MNI US MARKETS ANALYSIS - Prelim Inf. Expectations in Focus
MNI (LONDON) - Highlights:
- Treasuries on the front-foot as early equity strength fades into crossover
- GBP on the up as European stocks remain resilient
- Prelim UMich sentiment in focus, with inflation expectations seen stepping lower
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- Treasuries have rallied over the past couple hours, with similar moves in EGBs as fixed income receives a tailwind from oil prices stepping lower and equity futures rolling over.
- Recent flow includes a 5k TY cumulative buyer, 3k in FVU4 and 1.75k in UXYU4.
- Most recently, former NY Fed’s Dudley writes that he thinks Powell will disappoint those looking for September cut size clarity whilst Goolsbee’s NPR appearance has started early with dovish commentary.
- The WSJ late yesterday reported Harris campaign officials saying she will call for the construction of 3 million new housing units in her first four years in office along with tax incentives for home builders to construct properties for first-time home buyers.
- Cash yields sit 3-4.7bps lower on the day, with declines led by 3s.
- 2s10s at -17.1bps meanwhile holds the bulk of yesterday's flattening on retail sales/jobless claims beats.
- TYU4 sees session highs of 113-09+ (+ 11) on solid volumes of 350k. It pulls away from yesterday’s low of 112-25+ but remains some way off pre-retail sales/jobless claims levels of circa 113-19.
- Recent moves haven’t tested some widely spaced levels after last week’s volatility: support is seen at 112-11 (20-day EMA) whilst resistance is still seen at 114-03 (Aug 6 high) before a bull trigger at 115-03+ (Aug 5 high).
- Data: Building permits/housing starts (0830ET), NY Fed services index Aug (0830ET), U.Mich Aug prelim (1000ET), State labor data (1000ET)
- Fedspeak: Goolsbee at NPR’s Morning Edition (~0700ET), fireside chat (1325ET) and CNN appearance (1615ET) – see STIR bullet as he’s already spoken since Wednesday’s CPI release.
Fed Implied Rates Cool After Retail Sales/Claims Highs
- Fed Funds implied rates have pulled back from yesterday’s high seen after stronger than expected retail sales and jobless claims data, but still hold strong gains for the week.
- September implied cuts are 2bps lower than pre-retail sales/claims levels but some 7bp lower than pre-CPI.
- Cumulative cuts from 5.33% effective: 34bp Sep, 63bp Nov, 96bp Dec, 120bp Jan and 176bp out to June.
- Triple Goolsbee (’25 voter) scheduled today: NPR’s Morning Edition (~0700ET), fireside chat (1325ET) and CNN appearance (1615ET). Next week’s Fedspeak is more notable, with the FOMC minutes on Wed before Powell at 1000ET on the Fri (now confirmed).
- Goolsbee has already spoken since Wednesday’s CPI release, saying policy is “very restrictive” and the economy is not overheating. He’s more concerned about the jobs mandate “on the margin” and rising unemployment may indicate a worsening job market. Economic conditions will warrant the size of rate cuts.
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US TSY FUTURES: OI Data Suggests Long Cover Dominated During Yesterday's Sell Off
OI data suggests that long cover dominated during yesterday’s post-data sell off.
- The only exception to the broader theme came via very modest net short setting in UXY futures.
- The most notable DV01 equivalent positioning swing came in WN futures.
- We had warned that notable long positioning presented a clear risk to the recent rally in the case that U.S. data became less downbeat.
15-Aug-24 | 14-Aug-24 | Daily OI Change | OI DV01 Equivalent Change ($) | |
TU | 4,350,727 | 4,401,723 | -50,996 | -1,866,795 |
FV | 6,708,587 | 6,720,900 | -12,313 | -519,746 |
TY | 4,978,389 | 4,996,950 | -18,561 | -1,207,349 |
UXY | 2,153,678 | 2,152,512 | +1,166 | +107,284 |
US | 1,678,874 | 1,692,362 | -13,488 | -1,858,776 |
WN | 1,628,863 | 1,643,554 | -14,691 | -3,377,651 |
Total | -108,883 | -8,723,034 |
STIR: OI Suggests Short Setting Dominated During Yesterday's SOFR Sell Off
OI data suggests that net short setting dominated in all packs through the blues during yesterday’s data-driven hawkish repricing, with some pockets of net long cover also noted.
- Fed Funds futures now price ~34bp of cuts for the September FOMC and ~95bp of cuts through year end, with the pullback from last week’s dovish extremes (~70bp for Sep and ~148bp for Dec) extending further.
15-Aug-24 | 14-Aug-24 | Daily OI Change | Daily OI Change In Packs | ||
SFRM4 | 1,134,292 | 1,131,783 | +2,509 | Whites | +20,613 |
SFRU4 | 1,115,765 | 1,096,313 | +19,452 | Reds | +30,574 |
SFRZ4 | 1,126,405 | 1,110,766 | +15,639 | Greens | +6,946 |
SFRH5 | 910,605 | 927,592 | -16,987 | Blues | +7,028 |
SFRM5 | 808,169 | 809,909 | -1,740 | ||
SFRU5 | 688,007 | 685,688 | +2,319 | ||
SFRZ5 | 913,695 | 878,823 | +34,872 | ||
SFRH6 | 669,833 | 674,710 | -4,877 | ||
SFRM6 | 650,502 | 629,966 | +20,536 | ||
SFRU6 | 576,538 | 571,823 | +4,715 | ||
SFRZ6 | 477,310 | 492,371 | -15,061 | ||
SFRH7 | 262,121 | 265,365 | -3,244 | ||
SFRM7 | 255,645 | 252,387 | +3,258 | ||
SFRU7 | 215,863 | 210,746 | +5,117 | ||
SFRZ7 | 235,947 | 241,433 | -5,486 | ||
SFRH8 | 170,225 | 166,086 | +4,139 |
Dudley Writes Indications on Size of First Fed Cut Unlikely at Jackson Hole
Former FOMC member Bill Dudley writes a new column on the Fed ahead of the Jackson Hole meeting - his previous column "I Changed My Mind. The Fed Needs to Cut Rates Now" drew a decent amount of market interest ahead of the July Fed decision.
He writes that:
- "People will be listening intently for any hint about what the central bank will do with interest rates at its September policy making meeting. They’ll probably be disappointed.
- "He’ll likely observe that [price stability and employment] are in closer balance, implying that tight monetary policy is no longer warranted. I would be surprised, though, if he offered any indication of the size of the first interest-rate cut, which is almost certain to come in September."
Dudley's opinions are helping form a consensus view for Jackson Hole next week, but the Fed Chair is unlikely to be drawn on specifics or details for the September decision - at which markets price ~30bps of rate cuts.
UK Treasury Confirm Alan Taylor to Replace Haskel on BoE MPC
Full statement here: https://www.gov.uk/government/news/chancellor-appoints-professor-alan-taylor-as-member-of-the-monetary-policy-committee
- Alan Taylor is set to replace Haskel from September 2nd onwards. Taylor currently a professor at Columbia University - has experience at Morgan Stanley, PIMCO and is accomplished academic in macro and economic history.
- Of particular interest could be his work on exchange rates and FX determination, as well as his research into credit markets and financial crises (a 2012 paper concluded that "rates of credit expansion have been a robust predictor of financial crises"
- Haskel is approaching the end of his term (he departs on August 31st) as an external member, and has voted for rates to be kept unchanged at the previous four decisions, and voted for rates to be raised at the prior 5 decisions, making him a relative hawk on the MPC.
MNI Asia Pac Weekly Macro Wrap
JAPAN
- Japan will have a new Prime Minister as incumbent PM Kishida will not seek a second term. Q2 GDP surprised on the upside, somewhat validating the recent hawkish BoJ shift. Yen spent the week softening though as global recession fears eased.
AUSTRALIA
- July data showed that the labour market remains “quite tight” with employment in the year to date greater than for the same period in 2023. The unemployment rate ticked up 0.1pp to 4.2% as growth in the labour force continues to exceed the rise in new jobs. The RBA looks firmly on hold on for now.
- Wages growth was broadly in line with expectations at 4.1% y/y in Q2 driven by stronger public sector pay while the private sector moderated.
- Business and consumer surveys were consistent with sub-trend growth but not signalling a further deterioration. The NAB survey gave indications that it is getting harder for businesses to pass higher costs onto final product prices.
NEW ZEALAND
- The RBNZ cut rates 25bp to 5.25% and made significant revisions to its GDP, CPI and OCR forecasts based on a material deterioration in higher frequency data. It was “confident” that inflation would return to the band in Q3 2024 due to greater excess capacity and inflation expectations declining to 2%, the band mid-point.
SHORT TERM RATES
- NZ outperformed the $-Bloc after the RBNZ commenced its easing cycle.
CHINA
- Growth concerns for China continue after this week’s housing/July activity data releases. Further policy stimulus is likely. Bond volatility continues but the path likely remains towards low or lower yields.
ASEAN
- Philippines central bank kicked off its easing cycle, while Thailand political uncertainty returned. Singapore and Malaysia data outcomes were stronger than expected.
ASIA EQUITY FLOWS
- Equities mostly recover from August 5 sell-off, but offshore flows are yet to fully return after sell-off (still running negative month to date for August).
See the attached below for more details.
RUSSIA: Putin Aide Claims West Involved In Planning Kursk Offensive
Senior aide to President Vladimir Putin, Nikolai Patrushev, has claimed that the West and NATO were directly involved in the planning of Ukraine's ongoing offensive into the Kursk oblast of the Russian Federation. Speaking to theIzvestia newspaper, Patrushev claimed that, "The operation in the Kursk region was also planned with the participation of NATO and Western special services...Without their participation and direct support, Kyiv would not have ventured into Russian territory."
- Ukraine's Western allies have all denied any foreknowledge or involvement in planning the Kursk offensive, although it has become clear that Western military donations to Ukraine - including UK-made Challenger II tanks- have likely been deployed as part of the incursion.
- Patrushev is seen as one of the most hawkish ultranationalists within Putin's inner circle and has frequently made comments throughout the war since 2022 raising the prospect of escalation and direct Russia-NATO confrontation. On the Kursk offensive, he claimed that "Washington's efforts have created all the preconditions for Ukraine to lose its sovereignty and part of its territories, including those that some American allies have long had their eye on."
- Given Patrushev's frequent use of aggressive rhetoric, his comments today may not be taken as a sign of imminent escalation. Nevertheless, with the war now taking place directly on Russian soil the likelihood of a significant Russian response against Ukraine or enhanced hybrid attacks against the West is as high as they have been for some time.
FRANCE: Macron To Meet Party Leaders 23 Aug-AFP
AFP reporting that according to the Elysee Palace, President Emmaneul Macron will meet with party heads on Friday 23 August. The meetings come amid renewed disagreement between the president and the centrist Ensemble bloc in the National Assembly aligned with Macron, and the leftist New Popular Front (NFP) over who should lead the next gov't.
- The NFP argues that as the largest bloc in the National Assembly its preferred candidate, Paris civil servant Lucie Castets, should be nominated by Macron as PM under the constitution.
- However, Macron has already rejected her candidacy claiming that she would not be able to command a stable majority in the National Assembly.
- The two most likely scenarios at present appear to be either an NFP minority gov't (that would be immediately vulnerable to a no-confidence vote) or a broad centre-left, centrist, centre-right coalition that would face difficulty in passing legislation given the major political differences evident.
- Some pundits, even those not aligned with Macron, have argued that it is not the president's place under Article 8 of the constitution to decide whether the gov't they are appointing can command a majority, but only to appoint an individual from the largest party or bloc in parliament.
- Cohabitation (president from one party, PM from another) is rare but not unheard of, with Presidents Francois Mitterand and Jacques Chirac both having periods of their presidency under the system.
NZD/USD Back Above $0.60, But 200-dma Still a Cap
- NZD is extending an early recovery rally into the NY crossover, and is outperforming broader G10 FX. An appearance from RBNZ's Silk detailed the cautious approach on rates from the central bank and underlined the remaining uncertainty over NZ price pressures ahead.
- NZD/USD is back above the $0.60 level, but the intraday bounce still faces the short-term bearish momentum pressures, evident in the 50-dma crossing below the 200-dma in early August.
- The greenback is the poorest performer so far Friday as the dollar retraces a small part of the post-data strength - however the USD Index remains well clear of the cycle lows and horizontal support layered between 102.160-102.270.
- GBP/USD trades well, and has cleared the weekly highs to touch the best levels of August to narrow the gap with next resistance at 1.2899 - the 61.8% retracement of the downleg posted off the mid-July high at 1.3044. Retail sales data showed an acceleration in consumption over the month of July. However, as was the case with the jobs and inflation numbers earlier in the week, leaves little definitive signal for the BoE's September meeting, at which a further 25bps cut sits as 9bps priced.
- Focus for the remainder of the Friday session turns to the prelim Uni of Michigan sentiment survey, at which both the 1 year and 5-10 year inflation expectations metrics are expected to moderate by 0.1 ppts. Housing starts and building permits data are also set to cross, as well as appearances from Fed's Goolsbee.
WTI Future Trend Conditions Bullish Despite Recent Pullback
- WTI futures rallied sharply higher Monday. The move undermines a recent bearish theme and price has traded through both the 20- and 50-day EMAs. A resumption of gains would signal scope for a climb towards $80.77, a Fibonacci retracement. Clearance of this level would open $83.58, the Jul 5 high. On the downside, the contract has pulled back from the recent high. A stronger sell-off would refocus attention on key support at $71.67, Aug 5 low.
- Gold is unchanged and the metal is holding on to its latest gains. Recent weakness appears to be corrective and the trend structure remains bullish. Note that price recently pierced support at the 50-day EMA - currently at $2391.6. A clear break of it would signal scope for a deeper retracement towards $2277.4, the May 3 low and a key support. Attention is on $2483.7, the Jul 17 high and a bull trigger. A break of this hurdle resumes the uptrend.
Date | GMT/Local | Impact | Country | Event |
16/08/2024 | 1215/0815 | ** | ![]() | CMHC Housing Starts |
16/08/2024 | 1230/0830 | * | ![]() | International Canadian Transaction in Securities |
16/08/2024 | 1230/0830 | ** | ![]() | Monthly Survey of Manufacturing |
16/08/2024 | 1230/0830 | *** | ![]() | Housing Starts |
16/08/2024 | 1400/1000 | ** | ![]() | U. Mich. Survey of Consumers |
16/08/2024 | 1700/1300 | ** | ![]() | Baker Hughes Rig Count Overview - Weekly |