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Free AccessMNI US MARKETS ANALYSIS - Powell Next Up
Highlights:
- Jackson Hole in focus, with Fed's Powell set to speak at 1505BST/1005ET
- EUR/USD shows below 200-dma for first time since mid-2021
- Fed terminal rate pricing touches highest since SVB crisis
US TSYS: Mildly Cheaper Ahead Of Chair Powell At Jackson Hole
- Cash Tsys trade marginally cheaper ahead of Chair Powell’s keynote address at Jackson Hole, potentially further raising the bar for a hawkish surprise. Fedspeak continues to headline the session thereafter, with only a final U.Mich reading of note from data along with no issuance.
- Macro headline flow has been dominated by Chinese economic support measures and touted moves to prop up the country's equity market. On the flipside, RTRS sources flagged a growing likelihood of a pause in the ECB's tightening cycle, which provided some brief & limited support.
- 2YY +1.6bp at 5.039%, 5YY +1.5bp at 4.429%, 10YY +0.8bp at 4.245% and 30YY +0.2bp at 4.304%.
- TYU3 trades 4+ ticks lower at 109-14+ off a recent low of 109-12, with the downtrend remaining intact with support at 108-28 (Aug 22 low) and 108-26+ (Oct 21, 2022 low cont).
- Fedspeak: Powell Jackson Hole speech (1005ET), Harker (1100ET Bbg TV, 1130ET Yahoo!), Mester (1130ET CNBC, 1430ET Bbg TV), Goolsbee (1215ET CNBC, 1400ET Bbg TV)
- Data: U.Mich consumer survey Aug final (1000ET), Kansas City Fed services Aug (1100ET)
STIR FUTURES: Fed Terminal Rate At Pre-Regional Banking Crisis Level
- Fed Funds implied rates have modestly extended yesterday’s climb, for the most part rising a further 1-2bps.
- It comes ahead of Powell’s keynote Jackson Hole address before a raft of other Fedspeak including hearing from Mester (’24 voter) for the first time since the July FOMC.
- It leaves +5bp for Sep (+0.5bp on the day) and a cumulative +14bp for Nov for a terminal of 5.47% (+1bp). The terminal last closed higher on Mar 9 (then seen landing with the July meeting) at the start of SVB deliberations.
- Cuts from terminal: 1.5bp to Dec’23, 41bp to Jun’24 and 108bp to Dec’24.
Source: Bloomberg
STIR: Fresh Shorts Seemingly Dominated On The SOFR Strip On Thursday
Yesterday’s move lower in SOFR futures, coupled with preliminary open interest data, points to fresh shorts driving net positioning swings across the strip on Thursday, as participants seemingly made some room for hawkish utterances from Fed Chair Powell later today (terminal policy rate pricing ticked a touch higher on the FOMC-dated OIS strip).
- 11 of the 16 contracts through the blues seemingly saw fresh shorts added on net, the remaining 5 seemingly saw long cover.
- The reds saw the most meaningful move in net OI from a pack perspective, even with SFRM3 & SFRU3 seemingly being subjected to some long cover.
24-Aug-23 | 23-Aug-23 | Daily OI Change | Daily OI Change In Packs | ||
SFRM3 | 1,116,306 | 1,123,209 | -6,903 | Whites | +47,210 |
SFRU3 | 1,041,535 | 1,051,119 | -9,584 | Reds | +17,469 |
SFRZ3 | 1,278,588 | 1,237,446 | +41,142 | Greens | +21,074 |
SFRH4 | 955,788 | 933,233 | +22,555 | Blues | +5,263 |
SFRM4 | 855,017 | 840,297 | +14,720 | ||
SFRU4 | 780,027 | 780,225 | -198 | ||
SFRZ4 | 764,992 | 764,960 | +32 | ||
SFRH5 | 529,396 | 526,481 | +2,915 | ||
SFRM5 | 626,504 | 614,047 | +12,457 | ||
SFRU5 | 484,290 | 480,448 | +3,842 | ||
SFRZ5 | 451,658 | 452,631 | -973 | ||
SFRH6 | 267,479 | 261,731 | +5,748 | ||
SFRM6 | 216,000 | 214,565 | +1,435 | ||
SFRU6 | 153,280 | 152,169 | +1,111 | ||
SFRZ6 | 186,691 | 183,522 | +3,169 | ||
SFRH7 | 133,215 | 133,667 | -452 |
MNI JACKSON HOLE PREVIEW
MNI JACKSON HOLE PREVIEW: Powell to Emphasize the Job Isn’t Done
Chair Powell’s task in his Jackson Hole keynote speech is to reaffirm the recent turn to a meeting-by-meeting, data-dependent approach to policy while emphasizing that the Fed intends to keep rates in restrictive territory for a lengthy period of time. In this regard it is likely to sound like a bookend to his brief 2022 speech in which he invoked the lessons of the 1970s and 80s to say “we must keep at it until the job is done”, with Powell laying out the “higher for longer” rate landscape for the year ahead. Most analysts expect Powell to deliver a hawkish-on-balance message, and combined with the recent jump in market rates, the bar is set reasonably high for a hawkish reaction.
MNI CBRT Review - August 2023: Large Step Toward Restoring Credibility
Executive summary:
- The CBRT delivered a 750bp key rate hike, well above firm consensus of a smaller 250bp increase.
- The decision appears to have been based on the bank's confidence that recent adjustments to macroprudential measures are sufficient to deal with recent lira liquidity issues, which hampered monetary transmission.
- The lira rallied on the decision, with USD/TRY falling as much as 7% on Thursday to June levels.
FOREX: EUR/USD Testing Several Key Supports as Momentum Leans Toward Sept Pause
- The EUR faced selling pressure through Asia-Pac hours and across the European open, resulting in a break below the key 200-dma support of 1.0804 (last broken below in Jun'21). EUR/USD is now testing the base of the bull channel drawn off the March lows at 1.0769. A break and close below this mark would be a resolutely bearish development, opening June 12th lows at 1.0733 as well as the March 15 lows of 1.0635 further out.
- Moves follow further caution around the Sept ECB rate decision, with Reuters reporting that momentum for a rate pause is building, according to 8 separate sources. Approximately 8.5bps of tightening remains priced, shedding around 1bps on the story.
- This leaves EUR the poorest performing currency so far Friday, with with the USD modestly firmer. AUD is the strongest on the day, as markets look to recoup a small part of Thursday's sharper losses. The outlook for AUD/USD remains bearish, with focus on the bear trigger and mid-August lows of 0.6365. China stimulus efforts may be containing AUD risks at present, with Reuters citing sources in reporting that the China authorities are looking to cut stamp duty on domestic stock trading by as much as 50%.
- Jackson Hole takes focus going forward, with Fed chair Powell's keynote speech in the spotlight. He speaks at 1505BST/1005ET, with text set to be released. Final University of Michigan sentiment data also crosses, with 1-yr and 5-yr inflation expectations expected unchanged at 3.3% and 2.9% respectively.
EQUITIES: Thursday's Sell-Off Reinforces Bearish Theme in E-Mini S&P
- A bearish theme in Eurostoxx 50 futures remains present and yesterday’s sharp sell-off reinforces this theme. The move lower signals the end of the recent corrective bounce between Aug 18 - 24. Key support and the bear trigger has been defined at 4187.00, the Aug 8 low. A break of this level would confirm a resumption of the downtrend. Resistance to watch is 4335.00, the 50-day EMA.
- A sharp sell-off yesterday in the E-mini S&P contract reinforces a bearish theme and signals the end of the recent corrective bounce between Aug 18 - 24. The focus turns to support at 4350.00, the Aug 18 low and bear trigger. A break would confirm a resumption of the current bear cycle. On the upside, resistance to watch is 4499.37, the base of a bull channel that was breached last week. The channel is drawn from the Mar 13 low.
COMMODITIES: Gold Still Bearish Despite This Week's Corrective Recovery
- The uptrend in WTI futures remains intact, however, a corrective cycle is in play for now. Wednesday’s move lower resulted in a print below support at $78.33, the Aug 3 low. A clear break of this support would highlight a stronger bear cycle and pave the way for a deeper retracement. Note that a key support lies at the 50-day EMA, which intersects at $77.48. Initial resistance to watch is $81.75, a break would be a bullish development.
- The outlook in Gold remains bearish, however, a short-term correction has resulted in a recovery this week. The yellow metal has breached resistance at the 20-day EMA and attention turns to the 50-day EMA, at $1931.4. A clear break of this average would strengthen the current bull cycle. For bears, moving average studies continue to highlight a dominant downtrend. Key support and the bear trigger has been defined at $1884.9, the Aug 21 low.
Date | GMT/Local | Impact | Flag | Country | Event |
25/08/2023 | 1300/1500 | ** | ![]() | BE | BNB Business Sentiment |
25/08/2023 | 1400/1000 | ** | ![]() | US | U. Mich. Survey of Consumers |
25/08/2023 | 1405/1005 | ![]() | US | Fed Chair Powell on economic outlook | |
25/08/2023 | 1500/1100 | ![]() | CA | Finance Dept monthly Fiscal Monitor (expected) | |
25/08/2023 | 1900/2100 | ![]() | EU | ECB's Lagarde speaks at Jackson Hole | |
26/08/2023 | 1625/1725 | ![]() | UK | BoE's Broadbent speaks in Jackson Hole | |
28/08/2023 | 0130/1130 | ** | ![]() | AU | Retail Trade |
28/08/2023 | 0800/1000 | ** | ![]() | EU | M3 |
28/08/2023 | 1430/1030 | ** | ![]() | US | Dallas Fed manufacturing survey |
To read the full story
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.