MNI (LONDON) - Highlights:
- Treasuries tread water ahead of stacked data session
- EUR/USD consolidates, but still adding pressure to USD Index
- Musalem, Harker add to Fedspeak calendar
- Treasuries hold narrow ranges amidst particularly low volumes ahead of a heavy docket including weekly jobless claims (after heightened sensitivity to them last week) and retail sales to name a few. Adding to an unusually heavy data docket, Walmart earnings will be watched at 0700ET.
- Cash yields sit between 0.7bp lower (2s) and 0.3bps higher (20s and 30s) on the day.
- 2s10s at -11.2bps (+0.5bps) is within recent ranges.
- TYU4 at 113-21+ (- 03) is within a just 4+ tick range and firmly within yesterday’s CPI-induced range of 113-13+ to 114-02. Volumes are very subdued at 200k.
- The trend needle points higher, with yesterday’s snap high stopping just short of resistance at 114-03 (Aug 6 high) after which lies the bull trigger at 115-03+ (Aug 5 high). To the downside, support is seen at 112-11 (20-day EMA).
- Data: Retail sales Jul (0830ET), Weekly jobless claims (0830ET), International prices (0830ET), Empire mfg Aug (0830ET), Philly Fed Aug (0830ET), IP/Cap util Jul (0915ET), Business inventories Jun (1000ET), NAHB housing market index Aug (1000ET), TIC flows Jun (1600ET)
- Fedspeak: Musalem (0910ET), Harker (1310ET) – see STIR bullet.
- Bill issuance: US Tsy $95B 4W, $90B 8W Bill auctions (1130ET)
STIR: Down To 35.5bp Of Cuts For Sept FOMC Before Data Deluge
- Fed Funds implied rates hold yesterday’s post-CPI push higher for the September meeting but beyond that have cooled a touch. The Dec’24 for example is 1bp lower on the day for 3bps lower than both post-CPI highs and levels immediately pre-PPI on Tue.
- Cumulative cuts from 5.33% effective: 35.5bp Sept, 70bp Nov, 105bp Dec, 133bp Jan and 193bp with June.
- There is a stacked data docket including retail sales and weekly jobless claims plus some further Fedspeak – see below.
Post-CPI Fedspeak leant dovish, with a greater change from Bostic who had been one of the more hawkish FOMC members.
- Bostic (’24 voter) in a FT interview released midnight ET: He is “open” to an interest rate cut in September as the Fed can’t “afford to be late” to ease monetary policy. “Now that inflation is coming into range, we have to look at the other side of the mandate, and there, we’ve seen the unemployment rate rise considerably off of its lows”. He had previously seen just one cut in 2024, in Q4.
- Goolsbee (’25 voter) late yesterday: Policy is “very restrictive” and the economy is not overheating. He’s more concerned about the jobs mandate “on the margin” and rising unemployment may indicate a worsening job market. Economic conditions will warrant the size of rate cuts.
Today’s Fedspeak:
- 0910ET - Musalem (’25 voter, hawkish leaning) speaks on the economy and policy at 0910ET (no text). He last spoke after US CPI on Jul 11 (i.e. pre Jul 31 FOMC and July payrolls and CPI reports) when he didn’t see mon pol as overly restrictive and saw the labor market as still strong and likely not fully balanced.
- 1310ET - Harker (non-voter) speaks on economic data (text only). He last spoke in mid-June.
US TSY FUTURES: OI Reveals Mix Of Post-CPI Positioning Moves, Short Cover Most Prominent
Yesterday’s twist flattening of the Tsy futures curve and preliminary OI data points to a mix of net long cover (TU), short cover (FV, UXY, US & WN) & long setting (TY).
- This allowed the recent dominant positioning mix of net long setting & short cover to extend further, with the latter being the most prominent in curve-wide terms.
- A post-CPI reduction in market-implied odds of a 50bp cut at the Sep FOMC weighed on the front end, while a late NY morning block buyer in TY futures helped underpin the curve flattening theme.
| 14-Aug-24 | 13-Aug-24 | Daily OI Change | OI DV01 Equivalent Change ($) | |
| TU | 4,403,053 | 4,420,722 | -17,669 | -651,177 |
| FV | 6,722,886 | 6,732,486 | -9,600 | -407,680 |
| TY | 5,000,941 | 4,958,362 | +42,579 | +2,786,116 |
| UXY | 2,152,946 | 2,165,002 | -12,056 | -1,115,513 |
| US | 1,692,698 | 1,696,893 | -4,195 | -581,354 |
| WN | 1,643,596 | 1,657,030 | -13,434 | -3,103,292 |
| Total | -14,375 | -3,072,901 |
STIR: OI Points To Mix Of Positioning Swings During Yesterday's SOFR Twist Flattening
The combination of yesterday’s twist flattening of the SOFR strip and preliminary OI data points to a mix of net long cover and short setting through SFRU5.
- This came as the market-implied odds of a 50bp cut at the Sep FOMC reduced following the CPI data.
- Still, the data didn’t meaningfully impact terminal rate pricing and was seen as confirmatory when it comes starting the impending Fed easing cycle.
- This allowed a mix of net long setting and short cover to dominate from SFRH6 outwards.
| 14-Aug-24 | 13-Aug-24 | Daily OI Change | Daily OI Change In Packs | ||
| SFRM4 | 1,133,264 | 1,130,363 | +2,901 | Whites | -11,080 |
| SFRU4 | 1,098,929 | 1,098,671 | +258 | Reds | +11,611 |
| SFRZ4 | 1,112,571 | 1,119,136 | -6,565 | Greens | +26,583 |
| SFRH5 | 927,876 | 935,550 | -7,674 | Blues | -5,575 |
| SFRM5 | 809,968 | 817,034 | -7,066 | ||
| SFRU5 | 686,256 | 678,128 | +8,128 | ||
| SFRZ5 | 878,882 | 874,839 | +4,043 | ||
| SFRH6 | 674,770 | 668,264 | +6,506 | ||
| SFRM6 | 629,974 | 619,718 | +10,256 | ||
| SFRU6 | 572,388 | 561,252 | +11,136 | ||
| SFRZ6 | 492,371 | 490,238 | +2,133 | ||
| SFRH7 | 265,365 | 262,307 | +3,058 | ||
| SFRM7 | 252,387 | 251,996 | +391 | ||
| SFRU7 | 210,832 | 212,846 | -2,014 | ||
| SFRZ7 | 241,433 | 245,947 | -4,514 | ||
| SFRH8 | 166,086 | 165,524 | +562 |
US Inflation Insight, Aug'24: More Confidence To Cut, But Probably Not 50
We have published and e-mailed to subscribers the MNI US Inflation Insight.
Please find the full report including MNI analysis and views from 16 analysts here: https://roar-assets-auto.rbl.ms/files/65869/USInflationInsightAug2024.pdf
FOREX: EUR/USD Consolidating, But Keeping Pressure on USD Index
- Having faded off the Wednesday high (and best level since January 1st) into yesterday's close, EUR/USD is consolidating, but holding just above the $1.10 handle. We wrote earlier this week that Fed pricing need not revisit the pricing extremes from earlier in the month of 125bps cuts this year in order for the USD Index to return lower - and yesterday's price action supports that theory. The USD Index bottomed out at 102.270 before recovering slightly - leaving this level, and 102.160, as key near-term support.
- CHF is the poorest performer in G10 at typing, as markets continue to sell the sharp rally in the currency into the start of August. With AUD faring better on more stable equities, AUD/CHF is pressuring the weekly highs and horizontal resistance layered between 0.5750-51. Clearance here puts the cross clear of the 50% retracement for the downleg posted off the July high, opening 0.5809 and above.
- Lastly, NOK has seen some buying interest following the Norges Bank rate decision, which kept policy unchanged - as expected, but moderately uprated their concern over the course of the currency, stating that the committee are "particularly concerned" with developments in currency rates.
- US July retail sales data takes focus for the session ahead, with markets expecting advance sales to pick up to +0.4% from 0.0% previously. Import and export price indices are also due, as well as the weekly jobless claims release and July industrial production numbers. Central bank speaker highlights include Fed's Musalem, who address the economy and policy, followed by Harker at the Philly Fed.
COMMODITIES: WTI Futures Trading Close to This Week's Lows
- WTI futures rallied sharply higher Monday. The move undermines a recent bearish theme and price has traded through both the 20- and 50-day EMAs. A continuation higher would signal scope for a climb towards $80.77, a Fibonacci retracement. Clearance of this level would open $83.58, the Jul 5 high. On the downside, the contract has pulled back from the recent high. A stronger sell-off would refocus attention on key support at $71.67, Aug 5 low.
- Gold is holding on to its latest gains. Recent weakness appears to be corrective and the trend structure remains bullish. Note that the yellow metal has recently pierced support at the 50-day EMA - currently at $2389.0. A clear break of it would signal scope for a deeper retracement towards $2277.4, the May 3 low and a key support. Attention is on $2483.7, the Jul 17 high and a bull trigger. Clearance of this hurdle would resume the uptrend.
EQUITIES: Bear Threat in Eurostoxx 50 Futures Remains Present Despite Recovery
- A bear threat in Eurostoxx 50 futures remains present and the latest climb appears to be a correction - for now. Attention is on first resistance at 4774.23, the 20-day EMA. A break of this hurdle would signal scope for a stronger retracement, towards key resistance at the 50-day EMA, at 4868.21. For bears, a reversal lower would signal the end of the correction and refocus attention on the bear trigger at 4494.00, the Aug 5 low.
- Short-term gains in S&P E-Minis are - for now - considered corrective. However, Tuesday’s strong rally delivered a print above the 50-day EMA, at 5454.71. A clear break of this average would undermine the recent bearish theme and instead signal scope for a stronger recovery. This would open 5579.35, a Fibonacci retracement. A reversal lower would refocus attention on the bear trigger at 5120.00, the Aug 5 low.
| Date | GMT/Local | Impact | Country | Event |
| 15/08/2024 | 1230/0830 | *** |  US | Jobless Claims |
| 15/08/2024 | 1230/0830 | ** | US | WASDE Weekly Import/Export |
| 15/08/2024 | 1230/0830 | ** | US | Import/Export Price Index |
| 15/08/2024 | 1230/0830 | ** |  CA | Wholesale Trade |
| 15/08/2024 | 1230/0830 | *** | US | Retail Sales |
| 15/08/2024 | 1230/0830 | ** | US | Empire State Manufacturing Survey |
| 15/08/2024 | 1230/0830 | ** | US | Philadelphia Fed Manufacturing Index |
| 15/08/2024 | 1300/0900 | * | CA | CREA Existing Home Sales |
| 15/08/2024 | 1310/0910 | US | St. Louis Fed's Alberto Musalem | |
| 15/08/2024 | 1315/0915 | *** | US | Industrial Production |
| 15/08/2024 | 1400/1000 | * | US | Business Inventories |
| 15/08/2024 | 1400/1000 | ** | US | NAHB Home Builder Index |
| 15/08/2024 | 1430/1030 | ** | US | Natural Gas Stocks |
| 15/08/2024 | 1530/1130 | ** | US | US Bill 04 Week Treasury Auction Result |
| 15/08/2024 | 1530/1130 | * | US | US Bill 08 Week Treasury Auction Result |
| 15/08/2024 | 1710/1310 | US | Philly Fed's Pat Harker | |
| 15/08/2024 | 2000/1600 | ** | US | TICS |
| 16/08/2024 | 0600/0700 | *** |  GB | Retail Sales |
| 16/08/2024 | 0900/1100 | * |  EU | Trade Balance |
| 16/08/2024 | 1215/0815 | ** | CA | CMHC Housing Starts |
| 16/08/2024 | 1230/0830 | * | CA | International Canadian Transaction in Securities |
| 16/08/2024 | 1230/0830 | ** | CA | Monthly Survey of Manufacturing |
| 16/08/2024 | 1230/0830 | *** | US | Housing Starts |
| 16/08/2024 | 1400/1000 | ** | US | U. Mich. Survey of Consumers |
| 16/08/2024 | 1700/1300 | ** | US | Baker Hughes Rig Count Overview - Weekly |
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