MNI US MARKETS ANALYSIS - GBP Net Position Surges to Six Year High

US TSYS: Holding Firmer As US Comes In, 2Y Auction In Focus

• Cash Tsys trade richer across the curve and sit close to session highs after European timezone weakness in equities and further spillover from a weak German Ifo survey. The combination of drivers has seen 5s outperform, with 2s and 5s currently contained by Friday’s highs but benchmark tenors breaking higher further along the curve.
• A thin docket sees 2Y supply in focus along with headlines, in a session that otherwise sees further heavy bill issuance and another regional Fed manufacturing survey for June after mixed releases so far from Empire (beat), Philly (in-line) & Kansas (miss).
• 2YY -4.0bp at 4.701%, 5YY -5.8bp at 3.932%, 10YY -5.0bp at 3.684% and 30YY -3.9bp at 3.773%.
• TYU3 trades 11+ ticks higher at 113-14, just off an earlier high of 113-15 which stopped just short of Friday’s high of 113-15+. Resistance is seen at 113-18 (Jun 15 high) whilst bear trigger support is seen at 112-12 (Jun 14 low).
• Data: Dallas Fed Mfg Activity Jun (1030ET)
• Note/bond issuance: US Tsy $42B 2Y Note auction (91282CHL8) - 1300ET
• Bill issuance: US Tsy $65B 13W, $58B 26W bill auctions - 1130ET

STIR FUTURES: Fed Rates Just Shy Of One Further Hike Come November

• Fed Funds implied rates have cooled slightly since Friday’s close, with the dip coming ahead of the weak German Ifo which has helped reinforce the move.
• As started to be the case last week, the implied terminal is seen in the Nov meeting with just shy of a full further hike (cumulative +23.5bps at 5.315%). It’s followed by 9bp of cuts in Dec whilst January’s effective 5.09% only takes it back near current levels after the FOMC’s mid-June pause/skip.
• Cumulative changes from 5.08% effective: +17bp Jul (-0.5bp on the day), +20bp Sep (-1bp), +23.5bp Nov (-1bp), +14bp Dec (-2bp) and +1bp Jan (-2.5bp).
• No Fedspeak scheduled today with attention on Powell’s panel appearance at the ECB’s Sintra Forum on Wed.

GBP Net Position Surges to Highest in Six Years

• More evidence of market taking notice of the BoE's expedited tightening pressures after recent CPI prints: GBP CFTC net positioning rose sharply in the Friday CoT release - with speculators adding close to 40k contracts on net, tipping outright positioning to the most net long since H1 2018.

• This equates to an 18% W/W rise in positioning as a % of open interest, tilting the GBP positioning Z-score to +3.20, the highest among all currencies surveyed.
• CFTC survey period covers 13 - 20th June, across which GBP/USD rallied from ~1.25 to ~1.28 before finding resistance and fading across last week. 1.2849, the 0.618 projection of the Mar 8 - May 10 - May 25 price swing marks the next upside level of note.

EUROPE ISSUANCE UPDATE: 

EU-bond auction results

• E2.199bln of the 0.80% Jul-25 EU-bond. Avg yield 3.38% (bid-to-cover 1.79x).
• E1.814bln of the 3.25% Jul-34 EU-bond. Avg yield 3.05% (bid-to-cover 1.59x).

FOREX: JPY Takes Heed of More Vocal Japanese Authorities

• JPY trades firmer against all others in G10, receiving an early boost this week on the back of comments from the Japanese Chief Cabinet Secretary Matsuno, who added to recent rhetoric and stressed that "it's important for FX to move stably" and that "Japanese authorities are closely watching FX moves with a high sense of urgency".
• USD/JPY briefly showed at fresh daily lows on the back of the Matsuno headline, adding to the impetus after Kanda refused to rule out any options on the currency at the weekend. USD/JPY remains close to multi-month highs - last intervention phase was November 10th - as USDJPY traded in the 146.50s.
• GBP trades slightly better, with markets keeping note of the Friday CFTC update. Data accurate as of the Tues 20th close showed the GBP net position rise sharply. Speculators added close to 40k contracts on net, tipping outright positioning to the most net long since H1 2018.
• Lastly, the USD trades slightly weaker, with the USD Index seeing some very modest support from the 50-dma at 102.701.
• Data releases are few and far between Monday, keeping focus on the central bank speaker slate. ECB's Lagarde speaks, formally beginning the Sintra proceeds as the ECB policy forum starts up this week.

FX OPTIONS: Expiries for Jun26 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0815-25(E662mln)
• USD/JPY: Y139.10($690mln)
• USD/CNY: Cny7.1500($653mln)

BONDS: German/Greek 10y Yield Spread Tightens to Levels Last Seen in '21

• Gilts remain somewhat capped by a brief stabilisation in equities, before fresh pressure in the equity space (FTSE futures moved to fresh session lows) and a post-IFO bid in Bunds provided support.
• That allowed Gilt futures to move to fresh session highs, although well within the recently observed range in the contract.
• Cash Gilts are 2-5bp richer, with the early bull steepening impulse still in play. BoE-dated OIS continues to price a terminal rate that is ~125bp above prevailing levels.
• Meanwhile, 10-Year Greek paper outperforms to start the week as the market reacts to the ND's attainment of a parliamentary majority (which was in line with expectations) in the second round of the Greek national election.
• The 10-Year GGB/Bund spread settles around 120bp, registering the tightest level seen since '21 in the process, while the 10-Year GGB/BTP spread tightens, but doesn't threaten cycle/all-time tights.
• The round-number bias surrounding the 120bp level, coupled with the recent run of meaningful tightening and the fact that the election outcome matched wider expectations, is limiting the nature of the move in GGBs.
• Focus now turns to any ad hoc commentary/action from the sovereign rating agencies, given the expected fiscal trajectory of Greece and heighted expectations surrounding the eventual attainment of IG status (DBRS Morningstar have the next scheduled update, which isn't slated until 9 September).

EQUITIES: E-Mini S&Ps Narrow Gap to Key Support at 20-Day EMA

• The Eurostoxx 50 futures uptrend remains intact, however, a bearish corrective cycle last week resulted in a correction. The contract has breached support at 4301.00, the Jun 8 low. This level represented a key short-term support and the clear break signals scope for a deeper retracement, exposing 4241.00, the May 31 low and an important medium-term support point. Key resistance and the bull trigger has been defined at 4438.00, the Jun 16 high.
• A bull theme in S&P E-minis remains intact and last week’s pullback appears to be a correction. The move lower is allowing a recent overbought condition to unwind. Initial key support lies at the 20-day EMA, at 4359.21. A break of this average would strengthen a short-term bearish theme and signal scope for a deeper pullback. On the upside, the bull trigger is 4493.75, the Jun 16 high. A break would open 4506.23 the top of a bull channel.

COMMODITIES: WTI Futures Remain Bearish After Last Week's Sell-Off

• WTI futures remain bearish and the sharp sell-off late last week reinforces this condition. Support at $67.21, May 31 low, has recently been pierced, a clear break would open $64.41, the May 4 low. Moving average studies are in a bear mode position highlighting a downtrend. The contract is trading below resistance at $75.70, the Jun 5 high. A break of this level would signal a reversal.
• The bear cycle in Gold remains intact and the yellow metal traded lower last week. Trendline support has been breached - the line is drawn from the Nov 3 2022 low and the break reinforces a bearish condition. Furthermore, the move lower confirms a resumption of the downtrend. The focus is on $1903.5, 61.8% of the Feb 28 - May 4 bull cycle. Key resistance is $1985.3, the May 24 high. Initial resistance is at $1948.8, the 20-day EMA.