MNI US MARKETS ANALYSIS - US 10y Yields Crests at New Cycle High

US TSYS: Modest Belly-Led Rally Chips Away At Real Yield Driven Sell-Off

• Cash Tsys see a modest belly-led rally having pulled back off fresh lows with the Asia open which in yield space included the 10Y yield touching a fresh high since 2007 with 4.3618%. Wider macro headline flow has been limited on the day, with the move a partial retracement of yesterday’s sizeable, real yield driven cheapening which saw 10Y real yields breach 2% for highs since 2009.
• The docket starts to pick up again today with housing data and business surveys as well as likely two-sided Fedspeak later on.
• 2YY -1.7bp at 4.984%, 5YY -3.6bp at 4.430%, 10YY -3.4bp at 4.304% and 30YY -2.8bp at 4.418%.
• TYU3 trades 5 ticks higher at 109-07+ having just dipped off a session high of 109-09. A new low of 108-28 shortly after the Asia open came close to a major support at 108-26+ (Oct 21, 2022 low cont) after which lies 108-12 (1.00 proj of Jul 18 – Aug 4 – Aug 10 price swing). Volumes are close to recent elevated levels at 275k.
• Data: Philly Fed non-mfg Aug (0830ET), Existing home sales Jul (1000ET), Richmond Fed mfg Aug (1000ET)
• Fedspeak: Barkin (0730ET), Goolsbee opening remarks (1430ET), Goolsbee & Bowman fireside chat (1530ET)
• Bill issuance: US Tsy $60B 42D bill CMB auction (1130ET)

STIR FUTURES: Upcoming Fedspeak From Each End Of Dove-Hawk Spectrum

• Fed Funds implied rates sit marginally higher for the Sept FOMC decision (+3.5bp, +0.5bp on the day) but otherwise edge lower as they chip away at yesterday’s increase.
• The terminal is seen with a cumulative +11.5bps to 5.45% in Nov, followed by cumulative cuts of 46bp to Jun’24 (from 45bp) and 114bp to Dec’24 (from 109bp).
• Fedspeak: Barkin (’24 voter) starts at 0730ET in what is expected to be a repeat of prior remarks, with more focus later on with Goolsbee (’23) and Bowman (voter) in remarks at both 1430ET and 1530ET.
• Expect comments from either side of the dove/hawk spectrum: Goolsbee on Aug 4 noted “promising” numbers on inflation and that should start thinking about how long to hold rates, Bowman on Aug 5 noted “some progress” on tackling inflation with more rate hikes likely needed to get inflation to 2%.

STIR FUTURES: OI Data Suggests Mix Of SOFR Long Cover & Short Setting On Monday

The combination of preliminary open interest data and yesterday’s bear steepening of the SOFR strip through the blues points to a combination of long cover and fresh shorts driving net positioning swings on Monday.

• The whites, greens and blues seemingly saw longs trimmed on net, to varying degrees.
• The biggest net OI swing came in the reds, which seemeingly saw the setting of fresh shorts dominate on net.

FOREX: Dollar Led by Yields, as US10y Rolls Off Cycle High

• The greenback is the poorest performer so far Tuesday, with markets receiving a dose of risk-on as US 10y yields rolled off the cycle high printed just ahead of the European open at 4.3618%. Equities gained, while the dollar faded, allowing the e-mini S&P to show above the Monday high having built off the 100-dma support line last week.
• USD weakness has favoured the major pairs, putting EUR/USD on course for a test of 1.0931 resistance and GBP/USD within range of 1.2800. A break and close above this mark would be the first since early August.
• AUD and NZD are furtively the strongest performers, extending the bounce off last week's lows. Nonetheless, the broader downtrend remains intact, with AUD/USD eyeing 0.6365 and NZD/USD watching 0.5897 as the next key downside levels.
• US existing home sales and Richmond Fed Manufacturing data is top of the docket Tuesday, as well as the beginning of the BRICS summit in South Africa. Fedspeak picks up ahead of the Jackson Hole summit later in the week. Barkin, Goolsbee and Bowman are set to speak across US hours.

EQUITIES: Bearish Threat in E-Mini S&P Intact Despite Latest Recovery

• A bearish theme in Eurostoxx 50 futures remains present and last week’s sell-off reinforces current conditions. The contract has breached support at 4276.00, the Aug 8 and 15 low and cleared 4220.00, the Jul 7 low. This opens 4177.40, a Fibonacci retracement. Key short-term resistance is unchanged at 4420.00, the Aug 10 high. Initial firm resistance is 4343.80, the 50-day EMA.
• A bearish theme in the E-mini S&P contract remains intact and last week’s price action reinforces this theme. The move lower resulted in a break of the 50-day EMA and the contract breached channel support drawn from the Mar 13 low. 4368.50, the Jun 26 low, was breached last Friday and attention turns to 4344.28, a Fibonacci retracement. Initial firm resistance to watch is at the 50-day EMA - at 4454.24.

COMMODITIES: Recent Weakness in WTI Futures Deemed Corrective

• The uptrend in WTI futures remains intact and recent weakness appears to be a correction. Firm support to watch lies at $78.33, the Aug 3 low. A clear breach of this level would signal scope for a deeper short-term retracement. For bulls, a resumption of gains would refocus attention on the next objective at $85.24, a Fibonacci projection. Moving average studies are in bull-mode condition that continues to highlight an uptrend.
• Gold is trading closer to its recent lows and the outlook remains bearish. The yellow metal has breached key support at $1893.1, the Jun 29 low. The clear break strengthens bearish conditions and signals scope for $1865.8, a Fibonacci retracement. Moving average studies remain in bear mode condition, highlighting current bearish sentiment. On the upside, initial firm resistance to watch is $1934.1, the 50-day EMA.