300ET)
• Bill issuance: US Tsy $60B 17W bill suction (1130ET)

STIR: Fed Rates Tick Higher But Rangebound, Waller In Focus

• Fed Funds implied have lifted a touch overnight, aided by NY Fed’s Williams’ interview with WSJ in which he wants to see more encouraging data in coming months (will learn a lot before September).
• The path remains within recent ranges though and with a 25bp cut still fully priced for September.
• Cumulative cuts from 5.33% effective: 1.5bp Jul, 26bp Sep, 42bp Nov, 64bp Dec and 82bp Jan.
• Ahead sees housing data and IP before long-awaited comments from Waller, watched to see if a voter typically at the more hawkish end of the spectrum softens his tone. Later on, we watch pricing power comments and general labor market discussions in the Fed's Beige Book.
• 0900ET - Barkin (’24) informal remarks and Q&A on the economy (no text). He said Jun 28 that the unemployment rate remains low [before it surprised higher again with 4.0% in June] and we still have work to do to curb inflation.
• 0935ET – Gov. Waller (voter) on the economic outlook (text + Q&A). He last spoke on May 24 in r*-focused remarks, noting that factors that lowered the neutral rate may reverse in the future but that he hasn’t changed his view that the neutral rate is relatively low. Before that, he said May 21 that he could consider a cut at the end of this year if data warranted it with the idea of a cut in isolation not making a lot of sense.

GERMANY: Federal 2025 Budget Approved Internally

The federal 2025 budget was approved by the German traffic light coalition, Bloomberg reports.

• Little news as this was expected for today, and details were already reported earlier.
• The 2024 supplementary budget was also approved, Bloomberg reports in other headlines.
• 2024 Federal net borrowing is reported to be planned at E43.8bln, as expected.
• Normally Germany does not issue mid-quarter updates to its issuance plans, and the increase in spending of around E11bln (to the E43.8bln) is probably not enough to warrant an update before the Q4 issuance plans are confirmed in late September. We would expect 1-3 more auctions in Q4 and possibly some larger auction sizes.
• Opposition parties have raised concerns about the legality of the draft earlier. We see at least an outside chance that these might concerns might materialize - which would warrant further budget readjustment and potentially spending cuts, and end in further turmoil in the traffic-light coalition.
• A break-up of the coalition on the back of this appears rather unlikely, however, since none of the governing parties would have something to gain from this.
• Passage in parliament is still due, but is to be expected without major alterations after the internal coalition alignment.
• Press conference expected for later today.

EUROPE ISSUANCE UPDATE:

UK auction results:
* This morning’s 5-year supply passed smoothly enough, with the cover ratio topping 3.00x, although price metrics were on the softer side.
* GBP4bln of the 4.125% Jul-29 Gilt. Avg yield 4.023% (bid-to-cover 3.1x, tail 0.9bp).

Greece auction results:
* E250mln of the 3.875% Mar-29 GGB. Avg yield 2.81% (bid-to-cover 3.62x).

Germany auction results:
* E1bln (E808mln allotted) of the 0% Aug-52 Bund. Avg yield 2.55% (bid-to-offer 1.48x; bid-to-cover 1.83x).
* E1bln (E825mln allotted) of the 2.50% Aug-54 Bund. Avg yield 2.59% (bid-to-offer 2.17x; bid-to-cover 2.64x).

Italy buyback auction results:
* The MEF has announced that it bought back E4.0bln of the following BTPs at its buyback operation (the target buyback was E4.0bln):
* E1.025bln of the 2.50% Dec-24 BTP (ISIN: IT0005045270) at 99.617
* E684mln of the 1.50% Jun-25 BTP (ISIN: IT0005090318) at 98.437
* E571mln of the 1.20% Aug-25 BTP (ISIN: IT0005493298) at 97.775
* E519mln of the 0.50% Feb-26 BTP (ISIN: IT0005419848) at 96.023
* E1.201bln of the 1.40% May-25 BTP Italia (ISIN: IT0005410912) at 99.249

FOREX: JPY Rallies Against All Others as Carry Trade Falters

• JPY is considerably stronger against all others, as a multitude of triggers push USD/JPY to fresh pullback lows. Currency Official Kanda reiterated opposition to one-sided currency moves, while weakness in chipmakers and semiconductors names drove global equity weakness, further bolstering the JPY's safe haven status. Nearby support in USD/JPY 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.
• GBP also trades well, with GBP/USD topping the 1.30 level and touching a year-to-date high on the back of a 0.1ppts beat for UK CPI. While the release has not entirely wiped out the odds of a rate cut from the BoE in August, the chances have slimmed considerably to ~7bps as of this morning. 
• A weaker USD backdrop pervades, with the greenback softer against all others. 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. This favours EURUSD, which has touched 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 for the duration of Wednesday trade turns to US housing starts and building permits data, to be followed by industrial and manufacturing production for June. The Fed schedule is slightly busier, with appearances from Fed's Barkin & Waller due ahead of the Beige Book release. 

FED: Williams Sees Fed Getting Closer To Cut Rates, But Not Yet

• Following an interview with NY Fed’s Williams conducted yesterday, WSJ’s Timiraos writes “A top Federal Reserve official suggested an interest-rate cut could be warranted in the coming months -- though not at the central bank's meeting in two weeks -- if a recent inflation slowdown continues.”
• Williams (voter) sees the last three months of data as “getting us closer to a disinflationary trend that we're looking for”. “These are positive signs. I would like to see more data to gain further confidence inflation is moving sustainably to our 2% goal."
• "It is not really a story about a 'last mile' or some part that's particularly sticky”. Different inflation measures are "all moving in the right direction and doing that pretty consistently."
• "A restrictive stance of policy that we have in place is appropriate. I do think there is a decision ahead of us at some point to decide, not to get out of a restrictive stance of policy, but to lower interest rates in a way that lessens how restrictive policy is."
• Full piece here.

EUR/USD Trades in Cluster of Key Options Strikes

The pullback in the USD and resilient JPY over the past few sessions has cleared the decks for options interest across much of G10, but there remain a handful of sizeable strikes worth noting:

• The EUR/USD pipeline for today's cut is clustered around spot, with E800mln rolling off between 1.0890-00 and E880mln at 1.0920-25 that may contain spot ahead of the building permits/industrial production data from the US later today. 
• Meanwhile spot weakness has driven USD/JPY clear of most options interest set to expire today, with $751mln rolling at the nearest notable strike at 157.05. 

Expiries for Jul17 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0890-00(E670mln), $1.0920-25(E646mln)
• USD/JPY: Y158.40-60($1.1bln)
• USD/CNY: Cny7.3000($727mln)

Trend Condition in Eurostoxx 50 Futures Still Bullish Despite Pullback

• A bull cycle in Eurostoxx 50 futures remains intact despite the latest pullback - a correction. 5039.84, 61.8% of the May 16 - Jun 14 sell-off, has been cleared. This resulted in a print above 5082.32, the 76.4% retracement. A clear break of it would be a positive development and suggest scope for an extension towards 5132.00, the Jun 6 high. The 50-day EMA has been pierced, the next support is at 4903.00, the Jul 2 low.
• The trend condition in S&P E-Minis is bullish and the contract is holding on to its recent gains. The continuation higher last week confirmed 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 5741.34, a Fibonacci projection. Firm support is at 5593.47 the 20-day EMA.

Rally in Gold to Fresh Record High Opens $2500

• WTI futures have traded lower this week marking an extension of the current corrective cycle. Support to watch lies at $80.10, the 50-day EMA. A clear break of this level would signal scope for a deeper retracement and open $74.94, the Jun 10 low. For bulls, a reversal would refocus attention on resistance at $84.52, the Jul 5 high. Clearance of this level would resume the bull cycle.
• The trend condition in Gold remains bullish and this week’s gains reinforce current conditions. The yellow metal traded higher Tuesday and breached key resistance and the bull trigger at $2450.1, the May 20 high. This confirms a resumption of the medium-term uptrend and opens the $2500.00 handle next. Moving average studies are in a clear bull-mode set-up, highlighting a rising trend. Initial support is at $2374.5, the 20-day EMA.

Date	GMT/Local	Impact	Country	Event
17/07/2024	1030/1130		GB	King's Speech
17/07/2024	1100/0700	**	US	MBA Weekly Applications Index
17/07/2024	1230/0830	*	CA	International Canadian Transaction in Securities
17/07/2024	1230/0830	***	US	Housing Starts
17/07/2024	1300/0900		US	Richmond Fed's Tom Barkin
17/07/2024	1315/0915	***	US	Industrial Production
17/07/2024	1335/0935		US	Fed Governor Christopher Waller
17/07/2024	1430/1030	**	US	DOE Weekly Crude Oil Stocks
17/07/2024	1700/1300	**	US	US Treasury Auction Result for 20 Year Bond
17/07/2024	1800/1400		US	Fed Beige Book
18/07/2024	2350/0850	**	JP	Trade
18/07/2024	0130/1130	***	AU	Labor Force Survey
18/07/2024	0600/0700	***	GB	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