MNI US MARKETS ANALYSIS - JPY Off Lows, But Uptrend Still Intact

US TSYS: Little Changed, Block Flow Seen Ahead Of NY

Tsys consolidate a little off London cheaps alongside core global FI counterparts, last running flat to 1bp richer.

• TYZ3 is in the middle of its 0-08 range, last +0-02+ at 110-01.
• London block flow pointed to the unwind of some existing FV/US steepener positions.
• Macro headline flow remains relatively subdued, with interest geared towards the potential for further property policy easing in China and non-committal ECB speak (including comments from the usually hawkish Knot).
• The ISM services survey and release of the Fed’s Beige Book will be complemented by the latest rounds of Fedspeak in NY hours.
• It is also worth noting that the BoC decision will generate some interest in matters north of the border. The BoC is almost unanimously expected to leave its policy rate on hold at 5%. Click for our full preview of that event
• A quick reminder that yesterday saw a particularly brisk round of $IG issuance, even given the expectations for a seasonal pickup in early September.

STIR FUTURES: Fed Implied Rates Mostly Hold Yesterday’s Climb

• Fed Funds implied rates modestly extend yesterday’s late trimming of a sizeable increase, leaving terminal pricing still close to pre-payrolls levels and rate expectations at the low end of recent ranges.
• Cumulative hikes from 5.33% effective: +1.5bp Sep (unch), +11bp Nov (-0.5bp) to a terminal 5.44%.
• Cuts from terminal: 1bp to Dec’23, 40bp to Jun’24 and 108bp to Dec’24. The first cut from current levels is priced for June.
• After unscheduled appearances from Waller (voter, who surprised on the dovish side) and Mester (’24 voter, remained hawkish), today sees first Collins (non-voter) and then Logan (’23 voter), either side of an appearance from former St Louis Fed’s Bullard and the Fed’s Beige Book. Logan was last heard from on Jul 6 when she noted the need for more restrictive policy whilst remaining very concerned about a sustainable and timely return to the inflation target.

Source: Bloomberg

EUROPE ISSUANCE UPDATE: 

• That was a decent 5-year gilt auction for the 4.50% Jun-28 Gilt with the bid-to-cover of 2.47x higher than the July auction where we saw 2.19x, but even more importantly was the tighter tail: 0.6bp at today's auction versus 2.1bp previously. This tighter tail saw the LAP marginally above the pre-auction mid-price (whereas in July it was notably below). There was a cheapening going into the auction cut-off time of 10:00BST but overall this was still a decent auction.
• GBP4bln of the 4.50% Jun-28 Gilt. Avg yield 4.803% (bid-to-cover 2.47x, tail 0.6bp).

• A relatively strong 10-year Bund auction for the 2.60% Aug-33 Bund with the average price and lowest accepted price both at 99.77 (to two decimals), in excess of the pre-auction mid-price of 99.731. The bid-to-cover and bid-to-offer were both higher than the August auction, too. We did dip from around 99.82 around 5 minutes ahead of the auction but we recovered to above 99.80 within 10 minutes of the auction cut-off.
• E5bln (E4.098bln allotted) of the 2.60% Aug-33 Bund. Avg yield 2.63% (bid-to-cover 1.41x)

• The ESM has released a mandate for a 3-year USD bond. The timing is not a huge surprise as we have the previous 2-year USD bond due to mature on 8 September, so this will allow investors to roll over into the new issue.

EGBs: Light Twist Flattening Early Today, Corporate Supply & ECB’s Knot Eyed

Bunds recover from worst levels of the day, even with the impending round of 10-year 2.60% Aug-33 supply eyed (EUR5bn).

• Another swift start to the day for €IG supply and overhang surrounding Bund supply were touted as early sources of pressure for the space, which saw Bunds back from their post-German factory orders highs (prints were softer than expected).
• Initial hawkish comments from ECB’s Knot provided some knee-jerk cheapening, before the details surrounding some of his more guarded/non-committal musings allowed the space to base.
• ECB-dated OIS pricing is little changed to a touch firmer on the day post-Knot, off initial highs.
• A downtick in oil & global equity benchmarks will have supported the longer end a little.
• Bunds last -15, around 40 ticks off lows.
• German cash benchmarks run 1bp cheaper to 0.5bp richer, twist flattening.
• The German 5s30s curve moves back from yesterday’s multi-week steeps.
• Most closely watched EGB curves see similar moves.
• While most of the core/semi-core spreads vs. Bunds are little changed on the day, BTPs and GGBs narrow, with the former outperforming peers.

GILTS: Off Lows Alongside Wider Bonds, Supply Sees Decent Enough Demand

Gilts have generally followed wider moves in core global FI markets thus far, with initial technical support in the futures contract breached, while some concession ahead of 5-Year supply will have factored in as well.

• Futures last sit -40, roughly 25 ticks off lows, after some stabilisation in wider core global FI markets was seen.
• Cash benchmarks sit 2bp cheaper across most of the curve.
• 4.50% Jun-28 Gilt supply saw decent enough demand metrics.
• SONIA futures are +0.5 to -7.0 through the blues, twist steepening, with greens leading the weakness.
• BoE-dated OIS is flat to incrementally firmer on the day.
• A raft of BoE speakers will appear in front of parliament this afternoon (Treasury Select Committee Hearing for the July Financial Stability Report and the August Monetary Policy Report).

FOREX: JPY Off Lows as Japanese Authorities Reiterate Willingness to Act

• JPY tops the G10 table headed into the NY crossover, with several Japanese representatives stepping in to verbally defend the beleaguered JPY currency. The chief cabinet secretary Matsuno spoke most recently, reiterating the importance of currency rates moving stably to reflect fundamentals. Matsuno also stressed that sharp currency moves are undesirable, and the authorities are watching FX moves with a high sense of urgency, not ruling out any options to respond to market prices.
• In response, USD/JPY faded off the overnight cycle high of 147.82, reverting back below the Y147.50 level.
• Rates are expected unchanged at the Bank of Canada, with the board seen keeping policy unchanged at 5.00%. Markets watch USD/CAD, which continues to trade within range of multi-month highs at 1.3672. A break north of here puts the pair at the best levels since late March.
• SEK is the poorest performer, keeping EUR/SEK within range of 11.9421, the week's highs and the bull trigger of 11.9633.
• The ISM Services Index takes focus going forward, with markets expecting the data very moderately fade to 52.5 from 52.7. The next update to the Atlanta Fed GDPNow is also due, within which markets look for any further signs of near-term economic strength after yesterday's better-than-expected factory orders release.
• The central bank speaker slate picks up Wednesday after a quieter start to the week, with ex-Fed's Bullard speaking as well as Fed's Logan & Collins, BoE's Bailey and ECB's Visco.

FX OPTIONS: Expiries for Sep06 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0740-50(E2.7bln), $1.0800-05(E684mln), $1.0900(E629mln)
• USD/JPY: Y144.50($1.4bln), Y145.50($1bln), Y146.50($1.0bln)
• GBP/USD: $1.2500(Gbp1.4bln), $1.2650(Gbp806mln)
• AUD/USD: $0.6395(A$518mln), $0.6447(A$540mln), $0.6485-00(A$515mln), $0.6550(A$606mln), $0.6600(A$1.5bln)
• USD/CAD: C$1.3600($1.5bln)
• USD/CNY: Cny7.3000($3.2bln)

EQUITIES: EuroStoxx 50 Pullback Exposes Key Support

• The E-mini S&P contract maintains a firmer tone and the contract is trading closer to its recent highs. Price has traded above resistance at 4537.06, the base of a bull channel, drawn from the Mar 13 low that was breached on Aug 16.
• Eurostoxx 50 futures have pulled back from their recent highs. A continuation lower would expose support at 4225.00, the Aug 24 low. Clearance of this level would signal scope for a test of the key support at 4187.00, the Aug 18 low and bear trigger.

COMMODITIES: Gold Pullback Considered Corrective

• A bull cycle in Gold remains in play and for now, the latest pullback is considered corrective. Recent gains resulted in a move above the 50-day EMA - at $1932.0. This highlights a stronger short-term bull leg and signals scope for a climb towards $1963.3.
• The uptrend in WTI futures remains intact and yesterday’s extension reinforces this condition. The recent break of resistance at $84.16, the Aug 10 high, confirmed a resumption of the uptrend and this maintains the bullish price sequence of higher highs and higher lows.