MNI US MARKETS ANALYSIS - US Treasuries See Solid Support
MNI (LONDON) - Highlights:
- Treasuries rally ahead of retail sales, import price data
- Canadian CPI seen slowing on all measures
- BoJ accounts data likely confirms second phases of JPY intervention last week
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US TSYS: Broad Rally With TY Resistance Watched Ahead Of Retail Sales and Import Prices
- Intraday gains have levelled off over the past 90 minutes but long end Treasuries have pared yesterday’s losses that at the time were in part attributed to former President Trump’s higher odds of re-election.
- Some suggest today’s rally could lie in Trump's VP pick (J.D. Vance) being a staunch opposer of aid for Ukraine will be having an impact, given potential feedthrough into U.S. borrowing needs.
- Weakness in European equities and lower crude oil prices are no doubt factoring as well.
- Cash yields sit between 4-5.5bp lower on the day. 2Y yields have pushed to new recent lows as Fed Funds pricing ticks closer to pricing three cuts for what’s left of 2024 vs the single cut penciled in back at the June SEP. 10Y yields are back to post-CPI recent lows.
- It sees various curve metrics come a little further off yesterday’s multi-month steeps, including 2s30s which dips back into inversion again.
- TYU4 sits at 111-09 (+ 09+) after another heavy overnight session with more than 400k already traded. An earlier high of 111-10+ matched initial resistance at the Jul 8 high, with attention on 111-13 (Mar 25 high) as the trend structure remains bullish.
- Retail sales and import prices (for some minor feedthrough to core PCE estimates) are watched at 0830ET, along with potential for spillover from Canadian CPI at the same time after last month's hawkish surprise.
- Data: Retail sales Jun (0830ET), Import/export prices Jun (0830ET), NY Fed services Jul (0830ET), Business inventories May (1000ET), NAHB housing market index Jul (1000ET).
- Fedspeak: Kugler at NABE conference (1445ET, text + Q&A)
- Bill issuance: US Tsy $70B 42D CMB bill auction (1130ET)
STIR: Drifting Closer To Three Fed Cuts Priced For 2024
- Fed Funds implied rates have cooled overnight as part of a broader FI rally.
- Cumulative cuts from 5.33% effective: 2.5bp Jul, 28.5bp Sep, 46bp Nov, 69bp Dec and 88bps.
- The only thing that was "new" in Powell's Q&A yesterday vs his Congressional testimony last week was about the June inflation data: the Chair said that the last 3 readings, including June's, "do add to that confidence" that inflation is heading sustainably to 2%. That shouldn't be a big surprise given the magnitude of the downward surprises to inflation in Q2, though by the same token Powell did not downplay the data's dovish signal for policy.
- For the July meeting, a shock rate cut appears to be off the table, as we didn't get a clear steer to that effect in his last opportunity to speak before the blackout period. Indeed, July cut odds were trimmed again after a small uplift earlier in the day on GS seeing “solid rationale” for a July cut even if they didn’t cut their call for a first cut in September.
- SF Fed’s Daly (’24 voter) late yesterday: we’re getting nearer to achieving the Fed’s goals but not there yet. She declined to give time-based guidance for cuts, needing a lot more information before a decision.
- Ahead, Gov. Kugler (voter) provides sole scheduled Fedspeak at a NABE conference at 1445ET (text + Q&A). She last spoke Jun 18, being cautiously optimistic that the Fed was on track to hit its 2% inflation goal and it likely being appropriate to cut rates “later this year”. At the same time though, she didn’t discount upside inflation risks and needs to see more progress on wage moderation.
US TSY FUTURES: OI Points To Mix Of Positioning Swings During Monday’s Twist Steepening
The combination of yesterday’s twist steepening on the Tsy futures curve and preliminary OI data points to a mix of net long setting (TU), short setting (FV & WN) and long cover (TY, UXY & US).
- The “Trump trade” promoted bear steepening early on Monday, as odds of a second term for the former President surged following the failed assassination attempt.
- Goldman Sachs then flagged the possibility of a July Fed cut, which supported the front of the curve.
- FV/WN steepener block flow was seen on the day.
15-Jul-24 | 12-Jul-24 | Daily OI Change | OI DV01 Equivalent Change ($) | |
TU | 4,354,525 | 4,332,388 | +22,137 | +826,409 |
FV | 6,451,208 | 6,430,429 | +20,779 | +881,760 |
TY | 4,512,563 | 4,552,377 | -39,814 | -2,594,070 |
UXY | 2,091,516 | 2,094,447 | -2,931 | -264,849 |
US | 1,674,384 | 1,677,300 | -2,916 | -388,715 |
WN | 1,679,813 | 1,677,770 | +2,043 | +419,760 |
Total | -702 | -1,119,704 |
STIR: OI Flags Mix Of SOFR Positioning Swings As Markets Digested Powell & Goldman Talk Of July Cut
The combination of yesterday’s movement in SOFR futures and preliminary OI data suggests that net long setting dominated in the reds on Monday, while short setting seemed to dominate in the greens.
- Attention centred on Goldman Sachs flagging the possibility of a July Fed cut, while Fed Chair Powell sounded incrementally more constructive when it came to progress on the inflation front, although the latter seemed to disappoint those looking for the latest dovish Fed pivot.
- The strip still prices lest than 10% odds of a July cut as a result.
- Further out, pricing in Fed funds futures shifted a little more dovish on the day on net, leaving ~67bp of cuts priced through year end vs. ~63bp late Friday.
15-Jul-24 | 12-Jul-24 | Daily OI Change | Daily OI Change In Packs | ||
SFRM4 | 1,198,673 | 1,183,685 | +14,988 | Whites | -452 |
SFRU4 | 1,157,799 | 1,141,371 | +16,428 | Reds | +45,626 |
SFRZ4 | 1,113,808 | 1,147,592 | -33,784 | Greens | +22,613 |
SFRH5 | 853,519 | 851,603 | +1,916 | Blues | -6,818 |
SFRM5 | 829,855 | 804,553 | +25,302 | ||
SFRU5 | 707,278 | 707,437 | -159 | ||
SFRZ5 | 896,203 | 889,023 | +7,180 | ||
SFRH6 | 575,541 | 562,238 | +13,303 | ||
SFRM6 | 496,850 | 492,188 | +4,662 | ||
SFRU6 | 447,730 | 443,474 | +4,256 | ||
SFRZ6 | 401,009 | 388,226 | +12,783 | ||
SFRH7 | 239,856 | 238,944 | +912 | ||
SFRM7 | 240,387 | 244,642 | -4,255 | ||
SFRU7 | 190,732 | 192,516 | -1,784 | ||
SFRZ7 | 196,148 | 199,683 | -3,535 | ||
SFRH8 | 125,983 | 123,227 | +2,756 |
MNI ECB Preview - July Hold, September Cut
- With no material developments on the data front since June and various GC members playing up the importance of quarterly projection meetings, the ECB will keep policy rates unchanged this week.
- Although the ECB has previously shown that its data dependence and meeting-by-meeting approach has a degree of inbuilt flexibility (as was the case when steering markets to expect the June cut), there is no need to pre-commit to a September cut at this juncture.
- Given the stickiness of domestic inflationary pressures – namely service prices – we continue to caution that a ‘one-and-done’ is a small, but still significant, risk for 2024.
Full preview, including summary of sell-side views and exclusive MNI policy analysis here: https://roar-assets-auto.rbl.ms/files/65234/ECB%20Preview%20July%202024.pdf
Inflation and Labour Market Preview
- There are generally assumed to be upside risks to inflation (from the Swift concerts primarily) but after the initial impact, if this was the driver and the rest of the print is not higher-than-expected we would expect some relief.
- We look at the impact of Beyonce's concerts last year on CPI - and what a similar impact would do this year.
- We think there are upside risks to private sector regular wage growth relative to consensus and in fact think an unchanged print of 5.8%Y/Y in the 3-months to May is more likely than a print in line with consensus of 5.6%Y/Y.
- For the full document including summaries of sellside views for inflation and the labour market see the full PDF here: UK_Data_Preview_2024_07_Release.pdf
MNI: Canada CPI Preview: July Cut 80% Priced But Still In The Balance
- We have published and e-mailed to subscribers the MNI Canada CPI Preview.
- Please find the full report including MNI analysis and views from analysts here, including two not covered in the Bloomberg survey: https://roar-assets-auto.rbl.ms/files/65237/CanadaCPIPrevJul2024.pdf
EUROPE ISSUANCE UPDATE:
UK auction results
- 20-Year supply passed smoothly, with recent cheapening on the 10-/20-/30-Year fly helping generate solid demand metrics.
- GBP2.25bln of the 4.75% Oct-43 Gilt. Avg yield 4.519% (bid-to-cover 3.29x, tail 0.1bp).
Germany auction results
- E4bln (E3.261bln allotted) of the 2.50% Oct-29 Bobl. Avg yield 2.39% (bid-to-offer 1.64x; bid-to-cover 2.01x).
FRANCE: NFP Struggles On PM Name As Macron Prepares To Accept Gov't Resignation
President Emmanuel Macron is set to convene a meeting of the Council of Ministers at 1130CET (0530ET, 1030BST) where he could accept the resignation of PM Gabriel Attal and his gov't. It would not see an immediate replacement, but Attal and his cabinet would remain in place in a caretaker position until at least the conclusion of the games of the XXXIII Olympiad on 11 August.
- Le Monde: "There is no legal text that specifically defines what a resigning government can or cannot do, and its ministers have in principle much more limited power than a fully-fledged government. However, they remain temporarily in office to ensure the continuity of the State, its services..."
- Le Figaro: "In concrete terms, under this [caretaker] regime, the executive has very limited room for maneuver: it cannot present a bill, change regulations or initiate measures with a financial impact."
- The appointment of a new gov't could take some time, with the left-wing New Popular Front (NFP) unable to agree on a candidate to put forward for the position of PM. The latest potential nominee, environmental economist Laurence Tubiana, had the backing of three of the four main NFP parties (Socialists, Ecologists, Communists) but was opposed by the leftist La France Insoumise (LFI), which called Tubiana's nomination 'unserious'.
- Significant cracks are being exposed in the NFP, with five deputies elected for LFI already stating they will sit with the Ecologists once the National Assembly opens on 18 July. A split could see the more moderate parties align with those from Macron's centrist Ensemble bloc.
Early USD Bid Fades, While BoJ Accounts Confirm 2nd Phase of Intervention
- JPY trades more poorly, slipping against all others in G10 as markets continue to reverse the much broader impact of heavily suspected BoJ intervention on two occasions last week. USD/JPY has traded back above the 50-dma, and the release of daily BoJ accounts likely confirms intervention amounting to Y5.6trl across two phases last week - still significant, but of smaller scale relative to April/May this year.
- Early USD strength has reversed across the European morning, as the pull lower in the belly of the US curve undermines the greenback. 10y US yields have slipped through both the Monday and Friday lows, prompting the recovery across both EUR/USD and GBP/USD.
- The standout across G10 is now CHF, which is firmer against all others in G10 - NZD/CHF is now fast approaching several layers of key support at 0.5407 and 5397 - the mid-June low and 200-dma respectively. Weakness through here would open lowest level since early May.
- Focus for the remainder of Tuesday trade turns to Canada's June CPI and the US retail sales release, expected to decline by 0.3% across the month but fare better ex-autos and ex-autos and gas.
- The central bank speaker slate revolves around Fed's Kugler - who appears after the London close at an NABE conference on challenges to economic measurement. Kugler, a permanent voter on the FOMC, last spoke in June and warned against discounting upside risks to inflation, stating the need to see more progress on wage moderation.
EUR/GBP Trades in Very Close Proximity to Sizeable Strike
Larger options rolling off at today's cut include decent sized strikes layered between 1.0900-10 in EUR/USD. EUR/GBP also sees a strike in very close proximity at 0.8400 (E730mln) - the overwhelming majority of which are puts. USD/JPY's pipeline is biased for spot lower, however expiries are naturally not the primary driver at present.
- EUR/USD: 1.0900-10(E2.6bln), 1.0920-25(E1.4bln)
- USD/JPY: 158.30($660mln)
- GBP/USD: 1.3000(Gbp251mln), 1.3090(Gbp316mln)
- EUR/GBP: 0.8400(E730mln)
- AUD/USD: 0.6730-35(A$430mln)
- USD/CAD: 1.3600 ($910mln), 1.3800-10($2.0bln)
Recent Bear Leg in WTI Futures Appears to Be a Correction
- WTI futures remain above last week’s low and the recent bear leg appears to be a correction. Recent cycle highs have reinforced bullish conditions, signalling scope for a continuation of the bull cycle near-term. Moving average studies are in a bull-mode set-up too, highlighting a rising trend. Sights are on $85.27, the Apr 12 high and a bull trigger. Initial firm support to watch is $80.07, the 50-day EMA.
- The trend condition in Gold remains bullish and recent gains reinforce this condition. The yellow metal last week breached $2387.8, the Jun 7 high. This undermined a recent bearish theme and a clear break represents a bullish development that opens the key resistance at $2450.1, the May 20 high. Initial firm support to watch lies at the 50-day EMA, at 2339.3. A clear break of this average would alter the picture and expose $2277.4, May 3 low.
E-Mini S&P Holding Onto Recent Gains, Trend Condition Bullish
- A bull cycle in Eurostoxx 50 futures remains intact despite Monday’s move lower - a correction. 5039.84, 61.8% of the May 16 - Jun 14 sell-off, has been cleared. This resulted in a print above 5082.32, the 76.4% retracement. A clear break of it would be a positive development and suggest scope for an extension towards 5132.00, the Jun 6 high. The 50-day EMA has been pierced, the next support is at 4903.00, the Jul 2 low.
- The trend condition in S&P E-Minis is bullish and the contract is holding on to its recent gains. The continuation higher last week confirms a resumption of the uptrend and maintains the bullish sequence of higher highs and higher lows. Moving average studies are in a clear bull-mode set-up too and this continues to highlight positive market sentiment. Sights are on the 5713.31, a Fibonacci projection. Firm support is at 5569.65, the 20-day EMA.
Date | GMT/Local | Impact | Country | Event |
16/07/2024 | 1215/0815 | ** | ![]() | CMHC Housing Starts |
16/07/2024 | 1230/0830 | ** | ![]() | Import/Export Price Index |
16/07/2024 | 1230/0830 | *** | ![]() | CPI |
16/07/2024 | 1230/0830 | *** | ![]() | Retail Sales |
16/07/2024 | 1255/0855 | ** | ![]() | Redbook Retail Sales Index |
16/07/2024 | 1400/1000 | * | ![]() | Business Inventories |
16/07/2024 | 1400/1000 | ** | ![]() | NAHB Home Builder Index |
16/07/2024 | 1530/1130 | * | ![]() | US Treasury Auction Result for Cash Management Bill |
16/07/2024 | 1845/1445 | ![]() | Fed Governor Adriana Kugler | |
17/07/2024 | 2245/1045 | *** | ![]() | CPI inflation quarterly |
17/07/2024 | 0600/0700 | *** | ![]() | Consumer inflation report |
17/07/2024 | 0600/0700 | *** | ![]() | Producer Prices |
17/07/2024 | 0900/1100 | *** | ![]() | HICP (f) |
17/07/2024 | 0900/1000 | ** | ![]() | Gilt Outright Auction Result |
17/07/2024 | 1030/1130 | ![]() | King's Speech | |
17/07/2024 | 1100/0700 | ** | ![]() | MBA Weekly Applications Index |
17/07/2024 | 1230/0830 | * | ![]() | International Canadian Transaction in Securities |
17/07/2024 | 1230/0830 | *** | ![]() | Housing Starts |
17/07/2024 | 1300/0900 | ![]() | Richmond Fed's Tom Barkin | |
17/07/2024 | 1315/0915 | *** | ![]() | Industrial Production |
17/07/2024 | 1335/0935 | ![]() | Fed Governor Christopher Waller | |
17/07/2024 | 1430/1030 | ** | ![]() | DOE Weekly Crude Oil Stocks |
17/07/2024 | 1700/1300 | ** | ![]() | US Treasury Auction Result for 20 Year Bond |
17/07/2024 | 1800/1400 | ![]() | Fed Beige Book |