MNI US MARKETS ANALYSIS - Tsys Await Fed, Labour Market Cues

MNI (LONDON) - Highlights: 

• Treasuries rangebound as market awaits Fed, labour market cues
• German inflation projected inline with consensus at 2.3% Y/Y
• JPY on backfoot, NZD undergoes corrective bounce

US TSYS: Tepid Overnight Session Awaiting Next Labor Market Clues

• Treasuries have kept to narrow ranges overnight and hold a modest flattening seen after yesterday’s borrowing estimates.
• With limited surprises in the announcement ($740bn for current quarter at low end of expectations but other figures well within ranges), there are unlikely to be major changes in expectations for Wednesday's full QRA. The lower cash balance does though suggest a higher propensity for bill paydowns in Q4 than some may have expected - our full QRA preview will be out later today.
• Cash yields sit between 0.5-1bp lower on the day.
• 2s10s is unchanged at -22bps, off ytd highs of -11.3bps on Jul 25 but still at higher end of multi-month ranges.
• TYU4 at 111-12 (+ 01) is at the top of particularly narrow ranges overnight on modest volumes of 255k.
• Yesterday's high of 111-16+ marked the latest extension of the bullish trend structure, stopping just shy of 111-17+ (Fibo projection) before a more notable 111-31 (another Fibo projection).
• Today sees a data-focused docket with highlights being labor-related indicators but with house prices also watched after the recent sequential step down in CPI housing (long lags aside).
• Data: FHFA and S& CoreLogic house prices May (0900ET), JOLTS report Jun (1000ET), Conf Board consumer survey Jul (1000ET), Dallas Fed services Jul (1030ET)
• Bill issuance: US Tsy $70B 42D CMB Bill auction (1130ET)

STIR: Still More Than 25bp Of Cuts Priced For September

• Fed Funds implied rates hold yesterday’s increase having lifted through the session on little by way of new macro drivers.
• It helped the Dec’24 implied rate lift a little further off recent lows, and unwound declines seen since Friday's June PCE report, although it still points to closer to three than two cuts for 2024 with an implied cumulative 66bp of cuts.
• Cumulative cuts from 5.33% effective: 1bp Jul, 28.5bp Sep, 44bp Nov, 66bp Dec and 84bp Jan.
• JOLTS and the Conf. Board consumer survey (with its labor differential) offer a first look at alternative labor indicators ahead of NFPs on Friday, although tomorrow’s Q2 ECI report could be more impactful ahead of the FOMC decision later that day (full preview here).

GERMAN DATA: Q2 GDP Disappoints Weak Expectations; Poor Investment; Revisions

Real GDP is estimated to have contracted again in Q2 on a sequential comparison, by 0.1% Q/Q (seasonally-adjusted, vs an unrevised +0.2% prior), weaker than the consensus estimate of +0.1% Q/Q. The print mirrors the weak recent German activity data - but also sentiment remained weak this month, so looking forward, a bump in economic conditions does not seem imminent.

• Consequentially, also the yearly comparison remained in contractionary territory on a calendar-adjusted basis, where it has been since Q4 2023, coming in at -0.1% Y/Y (consensus was for a flat 0.0%).
• Destatis specifically cited declines in equipment and construction investment as downside drivers.
• The release also contained some revisions to prior data, based on some methodological updates (incl. reclassification of parts of the public transport infrastructure to the public sector, a new classification of private consumption expenditure, and the implementation of some new data sources in the services sector) and a rebasing to 2020.
• It appears that while changes to some individual quarterly prints based on the revisions were quite significant, on average, the revisions seem to largely cancel out, so the overall picture of the trajectory of the German economy remains unchanged. On the margin, 2023 weakness appears slightly less pronounced than before.
• Final prints containing more detail are to be released in the next weeks.

MNI, Destatis

Softer Services CPI in Belgium in July Despite HICP Uptick

HICP inflation accelerated again in Belgium in July, to 5.5% Y/Y (vs 5.4% prior) according to the Statbel flash estimate. Leaving aside a stall in May, this is the seventh consecutive increase and the highest yearly rate since January 2023. However, the recent increases were largely energy driven, and services inflation, which remains under elevated scrutiny in the whole Eurozone, appears to have moderated a bit this month.

• National CPI, on which more underlying information in available in the flash release, fell to 3.64% (from 3.74%). On a sequential comparison, CPI rose by 0.71% M/M (vs +0.22% June).
• Core inflation (excl. energy and unprocessed food) came in at 3.04% Y/Y in July vs 2.97% in June.
• Services inflation slowed down, to 4.21% Y/Y vs 4.55% June, so the core acceleration seems to be driven by core goods.
• Food inflation accelerated slightly, to 0.54% Y/Y vs 0.31% in June.
• Belgium makes up 3.8% of the total Eurozone HICP basket. While its contribution to the overall print will henceforth be limited, the details of the national release again pointing towards some deceleration in services can be seen as a good sign for the Eurozone-wide print.

MNI Projects 2.3% Y/Y National CPI, Core CPI 2.9-3.0%

From state-level data that equates to 89.1% weighting of the national July flash German CPI print (due at 13:00 BST / 14:00 CET), MNI estimates that national CPI (non-HICP print) rose by around 0.3% M/M (June 0.1%) and 2.3% Y/Y (June 2.2%).

• Analyst consensus currently stands at 2.2% Y/Y and 0.3% M/M, so there are some upside risks here.
• Current tracking of Core CPI (ex-energy and food, based on 50% of the national index) implies around 2.9-3.0% Y/Y (2.9% in June) and 0.3-0.4% M/M (0.3% in June).
• We will provide a follow-up bullet looking at underlying drivers in due course.
• Note: These estimates are in relation to the national CPI print, not the HICP  print which feeds into the Eurozone HICP print that the ECB targets. The  magnitude of surprises to consensus can sometimes be different due to the  different methodologies and weights used in national CPI vs HICP - but the  direction of the surprise is normally the same.

JPY on Backfoot, While NZD Undergoes Corrective Bounce

• JPY is the poorest performer against all others in G10 early Tuesday, with markets gearing, positioning and shaping up for a particularly busy few sessions this week. USD/JPY is holding a moderate bounce off last week's lows, with the pair now just over 250 pips off the pivot support (and critical level) of 151.94. Market drivers so far today have been few and far between, with generally buoyant equity markets providing a mild risk-on backdrop. 
• The US curve is a touch steeper, aiding the USD Index's strength above the weekly lows. A confluence of resistance sits just ahead, with yesterday's multi-week high, the 100- and the 50-dma all layered between 104.752 and 104.894.
• NZD trades well, rising against most others as markets retrace a very small part of the currency's recent downdraft. The overall trend condition remains resolutely negative, and bulls will need to build a base off the recent low, and key support, of 0.5858/52. Clearance below here, however, resumes the bear trend drawn off the early July highs, and targets 0.5774 and below. 
• Headed through Tuesday trade, Germany's national prelim CPI print could draw some focus. The various regional prints are supportive of consensus that looks for a 0.3% M/M rise and a steady pace of 2.2% for the Y/Y. US July consumer confidence data is also set to cross - however markets will likely keep their focus on risk events later in the week - unsurprisingly the high frequency of CB decisions across Wednesday and Thursday - including the BoJ, Fed and BoE. 

Expiries for Jul30 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0800-20(E550mln), $1.0875-95(E1.3bln)
• USD/JPY: Y153.00($1.2bln), Y153.45-55($1.4bln), Y155.00($3.4bln)
• EUR/GBP: Gbp0.8450(E1.9bln)
• USD/CAD: C$1.3680-00($1.3bln)
• AUD/USD: $0.6575(A$724mln)
• USD/CAD: C$1.3680-00($1.3bln)

Last Week's Move Lower in Gold Considered Corrective

• A bear threat in WTI futures remains present and the contract has traded lower this week. The recent breach of both the 20- and 50-day EMAs, reinforces the bear theme. A continuation lower would open $72.23, the Jun 4 low and the next key support. For bulls, a reversal higher would instead refocus attention on the key resistance points at $83.58, the Jul 5 high, and $84.36, the Apr 12 high.
• The latest move down in Gold is considered corrective, however, the yellow metal has pierced support at the 50-day EMA - at $2362.0. 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 reversal higher would refocus attention on $2483.7, the Jul 17 high, and a bull trigger. Clearance of this hurdle would resume the primary uptrend.      

Bearish Threat in Eurostoxx 50 Futures Remains Present

• Eurostoxx 50 futures traded lower last Thursday, and a bearish threat remains present. The contract has traded through 4846.00, the Apr 19 low. A clear break of this level would pave the way for an extension towards 4739.87, the 200 day MA (cont). Moving average studies are in a bear-mode set-up, highlighting a downtrend. The latest bounce appears to be a correction. Initial firm resistance to watch is 4980.00, Jul 23 high.
• S&P E-Minis traded lower last week and the move down resulted in a break of both the 20- and 50-day EMAs. This reinforces the short-term bearish cycle and signals scope for an extension near-term. Note that the move down is considered corrective. Potential is seen for a move towards 5396.09, the lower band of a MA envelope, ahead of 5370.62 a Fibonacci retracement. Key short-term resistance is 5629.75, the Jul 23 high.

Date	GMT/Local	Impact	Country	Event
30/07/2024	1200/1400	***	DE	HICP (p)
30/07/2024	1255/0855	**	US	Redbook Retail Sales Index
30/07/2024	1300/0900	**	US	S&P Case-Shiller Home Price Index
30/07/2024	1300/0900	**	US	FHFA Home Price Index
30/07/2024	1300/0900	**	US	FHFA Home Price Index
30/07/2024	1400/1000	***	US	Conference Board Consumer Confidence
30/07/2024	1400/1000	**	US	housing vacancies
30/07/2024	1400/1000	***	US	JOLTS jobs opening level
30/07/2024	1400/1000	***	US	JOLTS quits Rate
30/07/2024	1430/1030	**	US	Dallas Fed Services Survey
30/07/2024	1530/1130	*	US	US Treasury Auction Result for Cash Management Bill
31/07/2024	2350/0850	**	JP	Industrial Production
31/07/2024	2350/0850	*	JP	Retail Sales (p)
31/07/2024	0130/0930	***	CN	CFLP Manufacturing PMI
31/07/2024	0130/0930	**	CN	CFLP Non-Manufacturing PMI
31/07/2024	0130/1130	**	AU	Retail Trade
31/07/2024	0130/1130	***	AU	CPI inflation
31/07/2024	0130/1130	***	AU	CPI Inflation Monthly
31/07/2024	0200/1100	***	JP	BOJ Policy Rate Announcement
31/07/2024	0600/1400	**	CN	MNI China Liquidity Index (CLI)
31/07/2024	0600/0800	**	DE	Import/Export Prices
31/07/2024	0645/0845	***	FR	HICP (p)
31/07/2024	0645/0845	**	FR	PPI
31/07/2024	0755/0955	**	DE	Unemployment
31/07/2024	0900/1100	***	EU	HICP (p)
31/07/2024	0900/1100	***	IT	HICP (p)
31/07/2024	1000/1200	**	IT	PPI
31/07/2024	1100/0700	**	US	MBA Weekly Applications Index
31/07/2024	1215/0815	***	US	ADP Employment Report
31/07/2024	1230/0830	***	US	Employment Cost Index
31/07/2024	1230/0830	***	CA	Gross Domestic Product by Industry
31/07/2024	1230/0830	***	US	Treasury Quarterly Refunding
31/07/2024	1345/0945	***	US	MNI Chicago PMI
31/07/2024	1400/1000	**	US	NAR Pending Home Sales
31/07/2024	1430/1030	**	US	DOE Weekly Crude Oil Stocks
31/07/2024	1800/1400	***	US	FOMC Statement