MNI US MARKETS ANALYSIS - Funding Currencies Gain Pre-CAD CPI

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