MNI US MARKETS ANALYSIS - Risk Fades Ahead of Crowded Week

MNI (LONDON) - Highlights:

• Near-term Fed rates await FOMC, September cut more than fully priced
• Positioning data shows sharp short-covering behind recent JPY rally
• GBP softer at start of risk-driven week, statement on public finances, BoE due

US TSYS: Further Pullback In Long-End Yields, Borrowing Estimates Today’s Highlights

• Treasuries have rallied overnight, potentially reflecting an intensification in Middle East geopolitics after Israel retaliated to a rocket strike from Lebanon over the weekend.
• Treasuries did initially rally with the Asia open but have rallied further since then along with larger moves in EGBs suggesting other factors are at play. It comes ahead of an important week for risk events including but certainly not limited to decisions from the FOMC, BoJ and BoE as well as Treasury’s quarterly Refunding process.
• Cash yields sit 1.5-4bp lower, with declines led by the long-end. The 10Y yield of 4.159% at typing is close to recent lows of 4.14% from Jul 17 after which would be lows since March.
• TYU4 is 1+ ticks off the earlier new recent high of 111-15+ (+ 09) on solid cumulative volumes of 330k.
• The bull theme continues, with tentative clearance of 111-15 (Jul 17 high) watched to see if it could set sights on 111-31 (Fibo projection).
• Treasury: Marketable borrowing estimates (1500ET), to be followed by the full QRA on Wednesday morning.
• Data: Dallas Fed mfg Jul (1030ET)
• Bill issuance: US Tsy $76B 13W, $70B 26W bill auctions (1130ET)

STIR: Near-Term Fed Rates Await FOMC Steer, Sept Cut Fully Priced

• Fed Funds implied rates are unchanged from Friday’s close for the next three meetings but further out edge 1bp lower for Dec and Jan in light of a broader FI bid as they consolidate last week’s slide.
• Cumulative cuts from 5.33% effective: 1bp Jul, 28.5bp Sep, 45bp Nov, 69bp Dec and 87bp Jan.
• The limited move for near-term meetings is to be expected ahead of Wednesday’s FOMC decision. Today sees a particularly thin docket although labor-focused releases over the next two days including JOLTS and the Q2 ECI could still drive gyrations in the interim.
• See the MNI preview at the below link with a summary of analyst expectations to follow later today: https://roar-assets-auto.rbl.ms/files/65477/FedPrevJul2024.pdf

WHITE HOUSE: Biden Supports SCOTUS Term Limits & Amendment To End Pres. Immunity

Writing in a WaPo op-ed, President Joe Biden proposes a constitutional amendment called the 'No One Is Above the Law Amendment', that would remove the immunity for crimes a former president committed while in office. Comes after the Supreme Court ruled earlier in July that a president has broad immunity for crimes committed during their time in office as part of 'official acts'. The ruling resulted in a major backlash from liberals, arguing that it would give the presidency dictatorial powers.

• Biden also calls for the imposition of term limits on Supreme Court justices, and a binding 'code of conduct' for those called to the bench.
• Biden: "Term limits would help ensure that the court’s membership changes with some regularity. That would make timing for court nominations more predictable and less arbitrary. It would reduce the chance that any single presidency radically alters the makeup of the court for generations to come." Biden says he supports a system of a new justice being appointed every two years for a single 18-year term.
• The likelihood of either of these coming to fruition is slim. Constitutional amendments require the backing of two-thirds of both the House of Representatives and the Senate (or a national convention called by 2/3 of states), and then ratification by 3/4 of all state legislatures or state-ratifying conventions. Given the massively divided and partisan nature of US politics, the bipartisan support needed for an amendment is significantly lacking.

UK FISCAL: Reeves to make statement on public finances today

• Chancellor of the Exchequer Rachel Reeves will make a statement to parliament today (we have heard unconfirmed reports of 15:30BST) on the state of the public finances.
• There are expected to be four strands to the announcement: first she is widely expected to state that there is a gap of around GBP20bln in the current year (i.e. FY24/25) funding plans - and blame this on the previous government. This follows a review that was set up as one of her first acts as Chancellor and looks through all of the departmental spending plans (the most up to date parts of which are not public - and generally have quite a long lag to be reflected in ONS data - but which should nevertheless have been included in OBR forecasts).
• Second, she is expected to confirm that she will accept the independent pay review bodies' recommendations on public sector pay. Most notably this would include above-inflation (and higher-than-budgeted for) increases of 5.5% for workers such as doctors, nurses and teachers.
• Third, she is likely to announce a number of immediate spending cuts (or pauses) - with the weekend media reporting that this is likely to be focused on large infrastructure projects and consultants including areas such as the plans to build 40 new hospitals by 2030, the London terminus to the HS2 rail scheme and the tunnel for the A303 road under Stonehenge.
• Finally, Reeves is expected to announce the date of the Budget (and note that Labour's manifesto stated there would only be one major fiscal event each year going forward). We expect this to take place on 30 October (or possibly 6/13 November).
• In terms of market reaction, the public sector pay confirmation is likely to be mostly priced in by this point - it was largely expected to be accepted by the Labour government. It will also be interesting whether there is any discussion at all on tax rises - or if there is a hint from Reeves that the spending cuts likely to be announced today will cover the "shortfall" in the projections.
• There will also be focus on whether the departmental spending review is expected to report in time for this year's Budget (or next year) and whether the OBR makes any follow up statements - other than a confirmation that Reeves has instructed it to update forecasts for the upcoming Budget.

UK DATA: CBI Retail Sales Fell Faster Than Expected For The Second Month

UK CBI volume of sales reported fell faster than expected to -43 in July (vs -24 prior, -9 expected (which Bloomberg consensus of only three analysts is broadly in line with)). This is the second consecutive monthly fall and weakest reading since April 2024.

• Volume of sales are expected to fall again next month although at a slightly slower pace than this months print (-32). This is following the ONS retail sales coming in weaker than expected in June.
• The CBI release states "retailers citing unfavorable weather conditions and market uncertainty" as key drivers for the weakness.
• The survey includes 131 respondents, of which 49 were retailers and was in field between 27 June and 17 July.

CFTC: JPY Short Covering to Remain Key Market Driver, as Per CFTC Report

• JPY short-covering continued apace, with the net short being trimmed by ~44k contracts, or 14.3% of open interest. Despite the short-covering (likely the extended trigger of the post-intervention JPY rally last week), the outright market is still left short of ~110k contracts. Nonetheless, the pace of short-covering has tilted the 52w Z-Score into positive territory, now at +0.77.
• Both asset managers and leveraged funds played a significant part in the short-covering, however both investor classes are net short ~50k JPY futures contracts. We wrote last week that the short-covering tailwind is likely to persist given entrenched positioning - these investor classes haven't been net neutral or net long JPY at the same time since the aftermath of COVID lockdowns in 2021.
• GBP and AUD positioning sees the largest 52w Z-score among currencies surveyed. Markets built net long GBP to a new series high last week, hitting 49.2% of open interest.
• Full table here:

FOREX: Risk Fades as Markets Adopt Defensive Stance

• Currency markets have adopted a vague risk-off tone early Monday, despite a distinct lack of major external developments or datapoints. The greenback is firmer alongside the JPY, while the EUR and - in particular - GBP are trading poorly.
• The resultant downleg in GBP extended through 1.2850 support as well as the more notable 50% retracement of the July upleg at 1.2830. The move initially triggered by the USD buying phase and the modest risk-off evident in equity futures, but GBP is now underperforming against all others in G10 - with demand for EUR/GBP putting the cross just a few pips below the 50-dma of 0.8461. Clearance here would be the first since early May.
• Despite the fade off the best levels in equity index futures, Wall Street is set for a positive cash open later today, building on the strong close Friday. JPY is the firmest currency in G10, as the short-covering tailwind persists. 
• Focus for the rest of Monday trade turns to the public finances statement from UK Chancellor Reeves, supposedly set for around 1530BST/1030ET, at which she's expected to lay out the detail of the "blackholes" in government finances and her plans to fix them across the coming parliament. Reports suggest she is to clamp down on infrastructure and government spending, while potentially raising some selected taxes on pension contributions or capital gains.

EQUITIES: E-Mini S&P Extends Moderate Recovery From Last Week's Lows

• Eurostoxx 50 futures traded lower Thursday, reinforcing current bearish conditions. The contract has breached 4846.00, the Apr 19 low. A clear break of this level would pave the way for an extension towards 4727.57, the 200 day MA on the continuation chart. Moving average studies are in a bear-mode set-up, highlighting a downtrend. The latest bounce appears to be a correction - for now. Initial firm resistance to watch is 4980.00, Jul 23 high.
• S&P E-Minis traded lower last week and the move down resulted in a break of both the 20- and 50-day EMAs. This reinforces a short-term bearish cycle and signals scope for an extension near-term. Note that the move down is considered corrective. Potential is seen for a move towards 5413.55, the lower band of a MA envelope, ahead of 5370.62 a Fibonacci retracement. Key short-term resistance is 5629.75, the Jul 23 high.

WTI Futures Close to Recent Lows, S-T Bearish Threat Still Present

• The recent move lower in WTI futures signals scope for an extension near-term. The contract has traded through both the 20- and 50-day EMAs, reinforcing a short-term bearish threat. A resumption of the bear leg would open $72.23, the Jun 4 low and the next key support. For bulls, a reversal higher would instead refocus attention on the key resistance points at $83.58, the Jul 5 high, and $84.36, the Apr 12 high.
• Gold continues to trade below its recent highs. The latest move down is considered corrective, however, the yellow metal has pierced support at the 50-day EMA - at $2361.1. A clear break of this average would signal scope for a deeper retracement. This would open $2277.4, the May 3 low and a key support. For bulls, a reversal higher would refocus attention on $2483.7, the Jul 17 high, and a bull trigger. A break would resume the primary uptrend.

Date	GMT/Local	Impact	Country	Event
29/07/2024	-		GB	Chancellor Reeves statement on Public Finances
29/07/2024	1430/1030	**	US	Dallas Fed manufacturing survey
29/07/2024	1530/1130	*	US	US Treasury Auction Result for 13 Week Bill
29/07/2024	1530/1130	*	US	US Treasury Auction Result for 26 Week Bill
30/07/2024	2301/0001	*	GB	BRC Monthly Shop Price Index
30/07/2024	2330/0830	*	JP	Labor Force Survey
30/07/2024	0130/1130	*	AU	Building Approvals
30/07/2024	0530/0730	***	FR	GDP (p)
30/07/2024	0530/0730	**	FR	Consumer Spending
30/07/2024	0600/0800	***	DE	GDP (p)
30/07/2024	-		US	FOMC Meeting
30/07/2024	0700/0900	***	ES	HICP (p)
30/07/2024	0700/0900	***	ES	GDP (p)
30/07/2024	0700/0900	**	CH	KOF Economic Barometer
30/07/2024	0800/1000	***	IT	GDP (p)
30/07/2024	0800/1000	***	DE	North Rhine Westphalia CPI
30/07/2024	0800/1000	***	DE	Bavaria CPI
30/07/2024	0900/1100	***	EU	EMU Preliminary Flash GDP Q/Q
30/07/2024	0900/1100	***	EU	EMU Preliminary Flash GDP Y/Y
30/07/2024	0900/1100	**	EU	EZ Economic Sentiment Indicator
30/07/2024	0900/1100	*	EU	Consumer Confidence, Industrial Sentiment
30/07/2024	0900/1000	**	GB	Gilt Outright Auction Result
30/07/2024	1200/1400	***	DE	HICP (p)
30/07/2024	1255/0855	**	US	Redbook Retail Sales Index
30/07/2024	1300/0900	**	US	S&P Case-Shiller Home Price Index
30/07/2024	1300/0900	**	US	FHFA Home Price Index
30/07/2024	1300/0900	**	US	FHFA Home Price Index
30/07/2024	1400/1000	***	US	Conference Board Consumer Confidence
30/07/2024	1400/1000	**	US	housing vacancies
30/07/2024	1400/1000	***	US	JOLTS jobs opening level
30/07/2024	1400/1000	***	US	JOLTS quits Rate
30/07/2024	1430/1030	**	US	Dallas Fed Services Survey
30/07/2024	1530/1130	*	US	US Treasury Auction Result for Cash Management Bill