MNI US MARKETS ANALYSIS - GBP Sinks Despite Sticky Core CPI

US TSYS: Bear Flatter Ahead Of Powell, 20Y Supply

Treasuries have partially bounced from an overnight sell-off triggered by strong UK inflation data sinking Gilts, but yields remain elevated on the day.

• TY futures have retraced almost all of the 9 tick dip at the lows following UK CPI (in sympathy with a Gilt bounce), but the curve remains bear flatter, with 2Y yields up 2.2bp vs 10Y up 1.4bp and 30Y up 0.6bp.
• Amid a fairly light schedule for US data (MBA mortgage data at 0700ET the lone point on the docket), Fed communications will be the focus. Chicago's Goolsbee speaks at 1225ET but the main event is Day 1 of Chair Powell's 2-day semi-annual testimony in Congress which starts at 1000ET today but text could be released earlier.
• Our preview of the testimony is here - we'd expect a message that is mostly in-line with the June FOMC meeting outcome, with attention paid to his characterization of July's meeting as "live" and the potential for rates to rise 50bp in line with the latest Dot Plot.
• In supply we get $12B 20Y Bond re-open at 1300ET (anf $46B 17W Bill at 1130ET).

Latest levels:

• The 2-Yr yield is up 2.2bps at 4.7066%, 5-Yr is up 1.4bps at 3.9672%, 10-Yr is up 1.4bps at 3.7344%, and 30-Yr is up 0.6bps at 3.8178%.
• Sep 10-Yr futures (TY) down 3/32 at 113-07 (L: 112-31.5 / H: 113-12)

FED: Powell Congressional Testimony Preview And Links

• Best guess at a speech text link, with URL based on previous testimonies (would go live only upon release, at or before 1000ET/1500UK though unconfirmed) here
• Speech will be available on the Fed front pagehere
• Livestream for House panel will be here

MNI BoE, Norges Bank, SNB Previews:

• MNI BoE Preview: Things have changed: https://roar-assets-auto.rbl.ms/files/54249/MNI%20BoE%20Preview%20-%20Jun23.pdf
• MNI Norges Bank Preview: Concurrent Factors to Tip Balance to 50https://roar-assets-auto.rbl.ms/files/54229/MNINBPrevJun23.pdf
• MNI SNB Preview: Hike Likely, Peak Nearing https://roar-assets-auto.rbl.ms/files/54261/MNI%20SNB%20Preview%20Jun%2023.pdf

FOREX: Sterling Softer Despite Stubborn CPI

• GBP trades at the bottom-end of the G10 FX table despite a higher-than-expected CPI reading for May. Headline Y/Y topped expectations by 0.3ppts, stalling at 8.7% for a second month. Meanwhile core CPI crept higher to 7.1% - supported primarily by services inflation - to hit a new cycle high.
• Despite stronger inflation, GBP has softened to put GBP/USD lower for a third consecutive session as markets price in a more prolonged period of high inflation, low growth in the UK - and possibly assign little likelihood of a more activist Bank of England in response to today's release. GBP/USD traded a post-data high of 1.2802 before fading by close to 100 pips off the session high.
• Outside of the UK, AUD trades poorly - dropping for a fourth consecutive session against the USD to keep support at the weekly low of 0.6753 under pressure. A break below here opens the 100-dma at 0.6719 and would erase the 38.2% of the early June rally.
• Focus ahead turns to Canadian retail sales and an appearance from ECB's Schnabel and Nagel. Fed's Powell is also set to speak, appearing in front of the House Financial Services Panel. A release of text is expected.

FX OPTIONS

• EURUSD: 1.0870 (302mln), 1.0900 (616mln), 1.0920 (552mln), 1.0950 (733mln)
• USDJPY: 142.00 (869mln)
• USDCAD: 1.3275 (631mln)
• NZDUSD: 0.6000 (1.15bn)

EQUITIES: Uptrend in Eurostoxx 50 Futures Intact

• The Eurostoxx 50 futures uptrend remains intact and this week’s move lower is considered corrective. Resistance at 4380.00, May 29 high, was cleared last week and key resistance at 4434.00, May 19 high, has been pierced. A clear break of this hurdle would represent an important bullish development and open 4448.00, Jan 2008 high (cont). MA studies are in bull-mode condition highlighting an uptrend. Initial firm support is 4303.00, Jun 7 low.
• A bull theme in S&P E-minis remains intact and this week’s pullback appears to be a correction. Last week’s gains confirmed a resumption of the uptrend, marking an extension of the bull cycle that started in October 2022. The focus is on 4497.21, the top of a bull channel drawn from the Oct 2022 low (cont). Initial support is at 4381.75, the Jun 13 low. A firmer support lies at 4342.60, the 20-day EMA.

COMMODITIES: Gold Softens Close to Recent Lows

• WTI futures remain below resistance at $75.70, the Jun 5 high and the outlook remains bearish, despite the recent recovery. The pullback from $75.70 reinforces a bearish theme. Support at $67.21, May 31 low, has recently been pierced, a clear break would open $64.41, May 4 low. Moving average studies are in a bear mode position highlighting a downtrend. A break of $75.70 would signal a reversal.
• The bear cycle in Gold remains intact. The yellow metal breached trendline support last week, drawn from the Nov 3 2022 low. The trendline intersects at $1973.5. The break of this line reinforces a bearish condition and marks a resumption of the downtrend. The focus is on $1903.5, 61.8% of the Feb 28 - May 4 bull cycle. Initial firm resistance is $1985.3, the May 24 high. Clearance of this resistance would signal a short-term reversal instead.