MNI US MARKETS ANALYSIS - GBP, NZD Outperform as CB Impulses Point Higher

US TSYS: Bull Steepening With FOMC Minutes, Housing Data Ahead

• Cash Tsys have bull steepened, with a rally building through both Asia and London hours, in most benchmark tenors pushing towards yesterday’s highs seen after the initial sell-off on stronger than expected retail sales was strongly reversed. The combination of yesterday’s price action and preliminary OI data point to long covering in Tsy futures dominating from a net positioning perspective (FV, TY and WN futures seemingly saw longs covered on net, with the most notable OI DV01 equivalent swing coming in the WN futures contract).
• The FOMC minutes and housing data headline today’s session, the former coming after some more open discussion of cut timing from both Williams (voter) and Harker (’23 voter), whilst Kashkari yesterday (’23) saw cuts as a long way away with discussion on 2024 or even 2025.
• 2YY -4.7bp at 4.906%, 5YY -5.2bp at 4.321%, 10YY -3.1bp at 4.180% and 30YY -0.8bp at 4.308%.
• TYU3 trades 10 ticks higher at 110-02+ off a high of 110-05+ at the higher end of yesterday’s range, with elevated volumes of 285k. The bounce towards resistance at 110-10 (Aug 14 high) is deemed corrective with moving average studies in a bear mode condition, and with support seen at 109-11+ (Aug 15 low).
• Data: Weekly MBA data (0700ET), Building permits/housing starts Jul (0830ET), NY Fed Services Aug (0830ET), IP & cap util Jul (0915ET)
• Fed: FOMC minutes (1400ET)
• Bill issuance: US Tsy $50B 17W Bill auction

OI Suggests Long Cover Dominated Net Positioning Swing On Tuesday

The combination of preliminary open interest data and Tuesday’s price action point to long covering in Tsy futures dominating from a net positioning perspective.

• FV, TY and WN futures seemingly saw longs covered on net, with the most notable OI DV01 equivalent swing coming in the WN futures contract.
• Meanwhile, UXY & US futures seemingly saw fresh shorts added on net.
• The small uptick in TU pricing and uptick in OI point to a limited addition of fresh longs in that contract on net.

STIR FUTURES: Fed Implied Cuts Continue To Build Back Into Recent Ranges

• Fed Funds implied rates have continued yesterday’s decline that emerged shortly after an initially hawkish reaction to stronger than expected US retail sales.
• Near-term rates remain within recent ranges (+2.5bp Sep and cumulative +9bp to Nov terminal), whilst cut pricing pulls back from post July FOMC lows seen before yesterday’s data (with 2024 implied rates climbing strongly in the period since US CPI) for also back into recent ranges.
• Cuts from Nov terminal: 3bp to Dec’23 (from 2.5bp), 52bp to Jun’24 (from 49bp) and 122bp to Dec’24 (from 116bp).
• The FOMC minutes from the Jul 26 meeting are in focus today with no other scheduled Fedspeak.

MNI Norges Bank Preview - August 2023: Fade in CPI Favours Single Hike

Executive Summary:

• A sharp moderation in headline CPI should aide a ‘single hike’ of 25bps
• NOK is firming faster than expectations, relieving upside pressure on the rate path ahead
• No fresh path projections this month, leaving September as the next communications opportunity

MNINBPrevAug23.pdf

A much smaller error term in the Bank’s CPI projection will allow for a 25bps hike to 4.00% this month, turning focus to the September forecast round for the next steer on policy. Such a move would be infitting with the bank’s communication at the June MPR, in which they stated that additional rate hikes would be required by the end of the summer. Subsequently, a further 25bps rise to 4.25% is looking likely in September.

EUROPE ISSUANCE UPDATE:

German auction results:
It was a decent German 30-year auction overall with a lower bid-to-cover for the 0% Aug-50 Bund than previously but more bids for the 0% Aug-52 Bund. The lowest accepted price was just above the prevailing market price for both Bunds sold. Shortly after the auction both Bunds sold were trading above the average price achieved at auction.

• E1.0bln (E787mln allotted) of the 0% Aug-50 Bund. Avg yield 2.68% (bid-to-cover 1.27x).
• E1.5bln (E1.266bln allotted) of the 0% Aug-52 Bund. Avg yield 2.68% (bid-to-cover 1.87x).

FOREX: GBP, NZD on Top as Both Markets Show Need for Further Tightening

• NZD outperforms all others in G10, with NZD/USD looking to snap the downtrend posted off the mid-July highs and a close $0.60 today would go someway to arresting the downside momentum. Moves follow the RBNZ decision overnight, at which the bank kept the headline policy rate unchanged, however signalled that further rises in the policy rate may be necessary to combat inflation ahead.
• GBP/USD showed through the week's highs on the back of the CPI release, which added to inflation concerns triggered in yesterday's wages data. While headline CPI pulled lower, the rate came in just above expectations and core CPI held stubbornly close to cycle highs. The data showed another series high for services inflation, which will remain a key concern for the Bank of England ahead. The 50-dma could cap topside ahead, crossing at 1.2781. A break and close above this mark would be a bullish development.
• Concerns around the Chinese economy remain a key driver - with the USD weaker and US stock futures holding close to yesterday's lows. Markets remain on watch for further policy action given the cuts to the open market operation rates earlier this week. USD/CNH printed a new August high at 7.3387.
• US housing starts and building permits data takes the US data focus ahead, with industrial production and the Fed minutes also set for digestion.

FX OPTIONS: Sizeable Strikes Could Limit Any Spot Breakout for EUR/USD

• EUR/USD: $1.0850(E1.4bln), $1.0900(E705mln), $1.0935(E538mln), $1.1000(E834mln), $1.1025(E779mln)
• USD/JPY: Y144.40-50($938mln), Y145.00($658mln)
• AUD/USD: $0.6500(A$552mln)
• USD/CNY: Cny7.3000($822mln)

EQUITIES: Move Lower in E-Mini S&P This Week Reinforces Bearish Conditions

• A bearish threat in Eurostoxx 50 futures remains present following the recent reversal from 4513.00, the Jul 31 high. Yesterday’s sharp sell-off reinforces current bearish conditions. The contract is testing support at 4276.00, the Aug 8 and 15 low. Clearance of this level would strengthen a bearish threat and expose 4220.00, the Jul 7 low. Key short-term resistance is unchanged at 4420.00, Aug 10 high.
• Bearish conditions in the E-mini S&P contract remain intact and this week’s move lower has reinforced current conditions. The contract is through the 50-day EMA and has breached channel support drawn from the Mar 13 low - the channel base is at 4461.67. A clear channel breakout would signal scope for a continuation lower and open 4411.25, the Jul 10 low. Initial resistance to watch is at the 20-day EMA - at 4515.45.

COMMODITIES: Recent Pullback in WTI Futures Appears Technically Corrective

• The uptrend in WTI futures remains intact and the latest pullback appears to be a correction. Last week’s gains confirmed a resumption of the bull cycle. Price breached resistance at $83.59, the Nov 7 2022 high. The break strengthened a bullish condition and has paved the way for a climb towards $87.43, a Fibonacci projection. Moving average studies are in bull-mode condition highlighting an uptrend. Initial firm support lies at $78.69, Aug 3 low.
• Gold remains bearish and the yellow metal traded lower again yesterday, maintaining the bear cycle that started Jul 20. Sights are on key support at $1893.1, the Jun 29 low. A break of this level would strengthen bearish conditions. On the upside, initial firm resistance to watch is $1941.6, the 50-day EMA. A break of this level would highlight a possible short-term reversal.