MNI US MARKETS ANALYSIS - JPY Recovery Provides Breathing Room

Highlights:

• JPY recovery provides breathing room for Japanese authorities
• Jackson Hold schedule set for August 22 - 24
• Weekly claims, ample Fedspeak make up Thursday session

US TSYS: Awaiting Weekly Claims

• Treasuries trading firmer for the most part, mirroring EGBs after paring early overnight gains to lower half of a relatively narrow overnight range. Curves flatter (2s10s -2.054 at -40.635) with short end rates lagging at the moment, 10Y yield -.0039 at -4.3361%.
• Projected rate cut pricing still holding onto two 25bp cuts by year end following Wednesday's Retail Sales miss (and down-revisions to prior) and largely in-line CPI.
• Another busy morning for economic data with weekly claims at 0830ET in addition to build permits, house starts and import/export price indexes. Industrial Production and Capacity Utilization follow at 0915ET.
• Several scheduled Fed speakers ahead with Richmond Fed Barkin CNBC interview on CNBC and Fed VC Barr Senate hearing on fin-regs at 1000ET, Philly Fed Harker on higher education at 1030ET, Cleveland Fed Mester economic outlook at 1200ET. Atlanta Fed Bostic wraps up at 1550ET with moderated chat on economy. Mark your calendar: Jackson Hole economic symposium scheduled for August 22-24.
• US Treasury auctions $80B 4W, $80B 8W bills at 1130ET.

US TSY FUTURES: OI Points To Mix Of Short Cover & Long Setting On Wednesday

The combination of yesterday’s post-data move higher in Tsy futures and preliminary OI readings point to a mix of relatively contained net long setting and short cover across the curve.

• We flagged a more balanced positioning set up heading into the data (at least when compared to the pre-NFP setup), this is probably reflected in the post-data net OI adjustments.
• Net long setting seemed to be seen in TU, FV, TY, US & WN futures, with net short cover only witnessed in UXY futures.

STIR: OI Points To Net Long Setting Dominating On The SOFR Strip Following Wednesday's Data

The combination of yesterday’s move higher in SOFR futures and preliminary OI points to a mix of net long setting and short cover following the CPI and retail sales data, with net long setting dominating in all packs through the blues.

• We flagged a net short/paid positioning setup in U.S. STIRs ahead of the data.
• Markets moved to price ~50bp of cuts through ’24 vs. ~45bp ahead of the releases.

UK: Labour Leader To Set Out 'Six Pledges' As Pre-Election Manoeuvring Begins

Leader of the Opposition Sir Keir Starmer is set to deliver a pre-election speech highlighing his 'six pledges' for gov't should his centre-left Labour party win power in the contest, due by Jan 2025 at the latest. Starmer is set to speak at around 1000BST (0500ET, 1100CET) - livestream here. The speech is not likely to unveil any significant new planned policies, but instead seek to create a coherent view of what a Starmer-led gov't would seek to achieve.

• The pledges include: adhering to tough spending rules to ensure economic stability, 40k more healthcare appointments/week paid for by closing tax loopholes & ending non-dom status, new border security command to stop small boats crossing English Channel, set up 'Great British Energy' - publicly owned clean power firm, reduce anti-social behaviour with more neighbourhood policing, and hire 6,500 new teachers paid for by ending private school VAT break.
• While the date of the election is not yet known, the unofficial starting gun was fired by PM Rishi Sunak earlier in the week when he delivered a speech on foreign policy and global security, seen as an effort to burnish his centre-right Conservative party's credentials on protecting the UK.
• Over the coming months, speeches from Starmer and his senior shadow cabinet are likely to garner increasing press and market attention given that opinion polling at present suggests Labour will come to power with a sizeable majority at the election.

FED: Jackson Hole Announced For Aug 22-24, Between Two Key FOMC Meetings

In case you missed overnight, the 2024 edition of the Jackson Hole Economic Policy Symposium has been announced for August 22-24 (Thu-Sat).

• KC Fed president Schmid said that the symposium theme this year will be "the transmission of monetary policy."
• Usually a full schedule for Jackson Hole is not released until the night before the symposium begins, but the entire FOMC is likely to be there, with a keynote opening speech by Chair Powell, along with several key global central bankers (whose attendance is sometimes confirmed ahead of the official schedule release).
• The timing is not a huge surprise looking at previous years, but for those eyeing a first Fed cut in September, it comes 3.5 weeks before the Sept 18 FOMC decision (and for those eyeing July, it's 3.5 weeks after the Jul 31 meeting).

EGBS: Little Net Movement In Dutch Spreads Since Government Formation Announcement

There has been little net movement in 10-Year DSL spreads vs. Bunds, OATs & OLOs in the time since Geert Wilders announced an agreement surrounding the formation of a Dutch government.

• Structural spending looks set to fall, albeit not as far as some economic experts recommended.
• Elsewhere, Rabobank note that the lack of mention of the pension reform topic in the broad outline of the government accord is “notable in its absence, indicating that the coalition plans to make no alterations to the current transition process. Technically the government could still introduce some change, but our pension analyst thinks that this is unlikely.”
• Our political risk team provided more colour on the Dutch political backdrop after news of the agreement crossed.

MNI: US Inflation Insight, May'24: CPI In Line After Three Beats But Trend Rates Still Hot

• We have published and e-mailed to subscribers the MNI US Inflation Insight.
• Please find the full report including MNI analysis and views from 20 analysts here: https://roar-assets-auto.rbl.ms/files/64167/USInflationInsightMay2024.pdf

FED: NY's Williams Modestly Dovish On April CPI Data, Remains Cautious On Cuts

Reuters running an exclusive interview with NY Fed President Williams in which he describes Wednesday's largely in-line April CPI report as "kind of a positive development". While that's characteristically dovish-leaning of him, it is telling that the data doesn't seem to have spurred any reconsideration to his view that a rate cut is not warranted in the "near term", with policy "in a good place".

• That seems to be the Committee's mantra until there are at least a couple more reports meriting confidence that inflation is converging to 2% - keeping June and likely July off the table for a cut barring major surprises.
• Key headlines from the Reuters interview:
• EXCLUSIVE-NEW YORK FED PRESIDENT WILLIAMS: DOESN’T SEE NEED FOR RATE CUT IN ‘NEAR TERM’
• FED’S WILLIAMS: APRIL CPI WAS ‘POSITIVE DEVELOPMENT’ FOR INFLATION DYNAMICS
• FED’S WILLIAMS: OVERALL TREND FOR SLOWING INFLATION LOOKS GOOD
• FED’S WILLIAMS: DOESN’T SEE ANY CURRENT NEED TO RAISE INTEREST RATES
• FED’S WILLIAMS: NEED NOT WAIT UNTIL INFLATION EXACTLY AT 2% TO EASE POLICY

FOREX: Further Relief for JPY Keeps EUR/JPY Off Highs

• AUD trades poorly, slipping slightly against most others in G10 on the back of the jobs data out overnight, showing the unemployment rate unexpectedly ticking higher to 4.1% vs. Exp. 3.9%. AUD/USD faded off a new cycle high of 0.6714 to trade just underwater ahead of the NY crossover. $0.6622 marks the next downside level at yesterday's low, but short-term trend conditions remain pointed higher for now.
• JPY trades firmer, outpacing broader G10 as the gyrations in the front-end of the US yield curve on Wednesday continue to favour a further recovery in JPY. USD/JPY's solid bounce off post-intervention lows had put markets on cautious footing for further measures from the Japanese authorities. For now, however, yield dynamics are relieving some of this pressure, allowing for a broad bounce in the JPY currency.
• Scandi currencies are softer after outperforming on the back of firmer risk sentiment this week. EUR/NOK has recovered off a new multi-week low, but remains below the 50-dma of 11.6551.
• Focus for the remainder of Thursday trade turns to the US weekly jobless claims release, at which markets expect initial claims at +220k, a modest dip from +231k from the prior week. Fedspeak picks up across US hours, with appearances scheduled from Fed's Barr, Barkin, Harker, Mester and Bostic.

OPTIONS: Expiries for May16 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0635-45(E2.9bln), $1.0750-55(E2.9bln), $1.0790-05(E1.6bln), $1.0820-25(E907mln), $1.0845-50(E1.1bln), $1.0875(E823mln), $1.0915-20(E1.2bln)
• USD/JPY: Y155.00-05($1.5bln), Y159.30-50($2.5bln)
• GBP/USD: $1.2600-15(Gbp1.2bln)
• AUD/USD: $0.6425(A$1.3bln)
• USD/CNY: Cny7.2000($1.1bln), Cny7.2500($1.0bln)

EQUITIES: EuroStoxx Breaches Key Resistance

• S&P E-Minis traded higher yesterday and the contract remains firm today as it extends the bull cycle from Apr 19. Yesterday’s gains resulted in a break of key resistance at 5333.50, the Apr 1 high.
• Eurostoxx 50 futures continue to appreciate. The contract has breached key resistance at 5079.00, the Apr 2 high, to confirm a resumption of the uptrend and maintain the bullish sequence of higher highs and higher lows.

COMMODITIES: M/T Trend Still Bullish for Gold

• The medium-term trend structure in Gold remains bullish and this is reinforced by moving average studies that are in a bull-mode position. Near-term, a continued push higher would refocus attention on $2431.50, the Apr 12 high and bull trigger.
• A bearish theme in WTI futures remains intact and the contract continues to trade closer to its recent lows. Price has recently breached the 50-day EMA, strengthening a short-term bearish set-up that highlights potential for a deeper correction.

Date	GMT/Local	Impact	Country	Event
16/05/2024	1100/1200		GB	BOE's Greene Speech at Make UK on Labour Market
16/05/2024	1230/0830	***	US	Jobless Claims
16/05/2024	1230/0830	**	US	WASDE Weekly Import/Export
16/05/2024	1230/0830	**	US	Import/Export Price Index
16/05/2024	1230/0830	***	US	Housing Starts
16/05/2024	1230/0830	**	US	Philadelphia Fed Manufacturing Index
16/05/2024	1315/0915	***	US	Industrial Production
16/05/2024	1400/1000		US	Fed Vice Chair Michael Barr
16/05/2024	1430/1030	**	US	Natural Gas Stocks
16/05/2024	1430/1030		US	Philadelphia Fed's Pat Harker
16/05/2024	1530/1130	*	US	US Bill 08 Week Treasury Auction Result
16/05/2024	1530/1130	**	US	US Bill 04 Week Treasury Auction Result
16/05/2024	1600/1200		US	Cleveland Fed's Loretta Mester
16/05/2024	1950/1550		US	Atlanta Fed's Raphael Bostic
17/05/2024	0200/1000	***	CN	Fixed-Asset Investment
17/05/2024	0200/1000	***	CN	Retail Sales
17/05/2024	0200/1000	***	CN	Industrial Output
17/05/2024	0200/1000	**	CN	Surveyed Unemployment Rate M/M
17/05/2024	0720/0920		EU	ECB's De Guindos at Banking Sector Industry Meeting
17/05/2024	0800/0900		GB	BOE's Mann Speech at Economics Statistics Centre of Excellence Conference
17/05/2024	0900/1100	***	EU	HICP (f)
17/05/2024	1230/0830	*	CA	International Canadian Transaction in Securities
17/05/2024	1415/1015		US	Fed Governor Christopher Waller
17/05/2024	1700/1300	**	US	Baker Hughes Rig Count Overview - Weekly