MNI US MARKETS ANALYSIS - Risk-Off Pervades on Sour Earnings

MNI (LONDON) - Highlights: 

• Risk-off pervades on sour earnings from Europe
• JPY correction stretches further still, with JPY TWI 6% above lows
• Prelim GDP, weekly claims and durable goods orders on the docket

US TSYS: Sizeable Risk-Off Rally On Confluence Of Dovish Factors, Key Data Ahead

• Treasuries have moved firmly higher through Asia and European hours on a variety of dovish factors drive widespread risk-off flow.
• Cash yields are between 5-8bp lower on the day, led by 5s and with only the very long end really lagging.
• Curves earlier touched fresh ytd steeps (2s10s at -10.9bps, 5s30s at 43.7bps) but have seen some modest flattening pressure as US desks filter in.
• TYU4 meanwhile has pushed through yesterday’s high with 111-05+ (+ 16) on extremely strong volumes of 645k but is yet to test resistance at 111-13+ (Jul 16 high).
• The increase comes after the overnight low of 110-19+ came close to latest lows at 110-18+ (Jul 22 low) in moves that have cleared the 20-day EMA, opening 110-09 (50-day EMA).
• We go into the drivers below and highlight particular sensitivity to any signs of weakness in the slew of notable 0830ET data releases ahead. Attention is then likely to shift to 7Y supply to round the week’s coupon issuance off.
• Dovish factors include a surprise 20bp MLF cut from the PBoC overnight, weak UK and European earnings, soft European data and the broader knock-on impacts including further declines for industrial and energy commodity prices.
• This softer backdrop lends support to yesterday’s Dudley comments which continue to see some airtime re waiting to cut in September as unnecessarily risking recession.
• The shift in Fed pricing to a second cut with the November meeting appears to have limited front end rally in the past couple hours although the longer end continues to push higher.
• This longer end rally sees a sizeable paring of yesterday’s second half losses with 10Y yields at 4.215% now approaching yesterday’s lows of 4.2076%. Recall that yesterday’s sell-off was exacerbated by a 1.1bp tail in the 5Y auction – a disappointment after record demand for Tuesday’s 2Y – along with the rise in yields seeing Treasury accept no offers in the buyback operation.
• Data: Q2 GDP/PCE adv (0830ET), Durable goods Jun prelim (0830ET), Jobless claims (0830ET), Kansas City Fed mfg Jul (1100ET).
• Note/bond issuance: US Tsy $44B 7Y Note auction - 91282CLD1 (1300ET)
• Bill issuance: US Tsy $90B 4W, $85B 8W bill auctions (1130ET)

FRANCE: Rejection Of NFP PM Candidate Hints At Further Political Paralysis

President Emmanuel Macron's rejection of hitherto low-profile civil servant Lucie Castets for the position of prime minister could prove a harbinger of things to come, with little sign of how the current impasse in France's political situation comes to an end. On 22 July, Castets, the director of financing and purchasing for the city of Paris, was put forward as PM candidate by the leftist New Popular Front (NFP, which emerged from the legislative election as the largest bloc in the National Assembly.

• Macron rejected Castets' candidacy out of hand, saying in a televised interview that "Until mid-August, we're in no position to change things, because it would create disorder," When asked about the NFP's proposal, Macron said that "This is not the issue. The name is not the issue. The issue is: Which majority can emerge at the assembly?", adding that he would appoint a PM who could command "the broadest backing possible."
• Focus will turn to the end of the Olympic Games on 11 August as the point at which a new gov't will loom. However, there is little to suggest that the stalemate evident at present will change by mid-August (a time when French politics is usually in the middle of its summer break).
• The stalemate between Macron/Ensemble and the NFP shows little sign of being resolved. With PM Gabriel Attal having officially resigned, this could set the stage for a Mario Draghi-style technocratic gov't - a scenario that France is not accustomed to in comparison to Italy - risking further political paralysis.

US: Trump Leads In 4/5 Swing States, But Harris Narrows Gap Compared To Biden

In Emerson College's latestswing state opinion polling, Republican candidate, former President Donald Trump, leads Vice President Kamala Harris in four of the five states surveyed. According to the poll, carried out 22-23 July following President Joe Biden's withdrawal from the presidential race, Trump holds a lead in Arizona, Georgia, Michigan and Pennsylvania, and is tied with Harris in Wisconsin.

• It should be noted that in every state, Harris has improved on Biden's polling from earlier in July and narrowed the gap with Trump:
  • AZ: Biden 40% > Harris 44%, gap with Trump 7% > 5%
  • GA: Biden 41% > Harris 46%, gap with Trump 6% > 2%
  • MI: Biden 42% > Harris 45%, gap with Trump 3% > 1%
  • PA: Biden 43% > Harris 46%, gap with Trump 5% > 2%
  • WI: Biden 43% > Harris 47%, gap with trump 5% > 0%
• Wednesday 24 July saw the first major political rallies by both Trump and Harris since Biden's withdrawal and the VP's elevation to presumptive nominee (having gathered the support of a majority of DNC delegates).
• Harris may be riding a wave of relief among Democrat supporters and independents at Biden's withdrawal, but it remains to be seen whether this bump can be sustained in the face of Trump's attacks on herliberal voting record.

Chart 1. Emerson College Swing State Opinion Polling, %

Source: Emerson College Polling. N.b. Fieldwork 22-23 July, The sample size for AZ, GA, and MI is n=800 per state. The credibility interval for each state is +/-3.4%. The sample size in PA is n=850, with a credibility interval of +/-3.3%. The sample size for WI is n=845, with a credibility interval of +/-3.3%.

Key Earnings Reports Weigh Heavy, E-mini S&P Support Holds

• Underperformance in European equities continues well into the NY crossover, with earnings reports the main driver given some notable misses against expectations and sharp declines for several key equity prices. Italy's FTSE-MIB and France's CAC-40 perform particularly poorly given their exposure to the Luxury sector in France, and carmaker Stellantis in Italy. 
• Concerns surrounding the recent sharp rally in chipmakers and AI-affiliated stocks in recent months also dominates, evident in the sharp response to STMicro's forecast cut - bleeding into another round of weakness for the sector. 
• Following the reports, Eurostoxx futures broke to a fresh contract low, taking out key support and a key reversal point at 4846/48, a move that's keeping e-mini S&P pinned lower and within range of 5453.4 - a key retracement that's (so far) providing a floor under prices.

Key decliners, all on earnings: 
•    Universal Music Group -27%
•    STMicroelectronics -14%
•    Stellantis -8.2%
•    Kering -7.1%

JPY Rally Shows No Sign of Stopping, AUD Fallout Accelerates

• The JPY surge continues as the aggressive short-covering rally persists, putting the currency higher against all others (again) in G10. The Y152.00 handle is under pressure, and perhaps notably a print below Y151.95 would mark a full 1,000 pip reversal for USD/JPY off the pre-intervention high from early July. This keeps the 200-dma at 151.54 under pressure over the medium-term. A break below would be thje first since December of last year.
• Global growth and industry concerns are top of mind for markets, after a set of particularly poor earnings results from the Autos sector drove prices lower. Stellantis' >10% sell-off has undermined the Stoxx Autos&Parts Index, which has now fully erased all YTD gains that had hit 20% in mid-April. This risk-off driver has filtered into US yields, which are trading under pressure into the NY crossover and weighing on the greenback.
• Growth and risk proxy currencies lead declines, with AUD the poorest performer once more. AUD/JPY has broken below not only the key psychological Y100 level, but also the 200-dma at 99.83. The extended momentum-driven decline in the AUD/JPY 14-day RSI shows oversold technical measures are unlikely to reverse near-term trends, despite the signal printing below 20 today for the first time since 2019.
• US weekly jobless claims numbers and the advance US GDP print for Q2 are the data headlines Thursday, although prelim durable goods orders could also prove key on an out-of-consensus reading. ECB's Nagel and Lagarde are both set to speak, although Nagel's appearance is more likely to be policy-oriented as he appears in Rio at the G20. 

Further Weakness in Gold Pulls Spot Through 20-Day EMA

• WTI Future weakness through Tuesday and the broad commodity sell-off resulted in a new low for the contract at $76.40, breaking the Monday low in the process. Vol band based support undercuts from here at 76.52, ahead of key support at the Jun 4 low of 72.23. Initial key resistance to watch is $83.58, the Jul 5 high, and a break and close above this level is needed ahead of any test on the 84.36 bull trigger.
• Gold prices are heavy early Thursday, pushing spot below the 20-day EMA support to new pullback lows. Nonetheless, the broader gains last week reinforce current conditions, and keep the M/T trend pointed higher. The yellow metal has breached key resistance and the bull trigger at $2450.1, the May 20 high. This confirms a resumption of the medium-term uptrend and opens the $2500.00 handle next. Moving average studies are in a clear bull-mode set-up, highlighting a rising trend. Support shifts to $2320.1, the 50-day EMA.     

Eurostoxx 50 Futures Through Key Support at 4,848/46

• Eurostoxx 50 futures have started Thursday trade poorly, with the contract breaking through several supports in early earnings-driven weakness. 4,848/46 have now both broken, giving way to a new pullback low at 4822.00. These levels mark key reversal points, opening round number support of 4800.00 initially, ahead of 4762.00 and the 200-dma. For bulls, a move higher and a break of 5087.00, the Jul 12 high, would argue for a return to the bullish theme.
• E-Mini S&P prices ebbed to a new pullback low early Thursday, building on the weak Wednesday close and souring the S/T outlook. Price has traded through the 50-day EMA as well as key support at 5501.50. This opens for further losses toward 5433.55, the 3.0% 10-dma envelope - a level pierced only three times since the beginning of 2023 and a decent reversal indicator. Sights to the upside are on 5741.34, a Fibonacci projection.

Date	GMT/Local	Impact	Country	Event
25/07/2024	-		EU	ECB's Cipollone at Rio de Janeiro G20 Fin min/central bank meeting
25/07/2024	1230/0830	***	US	Jobless Claims
25/07/2024	1230/0830	**	US	WASDE Weekly Import/Export
25/07/2024	1230/0830	***	US	GDP
25/07/2024	1230/0830	*	CA	Payroll employment
25/07/2024	1230/0830	**	US	Durable Goods New Orders
25/07/2024	1230/0830	**	US	Advance Trade, Advance Business Inventories
25/07/2024	1300/1500	**	BE	BNB Business Sentiment
25/07/2024	1430/1030	**	US	Natural Gas Stocks
25/07/2024	1500/1100	**	US	Kansas City Fed Manufacturing Index
25/07/2024	1500/1700		EU	ECB's Lagarde attends Paris Summit
25/07/2024	1530/1130	*	US	US Bill 08 Week Treasury Auction Result
25/07/2024	1530/1130	**	US	US Bill 04 Week Treasury Auction Result
25/07/2024	1700/1300	**	US	US Treasury Auction Result for 7 Year Note
26/07/2024	2330/0830	**	JP	Tokyo CPI
26/07/2024	0600/0800	**	SE	Unemployment
26/07/2024	0645/0845	**	FR	Consumer Sentiment
26/07/2024	0800/1000	**	IT	ISTAT Business Confidence
26/07/2024	0800/1000	**	IT	ISTAT Consumer Confidence
26/07/2024	0800/1000	**	EU	ECB Consumer Expectations Survey
26/07/2024	-		EU	ECB's Cipollone at Rio de Janeiro G20 Fin min/central bank meeting
26/07/2024	1230/0830	**	US	Personal Income and Consumption
26/07/2024	1400/1000	**	US	U. Mich. Survey of Consumers
26/07/2024	1500/1100		CA	Finance Dept monthly Fiscal Monitor (expected)
26/07/2024	1700/1300	**	US	Baker Hughes Rig Count Overview - Weekly