MNI US MARKETS ANALYSIS - UK Jobs Data Keeps BoE Debate Alive
MNI (LONDON) - Highlights:
- Weekly claims, three Fed speakers and Trump at the RNC are market focus
- UK jobs data softer at the margins, keeps August rate cut debate in play
- ECB decision unlikely to result in material policy change
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US TSYS: Cheaper But Within Range Ahead Of Jobless Claims and ECB Spillover
- Treasuries have seen a mostly parallel shift lower today, leading EGBs and Gilts for outright declines, but remain within yesterday’s range (only just for 30s).
- The latest extension appeared to be helped by China Plenum headlines although as noted the vast majority appear well telegraphed with CNH reflecting that.
- Cash yields sit 2.3-3.1bps higher, with increases led by the belly. Little impetus from yesterday's 20Y re-open which came in on the screws. Today’s coupon supply is limited to 10Y TIPS.
- Various curves consolidate yesterday’s renewed flattening away from multi-month steeps, with 2s10s at -27.6bps and 5s30s at 29bps.
- TYU4 trades close to the earlier low of 111-05+, with the earlier decline slowed by 4.4k at 111-06+.
- Support is seen at 110-15+ (20-day EMA) but the trend structure remains bullish with resistance at 111-13+ (Jul 16 high).
- Ahead, markets will watch for any surprises from the ECB (seen leaving rates unchanged in a non-quarterly projection meeting before a potential cut in September) but greater focus could be on weekly jobless claims, which include initial covering a payrolls reference period. The Philly Fed manufacturing survey should also be watched after prices paid and received components stepped higher in June.
- Data: Weekly jobless claims (0830ET), Philly Fed mfg index Jul (0830ET), Leading index Jun (1000ET), TIC flows May (0830ET)
- Fedspeak: Goolsbee (1000ET), Logan (1345ET), Daly (1805ET), Bowman (1945ET) – see STIR bullet
- Note/bond issuance: US Tsy $19B 10Y TIPS auction (1300ET)
- Bill issuance: US Tsy $90B 4W, $85B 8W bill auctions (1130ET)
STIR: Fed Rates At Higher End Of Week’s Range But Still Prices September Cut
- Fed Funds implied rates have drifted higher overnight for closer to the week’s highs but with still a first cut fully priced for September.
- Cumulative cuts from 5.33% effective: 1bp Jul, 25bp Sep, 42bp Nov, 64bp Dec and 82bp Jan.
- Yesterday’s Beige Book noted further price sensitivity: “almost every District mentioned retailers discounting items or price-sensitive consumers only purchasing essentials, trading down in quality, buying fewer items, or shopping around for the best deals.”
- The structure of today’s Fedspeak sees Goolsbee and Daly as most likely to touch upon monetary policy but they have already spoken this week. It leaves greater focus on hawkish members Bowman and Logan to see if any moderation in tone after a second soft CPI report. Latest remarks below:
- 1000ET – Goolsbee (’25) on Yahoo Finance. He said Monday that rate cuts will soon be warranted having said Jul 12 after CPI that more data like last two months would boost confidence.
- 1345ET – Logan (non-voter) opening remarks (text only). She last spoke Jun 18, saying the latest inflation data [for May] was welcome news but just one month and that she needed to see several months of data to have confidence. Monetary policy was deemed in a good position which allowed the Fed to be patient whilst she was still worried about upside risks to inflation.
- 1805ET – Daly (’24) in fireside chat. She said on Monday that we’re getting nearer to the 2% inflation goal but declined to give a time-based guidance on rate cuts, saying she needs a lot more information before she can make a decision.
- 1945ET – Bowman (voter) keynote address at event on accountability and reform (text only). She repeated on Jun 27 that it’s not yet appropriate to cut rates and was willing to hike further if inflation warrants it.
BOE: STR takeup GBP29.076bln - record weekly increase
- BOE STR takeup increase GBP5.261bln on the week (the biggest ever weekly increase) to GBP29.076bln.
- This may have been larger after there was a large linker redemption yesterday - with the market holding GBP23.5bln at the time of the redemption (including inflation uplift).
- 12 out of the last 13 weeks have seen increases in STR takeup - and it is getting increasingly difficult to believe that these are temporary holdings due to short-term market factors.
- It still does seem as though it is too early to think that we are approaching an equilibrium level of reserves in the UK - but we have increasingly low conviction with that argument now. This will surely be a question that will be asked to the Bank of England at the MPR press conference in two weeks' time.
ECB: MNI ECB Balance Sheet Tracker – July 2024
MNI’s new ECB balance sheet tracker will provide a background for the conditions driving developments in funding markets and Eurozone excess liquidity, as well as provide a rough projection for the main balance sheet aggregates in the next couple of years. Additionally, we will include key ECB governing council members’ recent commentary on balance sheet matters.
In this inaugural edition, we will provide a general introduction, including the most relevant current developments. PDF analysis here
EU-RUSSIA: Kremlin-EU Moving Towards Militarisation & Confrontation
Wires reporting comments from Kremlin spox Dmitry Peskov regarding comments from European Commission President Ursula von der Leyen's committment to a 'European Defence Union' as part of herguideline package as she seeks re-election. Peskov says "it speaks to a mood in Europe towards militarisation and confrontation".
- As part of the work towards an EDU, VdL has said she will appoint a Defence Commissioner for the first time, build up the European Defence Fund, reinforce the European Defence Industry Programme, create a Single Market for Defence products and services, and pool EU resources and counter threats through flagship European Defence Union projects.
- Peskov claims that "The Russian Federation has not posed and does not pose any threat to anyone in the European Union and in Ukraine it is defending its interests in conditions where the countries of the European Union have excluded any possibility of dialogue and taking into account Russia's concerns,"
- VdL's guidelines state that her Commission, "...will work with the European Investment Bank so it can help finance and de-risk common defence projects and defence innovation." The use of the EIB to invest in defence projects has been permitted as of May following a waiverregarding dual-use investments, allowing the EIB to invest in products and tech used solely by armed forces. There remain questions about the impact of such investments on theEIB's credit rating and ESG scores.
EUROPE ISSUANCE UPDATE:
Spain auction results - E6.45bln sold, the top of the E5.5-6.5bln range.
Although low prices were in excess of pre-auction mid-prices for all lines, the bid-to-covers were all lower than previous re-openings.
The on-the-run 10-year Oct-34 Obli saw a bid-to-cover of 1.38x (vs 1.70x in June), and its yield has jumped ~1bp higher since the results.
* E2.016bln of the 1.25% Oct-30 Obli. Avg yield 2.888% (bid-to-cover 1.51x).
* E2.661bln of the 3.45% Oct-34 Obli. Avg yield 3.192% (bid-to-cover 1.38x).
* E1.771bln of the 0.85% Jul-37 Obli. Avg yield 3.394% (bid-to-cover 1.38x).
France MT OAT auction results - France sells E11.5bln at its MT OAT auction (target was E9.5-11.5bln).
* Low prices were in excess of pre-auction mid-prices across lines.
* The bid-to-cover for the on-the-run 3-year 2.50% Sep-27 OAT was a little below the May re-opening (2.37x vs 2.47x prior), though the on-the-run 5-year 2.75% Feb-30 OAT’s bid-to-cover was 2.54x (vs 2.51x in June).
* OAT futures are off lows following the results, but remain -12 at 125.07 at typing.
* E3.177bln of the 1.00% May-27 OAT. Avg yield 2.86% (bid-to-cover 2.47x).
* E3.31bln of the 2.50% Sep-27 OAT. Avg yield 2.86% (bid-to-cover 2.37x).
* E2.922bln of the 2.75% Feb-30 OAT. Avg yield 2.87% (bid-to-cover 2.54x).
* E2.088bln of the 2.00% Nov-32 OAT. Avg yield 2.96% (bid-to-cover 2.57x).
France I/L OAT auction results
* E516mln of the 0.10% Mar-28 OATi. Avg yield 1.11% (bid-to-cover 4.16x).
* E812mln of the 0.10% Mar-29 OATei. Avg yield 0.84% (bid-to-cover 3.06x).
* E768mln of the 0.60% Jul-34 OATei. Avg yield 0.88% (bid-to-cover 2.93x).
* E400mln of the 0.10% Jul-53 OATei. Avg yield 0.98% (bid-to-cover 3.23x).
FOREX: GBP/AUD Offered on Diverging Jobs Data
- AUD is the marginal outperformer, adding to gains on the back of the higher-than-expected job gains data overnight. Additionally, the participation rate unexpectedly ticked higher, to rise back toward the post-COVID and alltime highs. This helped bolster expectations for a rate hike as soon as August from the RBA, with solid topside option interest in AUD/USD also adding to the theme. AUD/JPY has rallied well off lows, piercing back above the 50-dma level this morning.
- UK labour market data left only a modest ripple in market pricing, however showed a softer-than-expected outlook for wages. The August BoE meeting remains a key market focus, with most sell-side analysts seeing the data as playing into the 50/50 theme for whether a first rate cut comes in August, or at the next Policy Report meeting in November. OIS markets price around ~12bps of easing at this stage. GBP/AUD is lower by 0.3% on the diverging reports.
- China's third plenum concluded, with the central committee reaffirming their focus on reform and improving market dynamics. Demand stimulation was also a popular theme, and may have contributed to some modest CNH sales following the release.
- The ECB rate decision is seen coming in unchanged, with no strong signal for a September cut - however this remains the market's base case, with a 25bps cut close to fully priced for that meeting. Weekly US jobless claims data, appearances from Fed's Goolsbee, Logan and Daly also cross, ahead of a campaign rally and notable speech from former President Trump at the RNC convention in Milwaukee, likely after the market close.
FX OPTIONS: Crowded Pipeline Could Contain EUR, GBP, While AUD Eyes Topside Strike
- Ahead of the ECB, EUR/USD spot sits just above a series of decent-sized strikes that will roll off as Lagarde's press conference concludes. Near €3.7bln notional is set to roll off between 1.0880-1.0905 today, with a further €1.2bln at 1.0915-25, which could contain any EUR breakout should the ECB decision go alongside expectations.
- Meanwhile, USD/JPY's spot shakeout keeps prices clear of any notable options interest - $325mln expiring at Y156.00 shouldn't prove influential, but a build on overnight AUD/USD strength will bring the $1.1bln expiry at 0.68 into focus.
- Lastly, GBP/USD's break of 1.30 yesterday faltered into the close, and strikes below spot today could add to any dovish themes read into this morning's jobs numbers: Gbp1.2bln rolls off at 1.2975-80 today.
COMMODITIES: WTI Futures Extend Recovery From Weekly Lows
- WTI futures initially traded lower this week marking an extension of the corrective cycle. However, the contract has recovered from Tuesday’s low and this signals the end of a corrective phase. Note that support at the 50-day EMA, at $79.43, remains intact. This average represents an important pivot level and a clear break would highlight a stronger reversal. Initial key resistance to watch is $83.58, the Jul 5 high.
- The trend condition in Gold remains bullish and this week’s gains reinforce current conditions. The yellow metal has breached key resistance and the bull trigger at $2450.1, the May 20 high. This confirms a resumption of the medium-term uptrend and opens the $2500.00 handle next. Moving average studies are in a clear bull-mode set-up, highlighting a rising trend. Initial support is at $2382.6, the 20-day EMA.
Move Lower in Eurostoxx 50 Futures This Week Undermines Bullish Theme
- A bull cycle in Eurostoxx 50 futures remains intact. However, the move lower this week does undermine this theme. Price has traded through the 50-day EMA, exposing the next support at 4903.00, the Jul 2 low. Clearance of this level would expose 4846.00, the Apr 19 low and a key reversal point. For bulls, a move higher and a break of 5087.00, the Jul 12 high, would again highlight a bullish theme.
- The trend condition in S&P E-Minis is bullish and yesterday’s move lower appears to be a correction. The continuation higher last week and this week’s cycle high, confirms a resumption of the uptrend and maintains the bullish sequence of higher highs and higher lows. MA studies are in a clear bull-mode set-up too, highlighting positive market sentiment. Sights are on 5741.34, a Fibonacci projection. Firm support is at 5597.81 the 20-day EMA.
Date | GMT/Local | Impact | Country | Event |
18/07/2024 | 1215/1415 | *** | ![]() | ECB Deposit Rate |
18/07/2024 | 1215/1415 | *** | ![]() | ECB Main Refi Rate |
18/07/2024 | 1215/1415 | *** | ![]() | ECB Marginal Lending Rate |
18/07/2024 | 1230/0830 | *** | ![]() | Jobless Claims |
18/07/2024 | 1230/0830 | ** | ![]() | WASDE Weekly Import/Export |
18/07/2024 | 1230/0830 | ** | ![]() | Philadelphia Fed Manufacturing Index |
18/07/2024 | 1245/1445 | ![]() | ECB Monetary Policy Press Conference | |
18/07/2024 | 1415/1615 | ![]() | ECB's Lagarde presents MonPol decision on podcast | |
18/07/2024 | 1430/1030 | ** | ![]() | Natural Gas Stocks |
18/07/2024 | 1530/1130 | * | ![]() | US Bill 08 Week Treasury Auction Result |
18/07/2024 | 1530/1130 | ** | ![]() | US Bill 04 Week Treasury Auction Result |
18/07/2024 | 1605/1205 | ![]() | San Francisco Fed's Mary Daly | |
18/07/2024 | 1700/1300 | ** | ![]() | US Treasury Auction Result for TIPS 10 Year Note |
18/07/2024 | 1745/1345 | ![]() | Dallas Fed's Lorie Logan | |
18/07/2024 | 2000/1600 | ** | ![]() | TICS |
19/07/2024 | 2301/0001 | ** | ![]() | Gfk Monthly Consumer Confidence |
19/07/2024 | 2330/0830 | *** | ![]() | CPI |
18/07/2024 | 2345/1945 | ![]() | Fed Governor Michelle Bowman | |
19/07/2024 | 0600/0700 | *** | ![]() | Retail Sales |
19/07/2024 | 0600/0700 | *** | ![]() | Public Sector Finances |
19/07/2024 | 0600/0800 | ** | ![]() | PPI |
19/07/2024 | 0800/1000 | ** | ![]() | EZ Current Account |
19/07/2024 | 1230/0830 | * | ![]() | Industrial Product and Raw Material Price Index |
19/07/2024 | 1230/0830 | ** | ![]() | Retail Trade |
19/07/2024 | 1440/1040 | ![]() | New York Fed's John Williams | |
19/07/2024 | 1700/1300 | ** | ![]() | Baker Hughes Rig Count Overview - Weekly |
19/07/2024 | 1700/1300 | ![]() | Atlanta Fed's Raphael Bostic |