MNI (LONDON) - Highlights:
- Treasury volumes sag ahead of July PCE
- USD Index holds bounce off lows, but remains vulnerable
- MNI Chicago PMI could set the tone for next week's data
US TSYS: Low Volumes Ahead Of July PCE Report
- Treasuries have seen a modest twist flattening with 2s nudging a little towards yesterday’s lows but the long end slowly paring losses.
- Cash yields are 0.5bp higher (2s) to 1.5bp lower (30s) on the day, with 10s at 3.852% off yesterday’s 3.886% which marked the highest in almost two weeks.
- 2s10s has dipped to -4.6bps (-1.6bps) off yesterday’s high of -1.1bps. Recall it briefly disinverted in global risk-off fallout the Monday after last month’s payrolls report.
- TYZ4 is at 113-30 (+02) having kept to a particularly narrow range of 113-27 to 113-30+ on low volumes of 220k. The bull cycle remains in place with resistance seen at 114-19+ (Aug 21 high).
- Today’s firm focus is on monthly PCE for July. Yesterday’s Q2 revisions showed surprisingly strong consumption and softer core PCE inflation, with the distribution of these revisions through the quarter likely helping shape market reaction. See the MNI Preview here.
- Data: PCE Jul (0830ET), MNI Chicago PMI Aug (0945ET), U.Mich consumer survey Aug final (1000ET)
- Fedspeak: None scheduled
100bp Of Fed Cuts To Year-End, Waller Set For Post-NFP Reaction
- Fed Funds implied rates hold onto yesterday’s lift on consumption-led GDP revisions and jobless claims ruling out an increase, with the path remaining within recent ranges.
- Cumulative cuts from 5.33% effective: 33bp Sep, 66bp Nov, 100bp Dec, 129bp Jan and 190bp June.
- Monthly PCE headlines today’s docket: https://roar-assets-auto.rbl.ms/files/67048/USPCEPrevAug2024.pdf
- There’s no Fedspeak scheduled for today but note that Gov. Waller (voter) has been added to the calendar for a post-payrolls reaction next Friday.
- NY Fed’s Williams (voter) was already down to give keynote remarks at 0845ET but that was just 15mins after the release. Waller’s speech on the economic outlook at 1100ET gives more time to react and put across what’s likely the Fed’s final steer before the blackout starting that night ahead of the Sep 17-18 FOMC decision (media reports notwithstanding).
STIR: OI Points To Long Cover In SOFR Futures Following Yesterday’s Data
OI data points to long cover dominating in SOFR futures following yesterday’s data.
- Pockets of short setting were also seen.
- Fed Funds futures remain anchored to pricing 100bp of cuts through year end.
- Next week’s NFP report presents the major input ahead of the Sep FOMC, given the central bank’s increased focus on the employment side of its dual mandate.
| 29-Aug-24 | 28-Aug-24 | Daily OI Change | Daily OI Change In Packs | ||
| SFRM4 | 1,141,678 | 1,128,906 | +12,772 | Whites | -13,771 |
| SFRU4 | 1,370,990 | 1,377,512 | -6,522 | Reds | -18,965 |
| SFRZ4 | 1,188,636 | 1,204,212 | -15,576 | Greens | -37,374 |
| SFRH5 | 916,806 | 921,251 | -4,445 | Blues | -896 |
| SFRM5 | 888,752 | 896,743 | -7,991 | ||
| SFRU5 | 672,732 | 677,771 | -5,039 | ||
| SFRZ5 | 918,261 | 901,593 | +16,668 | ||
| SFRH6 | 666,209 | 688,812 | -22,603 | ||
| SFRM6 | 681,292 | 723,134 | -41,842 | ||
| SFRU6 | 551,929 | 564,683 | -12,754 | ||
| SFRZ6 | 495,603 | 481,120 | +14,483 | ||
| SFRH7 | 297,499 | 294,760 | +2,739 | ||
| SFRM7 | 289,654 | 291,551 | -1,897 | ||
| SFRU7 | 225,357 | 220,489 | +4,868 | ||
| SFRZ7 | 232,400 | 234,519 | -2,119 | ||
| SFRH8 | 166,956 | 168,704 | -1,748 |
US: Labor Day Exchange Schedules
A reminder that the U.S. will observe the Labor Day holiday on Monday. This will result in a combination of shortened market trading hours and full market closures.
GDP Watched With BoC Heavily Focused On Excess Supply
- Today’s GDP data at 0830ET should be watched closely after the BoC’s surprisingly dovish commentary in July concerning the build in excess supply.
- Bloomberg consensus sees GDP growth of 1.8% annualized in Q2, mostly grouped between 1.6-2.0% but with two outliers at 1.3 (JPM) and 0.7 (Moody’s).
- The BoC forecast 1.5% for Q2 in the July MPR after the disappointing 1.7% in Q1, before an acceleration to 2.8% in Q3.
- The July advance for separate monthly GDP data by industry will help provide an early look as to how achievable this Q3 figure looks. For June, analysts just about stick with the 0.1% M/M indicated at last month’s advance but with chance of 0.0%.
- Latest retail sales data indicated a solid 0.6% M/M increase in July but this is only in nominal terms and with volumes up to June looking far more tepid.
- With the Bank estimating potential output growth of 2.4% in 2024 before 1.9% through 2025-26, any downside surprises for Q2 will see a further increase to ongoing excess supply.
- On the flip side, surprise strength could see greater odds of a temporary pause from the Bank at Oct or Dec meetings considering it is already priced to cut 25bp at Sep, Oct and Dec meetings. However, we feel that would have to be significant, with subsequent labour or inflation reports of more note here.
FOREX: Chicago PMI Could Set Data Tone for Next Week
- The USD Index is holding the bounce off the August pullback low, with the 101.00 handle seen steady into the end of the month. Month-end flow impacts are expected to be mild, particularly for the greenback, while EUR weakness this week could be attributed to corporate flow tied into the value-date month-end that passed on Wednesday.
- GBP is modestly outperforming, helping keep EUR/GBP under pressure and extend the recent spell of weakness. The cross is testing 0.8400 at typing, and a break below would be the first since late July, adding to the focus to key support and the bear trigger of 0.8383.
- Growth-proxy currencies have carried over the short-term momentum into the second-half of the week, allowing AUD/USD to build a base above 0.6800. 0.6824 and 0.6871 remain the key levels here, and a particularly soft set of US dataprints today could see these resistance marks come under pressure.
- US PCE data takes focus in the session ahead, with markets expecting both the headline and core PCE price indices to hold steady at 0.2% on the month, and both above 2.5% on a Y/Y basis. MNI Chicago PMI is set to follow, with expectations of continued weak growth likely to help lay the groundwork for next week's run of ISM and NFP data.
Expiries for Aug30 NY cut 1000ET (Source DTCC)
- EUR/USD: $1.1050-60(E1.5bln)
- USD/JPY: Y147.00($575mln), Y147.45-50($510mln), Y149.55($1.2bln), Y150.00($1.2bln), Y153.15($1.1bln)
- EUR/JPY: Y163.55(E654mln)
- GBP/USD: $1.3190-00(Gbp739mln)
- AUD/USD: $0.6745-60(A$1.4bln)
- USD/CAD: C$1.3450-62($628mln), C$1.3615($661mln)
- USD/CNY: Cny7.1000($654mln)
WTI Futures Recover From This Week's Lows
- WTI futures have recovered this month from their early August lows. More recently, the contract traded sharply higher Monday before pulling back. A stronger resumption of gains would refocus attention on key resistance at $78.54, the Aug 12 high. Clearance of this level would highlight a stronger bullish reversal. For bears, an extension lower would once again expose the $70.88 key support, Aug 5 low.
- Trend conditions in Gold are unchanged and remain bullish. The recent breach of $2483.7, the Jul 17 high, confirmed a resumption of the primary uptrend. Note that moving average studies are still in a bull-mode set-up and this highlights a dominant uptrend. The focus is on a climb towards $2536.4 next, a Fibonacci projection. Initial support to watch lies at $2479.7, the 20-day EMA. Short-term weakness would be considered corrective.
Eurostoxx 50 Futures Trade Higher, Extending Current Bull Cycle
- Eurostoxx 50 futures traded higher Thursday, marking an extension of the bull cycle that started Aug 5. The break higher means that all key retracement points of the Jul 12 - Aug 5 bear leg have been cleared. SIghts are on 4997.00 next, the Jul 17 high, where a breach would open 5087.00, the Jul 12 high. Initial firm support to watch is seen at 4866.04, the 20-day EMA. A break would signal scope for a corrective pullback.
- A bullish theme S&P E-Minis remains intact and the contract is trading closer to its recent highs. A resumption of gains would pave the way for a climb towards key resistance and the bull trigger at 5721.25, the Jul 16 high. A break would resume the primary uptrend. Support to watch lies at 5512.95, the 50-day EMA. A clear breach of it is required to instead highlight a potential bearish threat. The latest move lower appears corrective.
| Date | GMT/Local | Impact | Country | Event |
| 30/08/2024 | 1230/0830 | *** |  US | Personal Income and Consumption |
| 30/08/2024 | 1230/0830 | *** |  CA | GDP - Canadian Economic Accounts |
| 30/08/2024 | 1230/0830 | *** | CA | Gross Domestic Product by Industry |
| 30/08/2024 | 1230/0830 | *** | CA | CA GDP by Industry and GDP Canadian Economic Accounts Combined |
| 30/08/2024 | 1230/0830 | *** | CA | Gross Domestic Product by Industry |
| 30/08/2024 | 1345/0945 | *** | US | MNI Chicago PMI |
| 30/08/2024 | 1400/1000 | ** | US | U. Mich. Survey of Consumers |
| 30/08/2024 | 1500/1100 | CA | Finance Dept monthly Fiscal Monitor (expected) | |
| 30/08/2024 | 1700/1300 | ** | US | Baker Hughes Rig Count Overview - Weekly |
| 31/08/2024 | 0130/0930 | *** |  CN | CFLP Manufacturing PMI |
| 31/08/2024 | 0130/0930 | ** | CN | CFLP Non-Manufacturing PMI |
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