Highlights:
- Treasuries sit firmer following soft European PMIs
- OAT spreads press wider as left-wing alliance outline spending plans
- Flash US PMIs, existing home sales round off data week
US TSYS: Firmer In Wake Of European PMIs, US PMIs In Spotlight
- Treasuries have firmed through European hours courtesy of a slew of weak preliminary June PMI readings across the Eurozone and UK.
- It adds focus on today’s US flash PMIs after some mixed regional Fed manufacturing surveys, including price metrics after yesterday’s Philly Fed manufacturing survey saw particularly strong prices received figures with fears of greater pricing power.
- Cash yields sit 2.9-3.7bp lower on the day, led by the belly. 2s10s at -47.4bps is unchanged, in the middle of yesterday’s range having pulled a little further away from Tuesday’s fresh ytd low of -49.5bps.
- TYU4 has lifted to 110-23+ (+ 06) on decent cumulative volumes of 315k, probing yesterday’s snap high of 110-23 seen on the initial reaction to higher-than-expected jobless claims. A bull cycle remains in play with resistance at 111-01 (Jun 14 high) before 111-09 (Apr 1 high).
- Data: S&P Global US mfg, services and composite PMIs, Jun prelim (0945ET), Existing home sales May (1000ET), Leading index May (1000ET).
- No scheduled Fedspeak or issuance.
STIR: Fed Implied Rates Nudge Lower With Weak European PMIs
- Fed Funds implied rates have more than reversed some mild overnight strength to sit a little lower on the day after a slew of weak preliminary June PMI readings across the Eurozone and UK.
- Cumulative cuts from 5.33% effective are within yesterday’s range: 3bp Jul (unch), 19bp Sep (-1bp), 27bp Nov (-1bp), 48bp Dec (-1bp) and 62bp Jan (-1bp).
- US flash PMIs headline today’s docket. There is no scheduled Fedspeak, with Governor Waller (voter) set to kickstart next week’s schedule early on with opening remarks in Italy.
- Overnight, Barkin (’24 voter) said the impact of Fed rate hikes will hit in time whilst there’s no question that frothy asset markets are supportive of spending. He needs to see more conviction and clarity on inflation before cutting, with data then determining further moves after the first cut.
- Goolsbee (’25 voter) meanwhile said in an unscheduled Fox News appearance that the Fed can cut if it sees more good inflation reports and that it doesn’t need annual inflation to hit 2% before cutting rates.
US TSY FUTURES: OI Points To Long Cover As Dominant Positioning Factor Since Tuesday’s Close
The combination of yesterday’s weakness in Tsy futures and preliminary OI data points to a mix of net short setting and long cover across the curve since Tuesday’s close.
- OI data suggests that long cover provided the more meaningful positioning factor in net curve terms, with only TU futures seeing (modest) net short setting.
- Tsy yields respected their multi-week ranges, which, when coupled with some recent long setting in futures, helps explain some of the adjustment.
- From a fundamental perspective, the uptick in the prices paid sub-component of the Philly Fed survey countered the impact of a downbeat round of economic data on Thursday.
- An oil-driven uptick in breakevens and some widening in swap spreads (some pointed to set up for next week’s corporate supply) then applied further pressure.
| 20-Jun-24 | 18-Jun-24 | Daily OI Change | OI DV01 Equivalent Change ($) | |
| TU | 4,113,512 | 4,105,482 | +8,030 | +308,299 |
| FV | 6,194,022 | 6,202,456 | -8,434 | -359,000 |
| TY | 4,329,045 | 4,345,297 | -16,252 | -1,055,516 |
| UXY | 2,035,628 | 2,049,060 | -13,432 | -1,207,843 |
| US | 1,647,627 | 1,656,842 | -9,215 | -1,223,396 |
| WN | 1,669,953 | 1,673,681 | -3,728 | -765,073 |
| Total | -43,031 | -4,302,530 |
STIR: OI Points To Mix Of Short Setting & Long Cover In SOFR Futures On Thursday
Yesterday’s move lower in most SOFR futures and preliminary OI data points to a mix of net short setting and long cover since Tuesday’s settlement, although there wasn’t much in the way of meaningful net positioning movement in individual contracts.
- There was a light bias to net short setting in the whites, greens and blues, while the reds seemed to see net long cover across all contracts
- An uptick in the prices paid component of the Philly Fed manufacturing survey, higher oil prices and some spillover from swap-flow driven weakness in the long end applied the pressure.
- This came alongside a very small moderation in the pricing of ’24 Fed cuts, with FOMC-dated OIS showing ~46bp of cuts through year end late Thursday vs. 48bp late Tuesday.
| 20-Jun-24 | 19-Jun-24 | Daily OI Change | Daily OI Change In Packs | ||
| SFRM4 | 1,238,224 | 1,240,596 | -2,372 | Whites | +4,122 |
| SFRU4 | 1,145,277 | 1,141,470 | +3,807 | Reds | -12,625 |
| SFRZ4 | 982,912 | 983,657 | -745 | Greens | +7,494 |
| SFRH5 | 818,620 | 815,188 | +3,432 | Blues | +7,202 |
| SFRM5 | 709,564 | 713,887 | -4,323 | ||
| SFRU5 | 622,067 | 625,820 | -3,753 | ||
| SFRZ5 | 805,574 | 807,455 | -1,881 | ||
| SFRH6 | 565,316 | 567,984 | -2,668 | ||
| SFRM6 | 483,136 | 483,973 | -837 | ||
| SFRU6 | 420,605 | 419,663 | +942 | ||
| SFRZ6 | 364,351 | 358,115 | +6,236 | ||
| SFRH7 | 251,405 | 250,252 | +1,153 | ||
| SFRM7 | 214,487 | 208,445 | +6,042 | ||
| SFRU7 | 183,978 | 185,213 | -1,235 | ||
| SFRZ7 | 166,660 | 164,084 | +2,576 | ||
| SFRH8 | 115,189 | 115,370 | -181 |
OAT: Spreads Wider As Leftist Political Alliance Outlines Fiscal Plans
10-Year OAT/Bunds widens by a little over 1bp, with the psychological 80bp level breached at typing
- The move comes as the leftist French political alliance tables its fiscal plans.
- The group’s fiscal plans would cost EUR25bn in ’24 and EUR 100bn in ’25.
- French fiscal worry has been compounded by election uncertainty, with the spread to Bunds moving to multi-year wides.
- RN has tried to calm markets re: spending matters in recent days.
- A reminder that the leftist alliance has been polling in second place, behind RN, in recent times.
FRANCE: Leftist NFP Set Out Econ Plans, Still No Agreement On PM Candidate
The left-wing New Popular Front (NFP) alliance is setting out its plans for the economy, including how much said plans will cost and how revenue will be raised, at a presser in Paris. Speaking to the centre-right Le Figaro on 20 June, Jean-Luc Melenchon from the left-wing La France Insoumise (LFI), which sits in the NFP, claimed that "According to our party's calculations, within five years, there will be a total of 200 billion euros in public spending and 230 billion in revenue for the State. How ? By a boost to [economic] activity."
- Le Monde reports comments from Socialst Party (PS) Senator Alexandre Ouizille, who listed the following as key aims of the NFP should it form the next gov't: "repeal of the pension reform and repeal of the unemployment insurance reform” ; “increase in the minimum wage to €1,600, [i.e.] an increase of 14%” , and “an increase in [salaries] of 10%” for civil servants. “We will increase housing aid by 10%” [...] The cost of these measures is 25 billion euros for the year 2024” continued the senator. “We [will] immediately [reintroduce] an ISF [wealth tax] with a climate component of 15 billion euros,” he continued."
- With the NFP polling in second place behind the right-wing National Rally, the alliance has yet to settle on a PM candidate. Melenchon is the most well-known figure in the group, but is a divisive figure. Some centre-left PS deputies and candidates have said they would not back a Melenchon premiership.
UK DATA: Services PMI disappoints but little market reaction overall
- We noted the market was probably pricing in a softer print than the consensus following this morning's disappointing French, German and EZ prints and the UK services print has seen a similar downside surprise (printing 51.2 versus 53.4 consensus, 53.2 prior). Manufacturing in contrast was marginally higher-than-expected at 51.4 (51.1exp, 51.2 prior).
- Gilt futures spiked around 13 ticks higher but have reversed that move while GBPUSD fell about 15 pips (and has also reversed).
- Probably the key point here is that: "UK firms also faced a quickening of input cost inflation in June, as severe global shipping constraints led to higher transport costs. The rise fed through to quicker increases in output charges among both manufacturing and services companies, with producers notably raising their prices at the sharpest rate since May 2023."
- But there was also politics weighing on the services print (just like in France): "Although higher customer demand helped to boost activity levels, according to respondents, this was partly offset by reports of spending decisions being put on hold due to the general election."
- We had also noted that the BOE is less data dependent and we don't think there is anything in this print to really change the narrative that August looks likely for a cut - absent some large surprises that can't be entirely ruled out still.
EUR Slips as German, French PMIs Miss Expectations
- Prelim PMI data from across the Eurozone and UK took market focus this morning, with weakness seen from across both the manufacturing and services sectors across France and Germany. The poor data (particularly France) has weighed on the single currency, putting EUR lower against all others in G10. Close to 4,000 contracts traded across EUR futures on the German release, tipping cumulative activity well ahead of average for this time of day. Further weakness in spot exposes the Jun 14 low at 1.0668, ahead of the key support at the Apr 16 low of 1.0601.
- While UK data came in weaker than forecast, markets were less responsive, potentially supporting the narrative that followed yesterday's BoE decision, in which the MPC are becoming less sensitive to data surprises as part of their policymaking process. GBP/USD briefly printed down at 1.2634 before recovering ahead of NY hours.
- JPY trade furtively firmer, however no sign of a reversal off highs is present in USD/JPY just yet. The trend signal remains positive, with the overnight high at 159.13 overnight still not sufficient to test the mettle of the Japanese authorities on further currency intervention.
- Focus for the duration of the Friday session turns to the prelim June PMI data from the US, with both the manufacturing and services reads expected to fade from May - although stay above the 50.0 level. Following the inflationary impulses evident in yesterday's Philly Fed, particular market focus may be on the prices paid subcomponents. Canadian retail sales and US existing home sales are also due.
OPTIONS: Expiries for Jun21 NY cut 1000ET (Source DTCC)
- EUR/USD: $1.0650-60(E1.9bln), $1.0690-00(E1.8bln), $1.0720-25(E1.2bln), $1.0775-90(E1.2bln)
- USD/JPY: Y157.00-10($1.4bln), Y157.50($1.0bln), Y158.00($656mln), Y158.25($733mln), Y159.00($1.4bln)
- GBP/USD: $1.2740(Gbp1.6bln), $1.2760-80(Gbp1.4bln)
- EUR/GBP: Gbp0.8400(E631mln)
- USD/CAD: C$1.3645-65($1.3bln), C$1.3675-80($890mln), C$1.3740($555mln), C$1.3800($1.3bln)
- USD/CNY: Cny7.2700($567mln)
Gold Trades Above Resistance at 50-Day EMA
WTI futures have traded higher this week, extending the current bull phase. The climb has resulted in a break of $80.11, the May 29 high and a key resistance. The clear breach of this hurdle cancels a recent bearish theme and paves the way for $82.24, a Fibonacci retracement point. Initial firm support to watch is $78.08, the 20-day EMA. A break would be seen as an early potential reversal signal. Gold traded higher yesterday but remains below resistance - for now. A sharp sell-off on Jun 7 reinforced a short-term bearish theme. The yellow metal has pierced the 50-day EMA, at 2317.5. A clear break would confirm a resumption of the reversal from May 20 and open $2277.4, the May 3 low. Clearance of this price point would also strengthen a bearish theme. Initial firm resistance is $2387.8, the Jun 7 high.
- WTI Crude down $0.3 or -0.37% at $80.97
- Natural Gas down $0.05 or -1.79% at $2.693
- Gold spot up $6.1 or +0.26% at $2365.49
- Copper down $4.8 or -1.06% at $447.35
- Silver down $0.25 or -0.82% at $30.46
- Platinum up $5.05 or +0.51% at $989.38
Uptrend in E-Mini S&P Intact, Despite Weakness Off Thursday Highs
The trend condition in Eurostoxx 50 futures remains bullish. A corrective cycle has resulted in a pullback from the May high. Recent weakness has seen price breach 4988.00, Jun 11 low, highlighting potential for a deeper retracement and has exposed 4846.00, Apr 19 low and a key support. The recovery from the Jun 14 low is an early bullish signal. Resistance to watch is at 5092.00, Jun 12 high. A break would expose key resistance at 5151.00. The uptrend in S&P E-Minis remains intact, despite weakness off highs on Thursday. Price has recently cleared 5430.75, the May 23 high and bull trigger. This confirmed a resumption of the uptrend. Note that moving average studies are in a bull-mode position too, highlighting positive market sentiment. Sights are on 5594.66 next, a Fibonacci projection. Initial support lies at 5443.73, the 20-day EMA.
- Japan's NIKKEI closed lower by 36.55 pts or -0.09% at 38596.47 and the TOPIX ended 0.85 pts lower or -0.03% at 2724.69.
- Elsewhere, in China the SHANGHAI closed lower by 7.299 pts or -0.24% at 2998.138 and the HANG SENG ended 306.8 pts lower or -1.67% at 18028.52.
- Across Europe, Germany's DAX trades lower by 59.38 pts or -0.33% at 18194.25, FTSE 100 lower by 25.87 pts or -0.31% at 8246.91, CAC 40 down 32.44 pts or -0.42% at 7638.9 and Euro Stoxx 50 down 29.95 pts or -0.61% at 4917.78.
- Dow Jones mini down 48 pts or -0.12% at 39099, S&P 500 mini down 13.25 pts or -0.24% at 5463.5, NASDAQ mini down 51 pts or -0.26% at 19712.25.
| Date | GMT/Local | Impact | Country | Event |
| 21/06/2024 | 1230/0830 | * |  CA | Industrial Product and Raw Material Price Index |
| 21/06/2024 | 1230/0830 | ** | CA | Retail Trade |
| 21/06/2024 | 1230/0830 | ** |  US | WASDE Weekly Import/Export |
| 21/06/2024 | 1345/0945 | *** | US | S&P Global Manufacturing Index (Flash) |
| 21/06/2024 | 1345/0945 | *** | US | S&P Global Services Index (flash) |
| 21/06/2024 | 1400/1000 | *** | US | NAR existing home sales |
| 21/06/2024 | 1430/1030 | ** | US | Natural Gas Stocks |
| 21/06/2024 | 1530/1630 |  GB | BoE APF Sales Schedule for Q3 | |
| 21/06/2024 | 1700/1300 | ** | US | Baker Hughes Rig Count Overview - Weekly |
| 23/06/2024 | 1320/1520 |  EU | ECB's Schnabel on the conferral of the Weltwirtschaftlicher Preis 2024 |