MNI (LONDON) - Highlights:
- Fed Funds implied rates little changed since Friday’s close
- Firmer tone for risk weighs on CHF and JPY, outperformance seen for NZD
- Focus for global markets remains squarely on US CPI due Wednesday, with no notable speakers scheduled today
US TSYS: Slightly Cheaper With Attention on Mid-Week Macro
- Treasuries are modestly cheaper across the curve, holding narrow ranges since the late open for a Japan holiday.
- Cash yields are 0.6-1.1bp lower on the day. 2Y yields at 4.059% remain below pre-payrolls levels of ~4.12% but have rebounded off last Monday’s lows of 3.65%.
- 2s10s at -10.6bp (+0.6bp) mostly holds Friday’s flattening but in trend terms is still close to last week’s brief return to disinversion.
- TYU4 at 112-28 (- 02+) has kept to tight ranges of just 6+ overnight, firmly within Friday’s range under tepid volumes nearing just 230k. Declines are deemed corrective with support at 112-03 (20-day EMA) and resistance at 114-03 (Aug 6 high).
- The week starts with another thin docket after Friday’s rare empty calendar, which leaves PPI (Tue), CPI (Wed) and retail sales (Thu) looming large.
- Data: NY Fed inflation expectations Jul (1100ET, Monthly budget statement Jul (1400ET)
- Bill issuance: US Tsy $76B 13W, $70B 26W Bill auctions (1130ET)
STIR: Holding Last Week’s Sizeable Shift Off Dovish Extremes
- Fed Funds implied rates are little changed since Friday’s close as they hold last week’s gains seen on a stabilization in global markets helped by stronger than expected releases for both ISM services and weekly jobless claims.
- Fed Governor Bowman (voter) over the weekend offered the strongest caution on overreacting to the prior payrolls report, not that it’s surprising being arguably the most hawkish member on the FOMC.
- Summary of her remarks (here): The unemployment rate is “notably higher” than a year ago but is “historically low”. Inflation remains uncomfortably above the central bank's 2% goal and she advocated that the Fed remains patient and assesses incoming data to avoid undermining progress on its price-stability target.
- Next scheduled Fedspeak is Bostic (’24 voter) tomorrow but the majority of appearances last week were unscheduled.
- Cumulative cuts from 5.33% effective: 39bp Sep, 72bp Nov, 102bp Dec, 125bp Jan.
SECURITY: Iranian Attack on Israel Expected "Within Days," Axios
Axios' Barak Ravid reported overnight that the Israeli intelligence community now expects an Iranian attack on Israel to come "within days". The likelihood of an attack, in response to the killing of Hamas official Ismail Haniyeh in Tehran on July 31, appears to have increased following a strike on a school in southern Gaza on August 10 that may have killed dozens of Palestinians.
SECURITY: Ukraine Consolidates Advance Into Kursk Oblast
Ukrainian troops have consolidated their weeklong surprise advance into Russian territory in the Kursk Oblast on the North-Eastern border with Ukraine.
- Due to a lack of official information on the Ukrainian operation, it is difficult to evaluate the status of the operation with authority. Military analyst Mick Ryan notes that according to “reliable” open source intelligence, Ukraine’s troops have expanded holdings in Kursk oblast to, “a likely front line that includes Snagost, Malaya Loknia, Cherkasskoe Porechie, and Martynovka.”
- The operation has four likely intended outcomes for Kyiv: To draw Russian offensive troops from the Donbas front where they have been making recent gains; to undermine an implicit social contract between Russian President Vladimir Putin and the Russian people that the war remains intangible; to demonstrate to international backers that Ukraine maintains credible military capabilities worth funding; and to boost morale domestically.
- For Kyiv, the next logical strategic move is likely a withdrawal of troops back to the border. This would preserve the political and strategic successes of the operation without risking troops being cut off in Russian territory. Other options include a partial withdrawal to dig into a defensible position or the expansion of the operation towards to the city of Kursk.
- It is unclear if Kyiv has the resources or logistics networks for a long-term forward operation or occupation, meaning such offensive options would risk significant losses of troops and military hardware.
Figure 1: Ukrainian Incursion into Kursk Oblast
Source: Institute for the Study of War
FOREX: Risk-On Tone Weighs on JPY & CHF, Outperformance Seen for NZD
- A firmer tone for risk has translated into major equity benchmarks pushing higher on Monday, weighing on the likes of JPY and CHF, while the antipodeans are given a boost.
- Price action echoes that of the latter half of last week as risk stabilised, putting a lid on significant volatility and unwind of the most recent popular carry trades. Both USDJPY and USDCHF have risen roughly half a percent, and USDJPY stands out as having risen nearly 100 pips off the overnight session lows.
- Note that the bear trend remains in an extreme oversold condition, and the latest recovery - a correction - is allowing this condition to unwind. Initial firm resistance is seen at 151.10, the 20-day EMA.
- Elsewhere, AUD and NZD trade well and are approaching last week’s best levels against the dollar. For NZD, focus will fall on Wednesday’s RBNZ decision, expected to be a close call.
- Despite an overall bearish theme remaining intact for AUDUSD, a corrective cycle is in play and price is through the 20-day EMA, turning attention to the 50-day EMA, at 0.6615. A clear break of this average would undermine a bearish theme and signal scope for stronger gains.
- Crude markets have extended gains from last week, helping the Norwegian krone to rise around 0.25% as we approach the Norges bank later this week, where we expect the policy statement to acknowledge the improved inflation outlook, but fall short of any meaningful tilt in guidance.
- The focus for global markets remains squarely on US inflation data due Wednesday, with no notable speakers on the docket today.
FOREX: FX Option Expiry
FX option expiries of note this week:
- EURUSD 1.18bn at 1.0900 (Tue)
- AUDUSD 1.31bn at 0.6575 (Tue)
- USDJPY 1.1bn at 146.25 (Wed).
- EURUSD 4.17bn at 1.0890/1.0955 (Thu)
- USDJPY 1.15bn at 147.50 (Thu)
- AUDNZD 1.19bn at 1.0950 (Thu)
- USDCNY 1.03bn at 7.2000 (Thu).
- EURNOK 1.72bn at 11.7300 (Thu)
CHF: Firmer Risk Weighs on CHF, Goldman Sachs Believe Shorts Look Attractive
- A firmer tone for risk has translated into major equity benchmarks pushing higher on Monday, weighing on the likes of JPY and CHF, while Antipodean FX is given a boost. Price action echoes that of the latter half of last week as risk stabilised, putting a lid on significant volatility and carry unwinds.
- Goldman Sachs have noted that through Q1 they had expected that the SNB would be somewhat more tolerant of CHF strength given that the strong currency was working to counteract inflation pressures. However, GS anticipate the SNB will now be less forgiving of any significant move lower in EUR/CHF and suspect the SNB may have already intervened last week given the sharp reversal in price action.
- CHF does tend to appreciate in times of geopolitical risk and would normally be a preferred hedge should the current conflict in the Middle East escalate. However, if these fears are contained, GS think CHF shorts look attractive on a bounce in risk sentiment since the SNB is probably guarding in the other direction, which should provide some extra protection.
EQUITIES: Short-Term Gains for E-Mini S&P Still Considered Corrective
A bear threat in Eurostoxx 50 futures remains present and the latest climb appears to be a correction. The sell-off between Aug 1 - 5, reinforces the bearish condition. A key support at 4846.00, the Apr 19 low, has been cleared. This highlights a stronger reversal and opens 4478.81 next, a Fibonacci projection. Firm resistance is 4887.78, the 50-day EMA. First resistance is 4720.53, a Fibonacci retracement. S&P E-Minis traded lower on Aug 5 and this confirmed an extension of the bear cycle. The move down has resulted in a print below 5185.50, 76.4% of the Apr 19 - Jul 16 bear leg. A clear break of this level would open 5092.00 next, the May 2 low. Short-term gains are - for now - considered corrective and the 50-day EMA marks a firm resistance, at 5457.01. Clearance of this average is required to alter the picture and signal scope for stronger gains.
COMMODITIES: Bear Threat in WTI Futures Remains Present Despite Latest Recovery
A bear threat in WTI futures remains present despite the latest recovery - a correction - that is allowing an oversold trend reading to unwind. A resumption of weakness would again expose the next key support at $72.23, the Jun 4 low. It has been pierced, a clear break would reinforce bearish conditions and pave the way for an extension towards $70.73, the Feb 5 low. Key near-term resistance to watch is seen at $78.88, the Aug 1 high. Recent weakness in Gold appears to be a corrective. Note that the yellow metal has managed to pierce support at the 50-day EMA - currently at $2379.7. A clear break of this average would signal scope for a deeper retracement towards $2277.4, the May 3 low and a key support. For bulls, a resumption of gains would open $2483.7, the Jul 17 high and a bull trigger. Clearance of this hurdle would resume the uptrend.
| Date | GMT/Local | Impact | Country | Event |
| 12/08/2024 | 1230/0830 | * |  CA | Building Permits |
| 12/08/2024 | 1500/1100 | ** |  US | NY Fed Survey of Consumer Expectations |
| 12/08/2024 | 1530/1130 | * | US | US Treasury Auction Result for 13 Week Bill |
| 12/08/2024 | 1530/1130 | * | US | US Treasury Auction Result for 26 Week Bill |
| 12/08/2024 | 1600/1200 | *** | US | USDA Crop Estimates - WASDE |
| 12/08/2024 | 1800/1400 | ** | US | Treasury Budget |
| 13/08/2024 | 0130/1130 | *** |  AU | Quarterly wage price index |
| 13/08/2024 | 0600/0700 | *** |  GB | Labour Market Survey |
| 13/08/2024 | 0700/0900 | *** |  ES | HICP (f) |
| 13/08/2024 | 0900/1100 | *** |  DE | ZEW Current Conditions Index |
| 13/08/2024 | 0900/1100 | *** | DE | ZEW Current Expectations Index |
| 13/08/2024 | 0900/1000 | ** | GB | Gilt Outright Auction Result |
| 13/08/2024 | 1000/0600 | ** | US | NFIB Small Business Optimism Index |
| 13/08/2024 | - | *** |  CN | Money Supply |
| 13/08/2024 | - | *** | CN | New Loans |
| 13/08/2024 | - | *** | CN | Social Financing |
| 13/08/2024 | 1230/0830 | *** | US | PPI |
| 13/08/2024 | 1255/0855 | ** | US | Redbook Retail Sales Index |
| 13/08/2024 | 1530/1130 | * | US | US Treasury Auction Result for Cash Management Bill |
| 13/08/2024 | 1715/1315 | US | Atlanta Fed's Raphael Bostic |