MNI US MARKETS ANALYSIS - Treasuries on Back Foot Ahead of Key PCE

Highlights:

• Biden's odds of re-election slide after lacklustre debate showing
• Japan confirm they didn't intervene in currency markets across June
• PBOC push back against one-way traffic in USD/CNY

US TSYS: Presidential Debate Sees Paring Of Thursday Gains, PCE In Focus

• Treasuries are lower across the curve having sold-off during the Presidential debate, paring some of yesterday’s data-induced gains.
• Today’s PCE report is firmly in focus (see our preview here), whilst the MNI Chicago PMI offers a useful update on the manufacturing sector ahead of Monday’s ISM mfg release.
• Cash yields sit 1.2-2.6bp higher, with 2s10s at -41.5bps (+1bp) holding the week’s bear steepening off ytd lows of -50.8bps.
• TYU4 trades at 110-4 (- 04) on solid cumulative volumes of 335k although with the pace slowing more recently.
• Yesterday’s low of 109-27+ stopped just short of support at 109-26+ (50-day EMA) in a test of the bull cycle. A further move lower could open a key support at 109-00+ (Jun 10 low) whilst resistance is seen at 110-25 (Jun 14 high).
• Data: PCE May (0830ET), MNI Chicago PMI Jun (0945ET), U.Mich Consumer Survey Jun final (1000ET), KC Fed services Jun (1100ET).
• Fedspeak: Daly on CNBC (0840ET), Bowman Q&A (1200ET), Daly AI discussion (1240ET).

STIR: Fed Rates With Less Than 50bp Of Cuts For 2024 Ahead Of PCE

• Fed Funds implied rates are little changed on the day, holding yesterday’s modest decline away from fresh post-retail sales highs as they struggle to push higher ahead of today’s PCE data.
• Cumulative cuts from 5.33% effective: 3bp Jul, 18bp Sep, 27bp Nov, 46bp Dec and 59bp Jan.
• Barkin (’24 voter) kickstarted today’s Fedspeak, saying he is open to the idea that the neutral rate has shifted up "somewhat" even if some effects of Fed tightening have yet to be felt. A rise in r-star would mean policy is not as restrictive as thought, and that aligns with data showing the U.S. economy "has been much more resilient to rate increases than most expected and is likely to stay so as long as valuations remain elevated, and unemployment remains low".
• Today’s scheduled Fedspeak shouldn’t be too impactful unless touching on PCE after appearances earlier this week.
• 0840ET – Daly (’24) on CNBC, likely overshadowed by the PCE report just 10 minutes earlier. She said Jun 24 that it’s “very clear” monetary policy is restrictive and that the Fed must be thoughtful about not holding rates too long.
• 1200ET – Bowman (voter) in moderated Q&A. She said Jun 25 that she expects inflation to remain elevated for some time and that she’s not yet at a point where it’s appropriate to cut rates.
• 1240ET – Daly (’24) on the impact of AI on business and the workforce (just Q&A). She said Jun 24 that contacts tell her AI is reducing costs, it could have a deflationary impact.

US TSY FUTURES: OI Points To Mix Of Long Setting & Short Cover Following Thursday's Data

Yesterday’s data-driven rally in Tsy futures and preliminary OI data points to a mix of relatively modest net long setting and short cover, with UXY futures showing the largest DV01-adjusted net OI swing.

• Only WN futures saw short cover, with net long setting apparent in all other contracts.

STIR: Long Setting In SFRM4 Seen On Thursday

Net long setting in SFRM4 dominated when it came to positioning adjustments in SOFR futures on Thursday.

• The continuing jobless claims and core durable goods orders data likely drove that swing.
• Net positioning movement in other contracts appeared to be modest.
• FOMC-dated OIS showed ~42.5bp of ’24 cuts late on Thursday, little changed on the day.
• PCE data headlines ahead of the weekend, providing the potential for notable movement in the space.

US DATA: MNI PCE Preview: A First Month Of The Year Consistent With Inflation Target

• Unrounded analyst estimates see core PCE at 0.13% M/M in May, for the high side of the rounded 0.1% in the Bloomberg survey.
• It should be the first M/M reading for core PCE consistent with the inflation target for 2024.
• See the below for more including supercore estimates and recent spending trends.

https://roar-assets-auto.rbl.ms/files/65047/USPCEPrevJun2024.pdf

US: MNI POLITICAL RISK - Debate Sounds Alarm Bells For Biden

• The odds of US President Joe Biden retaining the presidency in November cratered after a weak debate performance against former president Donald Trump. It was a worst-case-scenario performance in a debate intended to reset concerns over his age and reframe the election as a referendum on the presumptive nominees.
• Biden has sunk to around a 17% implied probability of winning the election, and betting markets see around a 40% implied probability he will drop out of the race before Election Day.
• It is too early to gauge voter sentiment with quantitative data, but the prevailing view is that Trump exceeded expectations and Biden failed to achieve his relatively modest goals. Trump delivered a controlled performance and the debate rules, which were presumed beneficial to Biden, worked in Trump’s favour by reducing combative exchanges.
• Trump had never won a post-debate poll in any of his previous five presidential debates. He won yesterday’s debate 67-33 in CNN’s poll of debate watchers, an extraordinary result considering the partisan nature of modern US politics.
• Over the coming days, the clamour will intensify from Democrat donors and voters for Biden to step aside. If the White House chooses to play defensive, it would be an exceptionally risky strategy. There are still four months until Election Day, and Biden will have to navigate a second debate on September 10. In the meantime, voters in swing states will be hit with Republican campaign ads highlighting Biden’s cognitive decline.

Full article: First Presidential Debate Review

MNI Riksbank Review: June '24 - Summer Cut Increasingly Likely

EXECUTIVE SUMMARY

• The Riksbank held rates at 3.75% as unanimously expected, but the revised rate path within the June MPR was more dovish than expected.
• The policy statement indicated that “if inflation prospects remain the same, the policy rate can be cut two or three times during the second half of the year”. In May, the guidance was for two cuts.
• The June MPR rate path had the policy rate averaging 3.67% in Q3 2024, down from 3.70% in the March MPR. There were larger downward revisions further out, with the Q1 2025 path revised 12bps lower to 3.08%. Overall, these downward revisions were larger than analyst expectations coming into the decision.
• The rate path suggests that an August cut is very likely, with some chance of cuts at both the August and September meetings.
• As such, a number of analysts previously expecting the next 25bp cut in September have brought forward their calls to August. Consensus now tilts towards three more cuts in 2024

Our full review, including a summary of sell-side views, can be found here:

MNI Riksbank Review - 2024-06.pdf

EUROZONE: Headline HICP Unsurprisingly Tracking In Line With Consensus

We have now received June flash HICP estimates from around 54% of the Eurozone basket. MNI’s current tracking of the Eurozone-wide print (released next Tuesday) is 2.50%, in line with consensus expectations.

• This is an unsurprising development, after data from France, Spain and Italy all printed in line with consensus this morning.
• The above estimate assumes that German HICP (released on Monday) will also print in line with forecasts at 2.6% Y/Y.  Excluding Germany, tracking would tilt a little closer towards an unrounded 2.45%.
• The French and Spanish data suggested that services inflation remained sticky in June (and Italian services inflation only fell a tenth). 
• This indicates that analyst forecasts for services to remain above 4.0% Y/Y in June remain on track.

FRANCE: Latest Elabe Poll-RN Could Win Majority At Upper End Of Seat Proj. Range

Ahead of the 30 June legislative election first round the latest opinion poll from outlet Elabe shows the right-wing nationalist Rassemblement National (RN) with the potential to win an outright majority in the National Assembly. This is based on Elable's seat projections, in turn based on its latest opinion poll.

• The poll has RN on 36% (no change from its previous release), the left-wing New Popular Front (NFP) alliance and the misc. left on 27.5% (up 0.5%), the centrist Ensemble bloc supportive of President Emmanuel Macron on 20% (no change), and the conservative Les Republicains (LR) and misc. centre-right on 9% (down 1%).
• This is translated into seat projection ranges of: RN: 260-295, NFP & misc left: 155-175, Ensemble: 85-105, LR & misc right: 30-40. Note that 289 seats are required for an overall majority, meaning that at the top end of the range, RN would clear the hurdle to form a majority administration under Jordan Bardella.
• It should be noted that seat projections ahead of the first round should be viewed with some caution. France's complex electoral system (see Election Preview below for more detail) means that it is difficult to determine which parties will make the second round on 7 July, let alone which way voters will break if it is a contest between an RN and NFP candidate (a rarity historically in French legislative elections).

JAPAN: BoJ Confirm No Currency Intervention Across June, As Expected

• Bank of Japan data confirms that the Japanese authorities did not intervene in currency markets over the past month.
• Japan meet expectations in confirming that they didn't intervene in currency markets this month. There had been brief speculation that they'd intervened across the intraday JPY vol earlier this week (Jun 24th), however as we wrote at the time, the volumes and participation in the move didn't meet the pattern of historic intervention.

CHINA: PBoC Wary Of Market Expectations Surrounding Further Yuan Weakness

MNI (London) - Post-PBoC MPC meeting communique provides no real change in tone on the monetary policy front, although the Bank deploys a slightly firmer round of rhetoric when it comes to fighting CNY weakness.

• The Bank vowed to stabilise CNY FX expectations, with greater focus on the counter-cyclical adjustment factor. The Bank also highlighted the need to use comprehensive policies on this front.
• USD/CNH slipped to 7.2908 vs. levels closer to 7.30 ahead of the release, before recovering to 7.2930 last.
• The cross has printed above 7.30 on a couple of occasions in recent days. Wednesday’s high (7.3077) represents the ’24 high.
• Support comes in at the June 25 low (7.2763), while a resumption in the move higher would target the November 13 ’23 high (7.3108).
• Some had deemed the recent, slow drift higher in the USD/CNY mid-point fixing as an implicit signal that the PBoC was ok with gradual yuan weakening vs. the USD. This language provides some very modest push back against that idea..
• Still, the change in PBoC tone isn’t particularly forceful, while the PBoC is already deploying a fairly sizeable counter-cyclical adjustment factor in its CNY fix, explaining the limited move in CNH.
• The broader CFETS RMB index is actually firmer YtD.

EGB FUNDING UPDATE: Finland plans one syndication and one RFGB auction in Q3

• There will be one syndication held in Q3 (MNI expects this to take place in late August). The Finnish Treasury notes that a "potential maturity" is for 5-7 year, although it also notes that "If market conditions were to prove favorable for a longer maturity, e.g. 15 years, that could be considered."
• The possibility of a 15-year RFGB was noted in the last two quarterly funding plans, so there does appear to be some eagerness from the Treasury to issue in this area if market conditions made it favourable.
• Outside of this syndication there will only be one RFGB auction held in the quarter (17 September). There is no change to the ORI schedule - with one in the quarter on 29 August.
• There will be two RFTB auctions in the quarter - on 13 August and 10 September.
• There is no update to the annual funding target (which was last updated on 23 May alongside the second supplementary budget). RFGB issuance is planned at E21.0bln and EMTN E1.5bln.
• The next quarterly review will be published 30 September 2024.

FRANCE AUCTION PREVIEW: Next week's auction size smaller, in line with our expectations

• Regarding the French auction size, we had expected a reduction in auction size next week to E8.5-10.5bln. So the upper end of the auction range is in line with our expectations, but the lower end a bit smaller.
• We had noted in both our weekly issuance doc and today's update we had noted:
• "The target range for the auction may be reduced again, given that this auction is sandwiched between the first and second rounds of the French parliamentary elections. So far this year the upper end of the target range for LT OAT auctions has been E12-13bln. The MT OAT auction saw a E1.5bln reduction in the top of the target range and a E2.5-3.0bln reduction to the bottom of the target range. If this was replicated we would see something in the region of a E8.5-10.5bln target range."

FOREX: Presidential Debate Underpins Dollar as Biden's Odds Nosedive

• The Presidential debate dominates headlines and markets early Friday, with implied odds of Biden winning re-election shooting lower after a shaky appearance that political commentators have noted could undermine confidence in the incumbent. The additional dose of uncertainty helped underpin a rise in the US curve and the greenback through the European morning, although the worst of the move has moderated into the NY crossover. 
• Over 50% of the Eurozone CPI basket will have reported their prelim inflation numbers by today's close, and the releases so far keep CPI on track to hit around 2.5% at next week's read - enough to keep the ECB from considering a further rate cut until September.
• Elsewhere, CNH got a late bid in Asia-Pac trade on the back of PBOC headlines pledging to reinforce the monetary transmission mechanism and stabilise the exchange rate. While no new policy pledges were forthcoming, a recommitment to the counter-cyclical adjustment will support expectations that one-way USD/CNY moves will not be tolerated going forward, despite the recent rally. 
• US data and policy expectations are the highlight Friday, with US PCE numbers for May providing the latest insight into the inflation outlook. This is followed by MNI Chicago PMI later in the session, which is expected to tick higher from the post-COVID low of 35.4 printed last month. Fed speak also picks up after a quiet few days, with Barkin, Daly and Bowman all on the schedule.

FX OPTIONS: Expiries for Jun28 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0650(E1.5bln), $1.0670(E1.2bln), $1.0690-95(E1.5bln), $1.0715-25(E2.5bln), $1.0765-75(E1.3bln)
• USD/JPY: Y158.00($1.9bln), Y159.00($732mln), Y159.50($1.3bln), Y160.00($2.3bln), Y160.25($871mln), Y160.50($600mln)
• GBP/USD: $1.2645-50(Gbp1.2bln)
• EUR/JPY: Y170.50(E790mln), Y171.45-50(E520mln)
• AUD/USD: $0.6670-85(A$598mln)
• USD/CAD: C$1.3730($539mln)
• USD/CNY: Cny7.1500($951mln), Cny7.3000($586mln)

EQUITIES: Trend Condition in E-Mini S&P Unchanged and Signals Remain Bullish

• The trend condition in Eurostoxx 50 futures remains bullish. The recovery from the Jun 14 low appears to be an early reversal signal highlighting the end of the May 16 - Jun 14 correction. Attention is on 5039.84, a Fibonacci retracement. Clearance of this level would be a positive development. For bears, a reversal lower would signal a resumption of the bearish corrective cycle. This would open 4846.00, the Apr 19 low and a key support.
• The trend condition in S&P E-Minis is unchanged and signals remain bullish with price trading closer to its recent highs. Resistance at 5430.75, the May 23 high and bull trigger, has recently been cleared. This confirmed a resumption of the uptrend. Note that moving average studies are in a bull-mode position, highlighting positive sentiment. Sights are on 5594.66, a Fibonacci projection. Support to watch is 5480.29, the 20-day EMA.

COMMODITIES: WTI Futures Trade Higher Again, Above Key Resistance Levels

• A bull cycle in WTI futures remains in play and the contract is trading higher today. The recent breach of $80.11, the May 29 high and a key resistance, strengthened a bullish theme. Note too that $82.24, 76.4% of the Apr 12 - Jun 4 bear leg, has been pierced. A clear break would open $85.24, the Apr 12 high and a bull trigger. Initial firm support to watch is $78.76, the 50-day EMA. A break would be seen as a potential reversal signal.
• A bear threat in Gold remains present and the yellow metal continues to trade closer to its recent lows. The sell-off on Jun 7 reinforced a short-term bearish theme. Price has pierced the 50-day EMA, at 2318.1. A clear break of this EMA 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.

Date	GMT/Local	Impact	Country	Event
28/06/2024	1230/0830	**	US	Personal Income and Consumption
28/06/2024	1230/0830	***	CA	Gross Domestic Product by Industry
28/06/2024	1345/0945	***	US	MNI Chicago PMI
28/06/2024	1400/1000	**	US	U. Mich. Survey of Consumers
28/06/2024	1500/1100		CA	Finance Dept monthly Fiscal Monitor (expected)
28/06/2024	1600/1200	***	US	USDA Acreage - NASS
28/06/2024	1600/1200	**	US	USDA GrainStock - NASS
28/06/2024	1600/1200		US	Fed Governor Michelle Bowman
28/06/2024	1640/1240		US	San Francisco Fed's Mary Daly
28/06/2024	1700/1300	**	US	Baker Hughes Rig Count Overview - Weekly
29/06/2024	1315/1515		EU	ECB's Schnabel participates in Petersberger Sommer-Dialog
30/06/2024	0130/0930	***	CN	CFLP Manufacturing PMI
30/06/2024	0130/0930	**	CN	CFLP Non-Manufacturing PMI
30/06/2024	-		FR	First round election
30/06/2024	1300/0900		US	New York Fed's John Williams