MNI (LONDON) - Highlights:
- US curve sits mildly twist steeper, with CAD CPI a potential driver
- Funding currencies gain as CHF supported by technicals
- Riksbank cut rates, signal more to come in 2024
US TSYS: Mildly Twist Steeper, CAD CPI A Potential Driver Ahead
- Treasuries remain with yesterday's range, with a mild twist steepening ahead of a thin docket where headlines/flow are likely in the driving seat along with potential spillover from Canadian CPI at 0830ET.
- Attention however is ultimately on tomorrow's preliminary payrolls revisions and FOMC minutes before Powell's Jackson Hole speech on Friday.
- Cash yields are 1bp lower (2s) to 1bp higher (30s). 2s10s at -18bps (+1.3bp) has lifted off yesterday's latest low of -20.1bp which had more than reversed the post-payrolls steepening seen in early August.
- TYU4 at 113-06 (-01) has remained within yesterday's range throughout, on subdued volumes of 255k.
- Support is seen at 112-20+ (20-day EMA) whilst the trend structure is deemed bullish and volatility of recent weeks leaves some way to go before resistance at 114-03 (Aug 6 high) before a bull trigger at 115-03+ (Aug 5 high).
- Data: Philly Fed non-mfg index Aug
- Fedspeak: Bostic (1335ET), Barr (1445ET)
- Bill issuance: US Tsy $75B 42D bill CMB auction (1130ET)
STIR: Holding Shy Of 100bp Of Cuts For 2024
- Fed Funds implied rates are little changed overnight as they continue to price a little under 100bp of cuts over the remaining three meetings for 2024, as have been the case since last week's retail sales and jobless claims.
- There was no spillover from the Riksbank delivering an expected 25bp cut or BoJ research papers highlighting the persistence of inflationary pressure, although CAD CPI could have an impact later amidst a particularly thin docket.
- Cumulative cuts from 5.33% effective: 31.5bp Sep, 61bp Nov, 94bp Dec and 118bp Jan. Today's scheduled Fedspeak looks unlikely to be contain much new on monetary policy.
- Bostic ('24) is in a fireside chat on innovation for payment inclusion at 1335ET (no text) and VC Supervision Barr (voter) speaks on cybersecurity at 1445ET. In the event Bostic does speak on mon pol, he has already indicated a dovish shift, noting openness to a cut in September as the Fed can't afford to be late in easing policy.
- We can't rule out further unscheduled Fedspeak, which has generally been of note recently including Kashkari/Daly yesterday/Sunday urging a prudent approach to rate cuts.
EUROZONE DATA: Wide Range Of Estimates For Q2 Negotiated Wages On Thursday
- The ECB's measure of Q2 negotiated wage growth is due on Thursday. We have seen a wide range of estimates for the release, but on balance think a reading with a 3-handle would be considered a dovish outcome relative to expectations. However, the intraday market reaction will also be influenced by spillover from Wednesday's FOMC minutes and the August flash PMIs due Thursday morning.
- Negotiated wage growth is expected to moderate from the 4.7% Y/Y reading in Q1, but the range of analyst expectations that we have seen is extremely wide.
- Estimates have ranged from 3.5% Y/Y to 4.5% Y/Y, making it hard to gauge a true "consensus" for the release.
- However, the ECB's June projections noted that "Negotiated wage growth is seen to increase slightly in 2024, before easing gradually".
- As such, a reading below 4% would represent a notable deceleration from Q1's levels and seemingly the ECB's expectations.
EUROPE ISSUANCE UPDATE:
Finland syndication: Launched
- E4bln (MNI had expected E3bln) of the April-30 Long 5Y RFGB. Spread set at MS+10bp (guidance was MS+12bps area), books closed in excess of E10.3bln.
German Green auction results:
- E750mln (E734mln allotted) of the 2.30% Feb-33 Green Bund. Avg yield 2.16% (bid-to-offer 3.20x; bid-to-cover 3.27x).
- E750mln (E728mln allotted) of the 0% Aug-50 Green Bund. Avg yield 2.42% (bid-to-offer 1.53x; bid-to-cover 1.57x).
FOREX: Funding Currencies Bounce, Gold Surges
- EUR/CHF is softer, erasing yesterday's modest gains, with the cross finding resistance and failing to break higher on the approach toward the 50- and 200-dmas of 0.9588/0.9596. Importantly, these dmas have now formed a 'death cross' for the first time since May last year - signalling that short-term momentum is pointed lower, despite the recovery off the August low.
- Haven and funding currencies are favoured early Tuesday, aiding the outperformance in both JPY and CHF. USD/JPY faded toward overnight lows to trade either of the 146.50 level as markets eye the publication of two research papers from the Bank of Japan - writing in favour of inflation persistence in Japan, citing chronic labour shortages as being supportive of wages and a marked shift in corporate pricing strategies.
- Separately, gold is well bid, with spot clearing $2,500/oz to hit new alltime highs. A volume surge on the way through $2,550/oz resistance helped support prices higher, with futures markets showing near 1,500 lots trade inside 60 seconds - cash equivalent of north of $380mln.
- Canadian CPI numbers take focus Tuesday - providing one of the last major releases prior to the BoC's next decision on Sept 4th. It would likely take a particularly large upside surprise to see expectations of a pause but there could be greater sensitivity to the subsequent path, with the market looking for two additional 25bp cuts to follow in October and December.
- Both Fed's Bostic and Barr are set to speak, however neither are expected to address monetary policy.
OPTIONS: Expiries for Jun19 NY cut 1000ET (Source DTCC)
- EUR/USD: $1.0600(E1.6bln), $1.0715(E580mln), $1.0745-50(E1.3bln), $1.0765-70(E1.1bln), $1.0800(E1.1bln)
- USD/JPY: Y155.00($831mln), Y156.90-05($2.6bln), Y158.00($531mln)
- NZD/USD: $0.6070(N$500mln)
- USD/CAD: C$1.3565($663mln), C$1.3765($589mln)
- USD/CNY: Cny7.3000($1.8bln), Cny7.3500($1.2bln)
EQUITIES: Gains for E-Mini S&P Reinforce Current Bull Cycle
- Eurostoxx 50 futures have traded higher, starting the week on a bullish note and extending the recovery that started Aug 5. The contract has traded through the 50-day EMA, at 4867.41. An extension higher would undermine the recent bearish theme and highlight a stronger reversal. This would open 4951.00 next, the Jul 31 high. For bears, a reversal lower would refocus attention on the bear trigger at 4494.00, the Aug 5 low.
- S&P E-Minis traded higher Monday, reinforcing the current bull cycle and confirming an extension of the reversal that started Aug 5. Price has cleared resistance at 2600.75, the Aug 1 high and this signals scope for an extension towards key resistance and the bull trigger at 5721.25, the Jul 16 high. A break would confirm a resumption of the primary uptrend. On the downside, support to watch lies at 5470.32, the 50-day EMA.
COMMODITIES: Move Lower in WTI Futures Could Expose Key Support
- WTI futures have been unable to hold on to recent gains and the contract continues to trade lower. The move down undermines a recent bullish theme and this has exposed key support at $71.67, the Aug 5 low and the bear trigger. A break would resume the downtrend that started Apr 12. On the upside, initial resistance to watch is $76.94, the 20-day EMA. Key short-term resistance has been defined at $80.16, the Aug 12 high.
- Gold remains bullish and is holding on to its latest gains. Last Friday's rally delivered a fresh all-time high and the breach of resistance at $2483.7, the Jul 17 high, confirmed a resumption of the primary uptrend. Note that moving average studies remain in a bull-mode set-up and this continues to highlight a dominant uptrend. The focus is on a climb towards $2528.4, a Fibonacci projection. Initial support to watch lies at $2439.4, the 20-day EMA.
| Date | GMT/Local | Impact | Flag | Country | Event |
| 20/08/2024 | 1230/0830 | *** |  | CA | CPI |
| 20/08/2024 | 1230/0830 | ** |  | US | Philadelphia Fed Nonmanufacturing Index |
| 20/08/2024 | 1255/0855 | ** | | US | Redbook Retail Sales Index |
| 20/08/2024 | 1530/1130 | * | | US | US Treasury Auction Result for Cash Management Bill |
| 20/08/2024 | 1845/1445 | | US | Fed Governor Michael Barr | |
| 21/08/2024 | 2301/0001 | * |  | UK | Brightmine pay deals for whole economy |
| 21/08/2024 | 2350/0850 | ** |  | JP | Trade |
| 21/08/2024 | 0600/0700 | *** | | UK | Public Sector Finances |
| 21/08/2024 | 0900/1000 | ** | | UK | Gilt Outright Auction Result |
| 21/08/2024 | 1100/0700 | ** | | US | MBA Weekly Applications Index |
| 21/08/2024 | 1230/0830 | * | | CA | Industrial Product and Raw Material Price Index |
| 21/08/2024 | 1400/1000 | * | | US | Services Revenues |
| 21/08/2024 | 1430/1030 | ** | | US | DOE Weekly Crude Oil Stocks |
| 21/08/2024 | 1700/1300 | ** | | US | US Treasury Auction Result for 20 Year Bond |
| 21/08/2024 | 1800/1400 | *** | | US | FOMC Minutes |
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