Highlights:
- EUR hedges build downside risk bias ahead of first round of French elections
- JPY volatile, but official intervention unlikely to be driver
- Monday schedule light, keeping focus on Fedspeak
- Treasuries have more than pared earlier mild gains to sit a little weaker on the day, as EGBs reversed a brief Germany Ifo-driven bid, but they remain within Friday’s range across the curve.
- Cash yields sit unchanged to 0.5bp higher, with 2s10s at -47.5bps still holding a little above last week’s fresh YTD low of -49.5bps.
- TYU4 at 110-14 is probing session lows but remains above Friday’s 110-11+ on low cumulative volumes of 225k. Stronger support is seen at 109-23+ (50-day EMA) whilst the trend structure is seen remaining bullish with resistance at 111-01 (Jun 14 high).
- Today's thin docket is headlined by SF Fed's Daly ('24 voter) later on at 1400ET.
- Data: Dallas Fed mfg Jun (1030ET)
- Fedspeak: Goolsbee on CNBC (0830ET), Daly on economy/mon pol (1400ET, incl text) - see STIR bullet.
- Bill issuance: US Tsy $70B 13W, $70B 26W bill auctions (1130ET)
STIR: Fed Rates Little Changed With Daly Headlining A Thin Docket
- Fed Funds implied rates are little changed from Friday’s close ahead of a relatively thin docket, with the Dec’24 implied rate keeping to the narrow range seen since last week’s softer retail sales data.
- Cumulative cuts from 5.33% effective: 3bp Jul, 19bp Sep, 27bp Nov, 47bp Dec and 62bp Jan.
- Reuters has recently published an interview with Mester (’24 voter retiring in a few days on Jun 30): “At some point I would be open to selling, for the [FOMC] to sell MBS” but not immediately.
- There’s a light Fedspeak schedule today, with the pick being Daly with her first post-FOMC mon pol remarks later in the session. Tomorrow sees greater focus with two permanent voters in Bowman and Cook speaking.
- 0830ET – Goolsbee (’25 voter) interview on CNBC. He said in an unscheduled Fox News appearance on Jun 20 that the Fed can cut if it sees more good inflation reports and that it doesn’t need annual inflation to hit 2% before cutting rates.
- 1400ET – Daly (’24 voter) speaks on mon pol and the economy (text + Q&A). She has recently focused on AI with her last mon pol comments from May 20 (not yet confident inflation is coming down sustainably to 2%).
US TSY FUTURES: OI Shows Little Movement In Net Positioning On Friday
OI data suggests that net positioning movement was light on Friday, with a combination of modest long cover and short setting seen across Tsy futures contracts.
- There was a light bias towards net short setting as firmer-than-expected flash PMI readings out of the U.S. ultimately outweighed softer-than-expected Eurozone equivalents.
- Some of the faster money-type accounts may have been forced to cover intraday longs set in the wake of the Eurozone PMIs.
- The first couple of days of last week saw a skew towards net long setting, before long cover moved to the fore on Thursday.
- Tsy futures positioning seems to remain net short overall, albeit skewed by basis trade positioning.
- The latest CFTC CoT report (covering the period through June 18) will be released later today, with last week’s holiday delaying the release, as is the norm.
| 21-Jun-24 | 20-Jun-24 | Daily OI Change | OI DV01 Equivalent Change ($) | |
| TU | 4,128,385 | 4,111,669 | +16,716 | +638,387 |
| FV | 6,203,005 | 6,194,041 | +8,964 | +381,382 |
| TY | 4,313,084 | 4,324,111 | -11,027 | -716,791 |
| UXY | 2,045,638 | 2,035,746 | +9,892 | +891,487 |
| US | 1,646,691 | 1,646,761 | -70 | -9,328 |
| WN | 1,669,327 | 1,669,881 | -554 | -114,223 |
| Total | +23,921 | +1,070,914 |
First EU-bond Auction Since MSCI Rejection Sees Improved Results
Today’s EU-bond auction was the first since MSCI rejected plans to add EU debt to its sovereign indexes.
- Although the lowest accepted price (99.390) for the 2.75% Oct-26 EU-bond was slightly below the pre-auction mid-price (99.934), the bid-to-cover of 1.44x was an improvement on the 1.05x seen in the February reopening.
- The 3.00% Dec-34 EU-bond also saw an improved bid-to-cover, and a lowest accepted price in excess of the pre-auction mid price.
- The spread between the 3.00% Dec-34 EU-bond and the on-the-run 2.20% Feb-34 Bund has widened from around 55bps before the June 12 MSCI announcement to ~65bps at typing, though French political uncertainty also contributed to spread widening in that period.
- As we noted after the announcement, we still expect government bond index inclusion at some point, with MSCI noting in their press release that they would "re-evaluate the eligibility criteria (for EU-bonds) in Q225."
- E2.266bln of the 2.75% Oct-26 EU-bond. Avg yield 3.02% (bid-to-cover 1.44x).
- E2.343bln of the 3.00% Dec-34 EU-bond. Avg yield 3.073% (bid-to-cover 1.47x).
EUR Hedges Traded Since Election Call Show Clear Bias for Downside
- EUR vols gapped higher at the open Monday as the very front-end of the curve now captures the first round of the French legislative elections - 1wk vols were marked higher to 7.7 points, a ~2 point premium over background average vol this year.
- Options struck since Macron's election call have played the downside theme, with strong interest evident in put strikes at 1.0700 and below. Decent demand for exposure at 1.05 and below has built well across the past few weeks, with over €23bln in put notional traded between 1.05 - 1.03 strikes since June 9th (see full chart below).
- EUR/USD remains in a M/T downtrend headed into the results, and a stronger-than-expected showing for the far-left, or far-right will build expectations for protracted political stalemate across the rest of Macron's Presidential term. Such an outcome would add pressure to next support at 1.0668 in EUR/USD, ahead of 1.0601 - the bear trigger.
- Voting booths open Sunday, polls close at 2000CET, and exit polls will be published immediately afterwards. Results to trickle in and then accelerate through the night, almost all seats should be known by the morning of 1 July.
EUR/USD options traded since Macron's election call show clear bias for downside:
Official Intervention Unlikely Driver of JPY Bounce
- Dissecting the JPY move slightly further - official intervention here looks unlikely. Spike in volumes on this latest move saw just under 15k contracts trade over the entire move - which has already partially reversed on decent volumes.
- This compares to the last confirmed intervention in late April totalling over 10k contracts within a minute - over double the pace of participation seen in today's intraday volatility.
JPY Remains a Concern as TWI Within Reach of Pre-Intervention Low
- The greenback is modestly softer early Monday, reversing a small part of last week's late rally. Despite today's pullback, the USD Index remains well within range of the multi-month highs posted late last week at 105.915.
- USD weakness has paused USD/JPY's intraday incline - however today's 159.92 print will remain a considerable concern for the Japanese authorities. The JPY trade-weighted index has printed another multi-month low this morning, coming to withing just 0.15% of the prevailing level before the late April intervention phase. Any renewed dollar rally will keep focus on the JPY going forward.
- EUR trades firmer, helping EUR/USD show above last Friday's highs, but vol space has seen far more action relative to spot prices. EUR vols gapped higher at the open Monday as the very front-end of the curve now captures the first round of the French legislative elections on Sunday - 1wk vols were marked higher to 7.7 points, a ~2 point premium over background average vol this year.
- The data schedule is typically quiet for a Monday, with just the US Dallas Fed manufacturing data set to cross. This should keep focus on central bank comms, with ECB's Nagel, Villeroy & Schnabel set to speak, as well as Fed's Goolsbee & Daly and BoC's Macklem.
OPTIONS: Expiries for Jun24 NY cut 1000ET (Source DTCC)
- EUR/USD: $1.0700-10(E1.2bln), $1.0720-30(E1.0bln)
- USD/JPY: Y160.00($967mln)
- USD/CAD: C$1.3695-00($1.0bln)
MNI Norges Bank Review: June 2024
- The Norges Bank held policy rates at 4.50%, as unanimously expected. The updated policy path contained an unambiguous “higher for longer” signal, peaking at 4.51% in Q3 2024 and Q4 2024.
- The policy statement continued to stress that rates will likely be kept at peak levels “for some time ahead”, with the Committeee concerned “with the possibility that if the policy rate is lowered prematurely, inflation could remain above target for too long”. As such, Norges Bank have guided that rates will be kept at current levels until “the end of the year, before gradually being reduced”.
- While an upward revision to the rate path was firmly expected, we think the extent of those revisions caught markets off guard. As such, NOK strengthened on release and through the day.
- Following the decision, a number of analysts have pushed back calls for a September cut. Consensus now appears split between a first rate cut in December ‘24 (which would be dovish relative to the Norges Bank’s rate path) and March ‘25 (more consistent with the rate path).
Our full review, including a summary of sell-side views, is here:
MNI Norges Bank Review - 2024-06.pdf
MNI BOE Review - June 2024: Importance of Data Dependency Diminishes
- The MPC voted to leave Bank Rate unchanged at 7-2 as expected with both Dhingra and Ramsden dissenting in favour of a 25bp cut, repeating the voting outcome seen at the May meeting.
- However, there were a number of changes to the tone that together add to another dovish shift for the MPC – with a more pronounced change of communication than either we or market participants had expected. Indeed, the market-implied probability of an August cut rose from around 1/3 to around 2/3 following the policy decision.
- There were three notable changes in our view: a downshift in the importance of data dependency, some members seeing the decision as “finely balanced” as well as some interesting discussions on profit margins and cost passthrough.
- It now appears as though there is a lot less emphasis on individual data points here. And furthermore the bar of upside surprises to avoid an imminent cut at the August meeting appears to be far higher than we had anticipated. This seems to increase further the probability of an August cut.
- The BOE also announced that it would slow long-dated APF sales in Q3, in with our expectations.
For the full PDF including summaries of over 20 sellside views click here:
Initial Resistance For Eurostoxx 50 Futures Intact For Now
- The trend condition in Eurostoxx 50 futures remains bullish. A corrective cycle has resulted in a pullback from the May high. Recent weakness has seen price breach 4988.00, Jun 11 low, highlighting potential for a deeper retracement and has exposed 4846.00, Apr 19 low and a key support. The recovery from the Jun 14 low is an early bullish signal. Resistance to watch is at 5092.00, Jun 12 high. A break would expose key resistance at 5151.00.
- The uptrend in S&P E-Minis remains intact and the contract continues to trade close to its recent highs. Price has recently cleared 5430.75, the May 23 high and bull trigger. This confirmed a resumption of the uptrend. Note that moving average studies are in a bull-mode position too, highlighting positive market sentiment. Sights are on 5594.66 next, a Fibonacci projection. Initial support lies at 5452.35, the 20-day EMA.
WTI Futures Remain Above Key Resistance at $80.11
- WTI futures traded higher last week, extending the current bull phase. The climb has resulted in a break of $80.11, the May 29 high and a key resistance. The clear breach of this hurdle cancels a recent bearish theme and paves the way for $82.24, a Fibonacci retracement point. Initial firm support to watch is $78.33, the 20-day EMA. A break would be seen as an early potential reversal signal.
- Gold continues to trade below resistance - for now. A sharp sell-off on Jun 7 reinforced a short-term bearish theme. The yellow metal has pierced the 50-day EMA, at 2317.7. A clear break would confirm a resumption of the reversal from May 20 and open $2277.4, the May 3 low. Clearance of this price point would also strengthen a bearish theme. Initial firm resistance is $2387.8, the Jun 7 high.
| Date | GMT/Local | Impact | Country | Event |
| 24/06/2024 | 1300/1500 | ** |  BE | BNB Business Sentiment |
| 24/06/2024 | 1430/1030 | ** |  US | Dallas Fed manufacturing survey |
| 24/06/2024 | 1530/1730 |  EU | ECB's Schnabel in panel on 'Investing in Sovereignty" | |
| 24/06/2024 | 1530/1130 | * | US | US Treasury Auction Result for 26 Week Bill |
| 24/06/2024 | 1530/1130 | * | US | US Treasury Auction Result for 13 Week Bill |
| 24/06/2024 | 1730/1330 |  CA | BOC Governor Macklem speech in Winnipeg. | |
| 24/06/2024 | 1800/1400 | US | San Francisco Fed's Mary Daly | |
| 25/06/2024 | 0600/0800 | ** |  SE | PPI |
| 25/06/2024 | 0700/0900 | *** |  ES | GDP (f) |
| 25/06/2024 | 0700/0900 | ** | ES | PPI |
| 25/06/2024 | 0900/1000 | * |  GB | Index Linked Gilt Outright Auction Result |
| 25/06/2024 | 1100/0700 | US | Fed Governor Michelle Bowman | |
| 25/06/2024 | 1230/0830 | *** | CA | CPI |
| 25/06/2024 | 1230/0830 | ** | US | Philadelphia Fed Nonmanufacturing Index |
| 25/06/2024 | 1255/0855 | ** | US | Redbook Retail Sales Index |
| 25/06/2024 | 1300/0900 | ** | US | S&P Case-Shiller Home Price Index |
| 25/06/2024 | 1300/0900 | ** | US | FHFA Home Price Index |
| 25/06/2024 | 1300/0900 | ** | US | FHFA Home Price Index |
| 25/06/2024 | 1400/1000 | *** | US | Conference Board Consumer Confidence |
| 25/06/2024 | 1400/1000 | ** | US | Richmond Fed Survey |
| 25/06/2024 | 1430/1030 | ** | US | Dallas Fed Services Survey |
| 25/06/2024 | 1530/1130 | * | US | US Treasury Auction Result for Cash Management Bill |
| 25/06/2024 | 1600/1200 | US | Fed Governor Lisa Cook | |
| 25/06/2024 | 1700/1300 | * | US | US Treasury Auction Result for 2 Year Note |
| 25/06/2024 | 1810/1410 | US | Fed Governor Michelle Bowman | |
| 26/06/2024 | 0130/1130 | *** |  AU | CPI Inflation Monthly |
| 26/06/2024 | 0600/0800 | * |  DE | GFK Consumer Climate |
| 26/06/2024 | 0600/1400 | ** |  CN | MNI China Liquidity Index (CLI) |
| 26/06/2024 | 0645/0845 | ** |  FR | Consumer Sentiment |
| 26/06/2024 | 0900/1000 | ** | GB | Gilt Outright Auction Result |
| 26/06/2024 | 1000/1100 | ** | GB | CBI Distributive Trades |
| 26/06/2024 | 1040/1240 | EU | ECB's Lane speech at Bank of Finland MonPol conference | |
| 26/06/2024 | 1100/0700 | ** | US | MBA Weekly Applications Index |
| 26/06/2024 | 1400/1000 | *** | US | New Home Sales |
| 26/06/2024 | 1430/1030 | ** | US | DOE Weekly Crude Oil Stocks |
| 26/06/2024 | 1530/1130 | ** | US | US Treasury Auction Result for 2 Year Floating Rate Note |
| 26/06/2024 | 1700/1300 | * | US | US Treasury Auction Result for 5 Year Note |
| 26/06/2024 | 2000/2100 | GB | BBC Leaders Head-to-Head debate |
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