MNI US MARKETS ANALYSIS - US Yields Re-Directed Toward New Highs

US TSYS: Sizeable Bear Steepening As 10YY Nears Fresh Post-2008 High

• Cash Tsys trade with a notable bear steepening, with the front end seeing an intraday rally back closer to pre-FOMC minutes levels but the long end extending pressure after the largest tail for a 20Y JGB auction since 1987. It’s against a backdrop of China state bank USD sales stories from first Reuters and more recently Bloomberg.
• Of note, the 10Y yield session high of 4.3098% came close to Oct’22’s 4.3354% for what is otherwise the highest since 2008, whilst 2s10s steepen to -65bps for the least inverted since May.
• 2YY -0.2bp at 4.963%, 5YY +2.7bp at 4.430%, 10YY +5.5bp at 4.306% and 30YY +6.7bps.
• TYU3 trades 8+ ticks lower at 109-09+ having notched a fresh cycle low of 109-05+, next signalling scope for a major support at 108-26+ (Oct 21, 2022 cont). Volumes are far above average at a cumulative 410k.
• Data: Weekly jobless claims (0830ET), Philly Fed Mfg Aug (0830ET) and Conf Board Leading Index Jul (1000ET)
• Bill issuance: US Tsy $80B 4W, $70B 8W bill auctions (1130ET)

Source: Bloomberg

STIR FUTURES: Fed Implied Rates At Pre-Minutes Levels

• Fed funds implied rates have cooled slightly before the NY session gets underway to leave them unchanged from levels from shortly before the FOMC minutes having seen an intraday increase yesterday on stronger data.
• There remains just +3bp priced for Sept building to a cumulative +10.5bp for a 5.44% terminal in Nov. It’s then followed by 47bp of cuts from terminal to Jun’24 and 113bp from terminal to Dec’24, at the low end of the post-July FOMC range.
• There’s unusually little Fedspeak scheduled ahaed with Goolsbee (’23 voter) next up on Tue (Aug 22) – on the shortlist for one of the “couple” officials who favored holding rates steady or could have supported such a proposal in July – with focus instead geared towards Jackson Hole proceedings Aug 24-26.

Sec Gen-'Ukraine Decide Terms Of Peace' After CoS Comments Slammed

Speaking at the Arendalsuka political gathering in Norway, NATO Secretary General Jens Stoltenberg says that "NATO has ongoing internal discussions about how to end the Ukraine conflict and the way towards peace," but that the "Ukrainians decide the terms of peace, NATO's role is to support Ukrainians." Asked on the Ukrainian counteroffensive, Stoltenberg says that the Ukrainians are making progress, but "there is a lot of uncertainty." Says "putin has underestimated NATO" and that "NATO will support Ukraine until it wins the war."

• Stoltenberg's comments come after the secretary general's Chief of Staff Stian Jenssen, speaking at the same event earlier in the week,appeared to suggest that Ukraine could be offered NATO membership in exchange for ceding parts of its occupied territory to Russia as part of a peace deal.
• The comments prompted a furious reaction from Kyiv, and Jenssen was forced into a formal public apology, stating that “My statement about this was part of a larger discussion about possible future scenarios in Ukraine, and I shouldn’t have said it that way. It was a mistake,"
• The Guardian reports: "But Jenssen did not walk back the idea that a land-for-Nato-membership deal could ultimately be on the table. If there were serious peace negotiations then the military situation at the time, including who controls what territory, “will necessarily have a decisive influence,” the chief of staff said."

EUROPE ISSUANCE UPDATE:

France auction results:
A rather mediocre French auction with a smaller size (as is usual in August) but also seeing the bid-to-cover fall below previous levels for the two OATs that had been sold earlier this year. However, the stop price was still above the pre-auction mid-price for all three OATs.

• E3.28bln of the 2.50% Sep-26 OAT. Avg yield 3.12% (bid-to-cover 2.39x)
• E2.909bln of the 2.75% Feb-29 OAT. Avg yield 3.04% (bid-to-cover 2.21x)
• E2.247bln of the 1.50% May-31 OAT. Avg yield 3.05% (bid-to-cover 2.12x).

• E617mln of the 1.85% Jul-27 OATei. Avg yield 0.43% (bid-to-cover 2.83x)
• E381mln of the 0.10% Jul-38 Green OATei. Avg yield 0.75% (bid-to-cover 2.7x)

• E95mln of the 1.125% Apr-34 RFGB. Avg yield 3.29% (bid-to-cover 2.32x).
• E192mln of the 0.125% Apr-52 RFGB. Avg yield 3.22% (bid-to-cover 2.82x).

Hikes Rates by 25bps to 4.00%, as Expected

Norges Bank hike rates by 25bps to 4.00%, as expected and name check the September meeting as the next likely rate hike.

Statement here: https://www.norges-bank.no/en/news-events/news-pub...

Highlights:

• Consumer price inflation has edged down but remains high and markedly above the target.
• Underlying inflation has remained elevated.
• If the economy evolves as currently anticipated, the policy rate will be raised further in September
• If the krone proves to be weaker than previously projected or pressures in the economy persist, a higher policy rate than signalled in June may be needed to bring down inflation.

Another open door to a further 25bps hike in September (at which we get fresh policy path projections), but all-in-all generally inline with expectations for Norges Bank. EUR/NOK edges slightly lower on release - touching day's lows of 11.5094 - but no major move in the currency.

FOREX: AUD/USD Touches New Pullback Low on Soft Jobs Release

• The USD is furtively stronger early Thursday, with FX volumes data showing a slight pick up in participation relative to quieter Wednesday trade. Activity is led by Antipodean currencies after the jobs data overnight, with Australian employment change and the unemployment rate coming in below expectations, denting the currency and putting AUD/USD at a new 2023 low of 0.6365.
• GBP also saw some order-based price action, with a spike in volumes through a quiet morning putting the pair at new daily lows just ahead of the NY crossover. With news and data flow light, attention turned to a sizeable uptick in volumes, with trade amounting to $121mln across futures pressuring spot prices.
• JPY is outperforming, aided by modest weakness across European cash equity markets as well as the verbal interjection from finance minister Suzuki earlier in the week. Nonetheless, USD/JPY managed to touch a fresh cycle high in Asia-Pac trade, touching Y146.56 before fading.
• Lastly, the Norges Bank rate decision came in alongside expectations, with the bank raising the policy rate by 25bps to 4.00% and flagging the September meeting as the next most likely hike. Markets remain on watch for whether the September rate rise could mark the peak in the policy cycle.
• Weekly US jobless claims data crosses later Thursday, with leading index for July set to follow. There are no notable central bank speakers due.

FX OPTIONS: Stacked Expiry Slate for EUR/USD

• EUR/USD: $1.0895-00(E553mln), $1.0920-25(E509mln)$1.0930-40(E1.9bln)$1.0950(E1.8bln)$1.0985-00(E2.0bln)
• USD/JPY: Y145.00($900mln), Y145.50($784mln), Y146.00($521mln)
• GBP/USD: $1.2700(Gbp701mln)
• EUR/GBP: Gbp0.8600-05(E540mln)
• EUR/JPY: Y160.00(E1.2bln)
• AUD/NZD: N$1.0850(A$985mln)
• USD/CAD: C$1.3490($956mln)
• USD/CNY: Cny7.3250($1.6bln)

EQUITIES: Bearish Theme in E-Mini S&P Remains Intact

• A bearish threat in Eurostoxx 50 futures remains present and this week’s sell-off reinforces current conditions. The contract has breached support at 4276.00, the Aug 8 and 15 low. The break of this level strengthens a bearish threat and exposes 4220.00, the Jul 7 low. Key short-term resistance is unchanged at 4420.00, the Aug 10 high. Initial resistance is 4357.9, the 50-day EMA.
• A bearish theme in the E-mini S&P contract remains intact and this week’s move lower has reinforced current conditions. The contract has cleared the 50-day EMA and breached channel support drawn from the Mar 13 low - the base is at 4467.06 today. The clear breakout signals scope for a continuation lower and opens the 4400.00 next. Initial firm resistance to watch is at the 20-day EMA - at 4506.36.

COMMODITIES: WTI Futures Off Intraday Lows, Recent Pullback Still Considered Corrective

• The uptrend in WTI futures remains intact and the latest pullback appears to be a correction. Initial firm support lies at $78.69, the Aug 3 low. A clear break 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 $87.43, a Fibonacci projection. Moving average studies are in bull-mode condition highlighting an uptrend.
• Gold remains bearish and the yellow metal is trading lower. Price has pierced key support at $1893.1, the Jun 29 low. A clear break of this level would strengthen bearish conditions and signal scope for $1885.8, the Mar 15 low ahead of $1871.6, the Mar 13 low. Moving average studies remain in bear mode condition, highlighting current sentiment. On the upside, initial firm resistance to watch is $1939.6, the 50-day EMA.