MNI US MARKETS ANALYSIS - USD/JPY North of Y160 Piles on Pressure

Highlights:

• Solid AUD CPI raises questions on whether next move could be a hike
• USD/JPY shows above Y160 as TWI comes under further pressure
• ECB speak offers little new on policy thinking

US TSYS: Steadily Weaker, 5Y Supply Headlines Later On

• Treasuries have sold off in two steps overnight, firmly continuing the reversal seen after a short-lived rally to yesterday’s well-received 2Y auction.
• The move came first on stronger than expected Australia CPI (adding to yesterday’s Canada CPI beat) before following EGBs weaker on little by way of headline flow.
• Cash yields sit between 3-3.5bp higher on the day whilst 2s10s has reset higher at -45.2bps with the new 2Y after yesterday’s fresh ytd low of -50.8bp.
• TYU4 has set a session low of 110-09 (-10 ticks) on stronger cumulative volumes of 355k after some thinner overnight periods of recent days.
• Support is seen at 109-25+ (50-day EMA) with the move going against the bullish trend structure with its resistance of 111-10 (Jun 14).
• Data: Weekly MBA mortgage data (0700ET), New home sales May (1000ET)
• Note/bond issuance: US Tsy $28B 2Y FRN reopen (1130ET), US Tsy $70B 5Y Note auction (1300ET)
• Bill issuance: US Tsy $60B 17W bill auctions

STIR: Fed End-2024 Rates Back At Pre-Retail Sales Levels

• Fed Funds implied rates have mostly lifted overnight, aided by international factors with Australia CPI following yesterday’s CAD CPI beat.
• July is unchanged but the Sept rate is 1bp higher and the Dec rate 2bps higher having now fully reversed last week’s post-retail sales decline.
• Cumulative cuts from 5.33% effective: 3bp Jul, 18bp Sep, 26bp Nov, 45bp Dec and 58bp Jan.
• There is no scheduled Fedspeak until Friday. Powell’s Sintra appearance on Tuesday starts to loom large on the Fedspeak calendar.
• Permanent voters Bowman and Cook had the most recent say yesterday. Bowman maintained her hawkish position whilst Cook said in prepared remarks that it will be appropriate to cut rates “at some point” and talked to policy lags being real in the Q&A.

STIR: Pocket Of Long Cover Seen In SOFR Futures On Tuesday

OI data points to fairly limited net positioning movement on the SOFR strip on Tuesday, with the only meaningful movement being some long cover in SFRH5 through U5.

• Hawkish feedthrough from Canadian CPI data faded as the long end recovered, while FOMC Governor Bowman cemented her status at the hawkish end of the FOMC spectrum.
• End of ’24 FOMC-dated OIS moved from pricing 46.5bp of cuts late on Monday to 44.5bp of cuts late on Tuesday.

US TSY FUTURES: OI Suggests Little Net Positioning Movement On Tuesday

OI data points to fairly stable net positioning on Tuesday.

• Prices were little changed come the close, after solid demand at the latest 2-Year Tsy auction countered some of the sell off that was driven by the Canadian CPI release.

CANADA: Inflation Watch: Focus On June CPI After Unexpected Acceleration In May

• After the BOC's June interest-rate cut, markets are pricing the odds of another cut in July below 50%. The BoC said its July rate decision would focus on: evolution of excess demand, inflation expectations, wage growth, and corporate pricing power.
• Headline inflation rose faster than expected in May, although it remained within BoC target bands; the Bank projected inflation to be close to +3% in H1'24 and come down to 2.5% in H2 this year. Core measures increased for the first time this year in May.
• Governor Macklem says economy has moved into excess supply and has room to grow while moving back to the inflation target. Q1 GDP was below the BoC's forecast of +2.8%, instead rising +1.7%. He's also said bumps can be expected but he's increasingly confident inflation is moving back to target.
• The Bank says consumer and business near-term inflation expectations and corporate pricing behaviour moderated over Q1 2024, but remain elevated. The BoC will update Q2 expectation in the July MPR.
• Unemployment has been increasing and reached +6.2% in May, and the BoC . Macklem has said that a broad range of indicators suggest the wage growth is easing, but would like to see further progress; BoC preferred measures that control for productivity have come below +4% at a 6M annualized basis.
• Global oil prices that moderated in recent months have started to rise again as supply is expected to decrease from geopolitical risks.

EUROPE ISSUANCE UPDATE

• UK Results: GBP3bln of the 3.75% Jan-38 Gilt. Avg yield 4.314% (bid-to-cover 3.42x, tail 0.1bp).
• Cyprus will accept E149.8mln of 2028 notes in its buyback. The buyback  was announced as part of last week's new 7-year syndication.
• Lithuania y-year syndication: Spread set
  Books in excess of E2.1bln Spread set at MS + 90bps (IPT MS+100 area).    We had expected a size of E1.5bln ahead of this issue, but think there are now downside risks to this estimate given the book size.

OAT: ECB's Rehn The Latest To Play Down Need For TPI Deployment

ECB’s Rehn showed little sign of worry over OATs, highlighting that the market has stabilised "relatively quickly". He also played down the need for intervention via the ECB's TPI mechanism although stressed the need to monitor the situation closely, echoing his peers.

• This comes as the 10-Year Spain/France/Portugal butterfly stabilises above the 0 mark and the 10-Year OAT/Bund spread fails to close above 80bp.
• These round numbers have been touted as potential long OAT RV entry points by some, although the persistence of French political uncertainty means that most of these calls/comments have been made with relatively low conviction.
• RN has tried to placate worry surrounding its fiscal policy preferences, given the party’s history of calling for looser fiscal settings, which has promoted some OAT spread stabilisation this week.
• The leftist political alliance's fiscal spending plans mean that a strong election showing from that group probably presents the greatest short-term OAT spread widening risk ahead of the upcoming lower house elections.

MNI Eurozone Inflation Preview: June 2024

Summer Services Key To September Cut

• With the ECB’s long-anticipated rate cut on June 6 finally out of the way, the Governing Council’s requirement for further disinflationary progress to make its next reduction puts immediate attention on June’s flash inflation reports due for release between Jun 27-Jul 2.
• Since the June flash inflation round is split across two weeks, there is not yet a Bloomberg consensus for the Eurozone-wide print. Based on the previews we have seen, analysts expect a 0.1pp deceleration in both core and headline Euro-area inflation in June to 2.8% Y/Y and 2.5% respectively
• Familiar dynamics in the ongoing broad deceleration in price pressures are expected to be at play: food and core goods inflation should continue to moderate, while services remains sticky (and above the 4.0% handle).
• Our preview includes analysis of price categories to watch, assessments of underlying inflation trends, outlooks for the French, German, Spanish, and Italian national inflation prints, and sell-side analyst previews.

FOR FULL PDF ANALYSIS:

June2024EZCPIPreview.pdf

AUD Marked Higher, USD Index Keeps Pressure on Japan

• AUD is comfortably the best performer across G10, rising against all others on the back of a stronger-than-expected CPI print overnight. Y/Y inflation for May came in 0.2ppts ahead of expectations at 4.0%, reigniting market speculation that the RBA's next step could be a rate hike - or at least a protracted period of restrictive policy - rather than a rate cut.
• AUD/USD was marked higher to 0.6689 in response, with AUD/NZD a particular standout - the cross has rallied well north of the 1.09 handle for the firtst time since mid-May and taken out resistance at the 1.0884 50-dma in the process. The opens a further reversal higher in the cross, which would initially target 1.0961 ahead of 1.1000.
• The greenback has firmed further off yesterday's low, but the USD Index remains short of the first intraday level at 105.915. Strength through here would pile more pressure on the JPY, as USD/JPY continues to press toward Y160.00. The spot JPY TWI is again lower and keeping focus on any possible intervention response - today's low put the currency again at its weakest in decades.
• Focus for the remainder of Wednesday trade is on May New Home Sales data as well as speeches from ECB's Rehn, Panetta, Lane and Kazaks. There is no Fedspeak of note. 

USD/JPY Shows Above Y160, Triggering Further Pressure on TWI

• USD/JPY clears the Y160 level, have struggled to break the mark earlier this morning - a quick bout of volatility follows, topping out at 160.06 before fading. The pressure is now piling up on the spot JPY trade-weighted index - which has now traded through the pre-intervention lows from earlier this year. 
• Decent spike in volumes across currency futures on the move - around 3k contracts trade inside 60 seconds (cash equivalent ~$240mln). 

Expiries for Jun26 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0600(E975mln), $1.0635(E1.6bln), $1.0675-80(E676mln), $1.0700-05(E1.6bln), $1.0725-30(E1.2bln), $1.0745-50(E2.0bln)
• USD/JPY: Y158.90-00($2.2bln), Y159.40-50($1.4bln), Y159.75($568mln), Y160.00($878mln)
• GBP/USD: $1.2635-55(Gbp855mln), $1.2700-05(Gbp730mln)
• AUD/USD: $0.6620-30(A$656mln), $0.6660(A$708mln)
• USD/CNY: Cny7.3000($1.3bln)

Gold Continues to Trade Below Resistance; Bear Threat Remains

WTI futures are trading closer to their latest highs and the current bull phase remains intact. The recent move higher has resulted in a break of $80.11, the May 29 high and a key resistance. The clear breach of this hurdle cancels a bearish theme and paves the way for $82.24, a Fibonacci retracement point. Initial firm support to watch is $78.54, the 50-day EMA. A break would be seen as an early potential reversal signal. Gold continues to trade below resistance and a bear threat remains present. A sharp sell-off on Jun 7 reinforced a short-term bearish theme. The yellow metal has again pierced the 50-day EMA, at 2318.4. A clear break of this EMA would confirm a resumption of the reversal from May 20 and open $2277.4, the May 3 low. Clearance of this price point would also strengthen a bearish theme. Initial firm resistance is $2387.8, the Jun 7 high.

• WTI Crude up $0.29 or +0.36% at $81.11
• Natural Gas down $0.04 or -1.45% at $2.716
• Gold spot down $1.96 or -0.08% at $2317.53
• Copper up $2.1 or +0.48% at $439.2
• Silver up $0.09 or +0.32% at $29.0085
• Platinum up $9.7 or +0.98% at $997.93

Trend Condition in Eurostoxx 50 Futures Remains Bullish

The trend condition in Eurostoxx 50 futures remains bullish. The recovery from the Jun 14 low is potentially an early reversal signal highlighting the end of the May 16 - Jun 14 correction. Resistance to watch is at 5039.84, a Fibonacci retracement. Clearance of this level would be a positive development. A reversal lower would signal a resumption of the bearish corrective cycle. This would open 4846.00, the Apr 19 low and a key support. The trend condition in S&P E-Minis is unchanged and signals remain bullish with the contract trading closer to its recent highs. Price has recently cleared 5430.75, the May 23 high and bull trigger. This confirmed a resumption of the uptrend. Note that moving average studies are in a bull-mode position too, highlighting positive market sentiment. Sights are on 5594.66 next, a Fibonacci projection. Initial support to watch lies at 5465.99, the 20-day EMA.

• Japan's NIKKEI closed higher by 493.92 pts or +1.26% at 39667.07 and the TOPIX ended 15.58 pts higher or +0.56% at 2802.95.
• Elsewhere, in China the SHANGHAI closed higher by 22.529 pts or +0.76% at 2972.525 and the HANG SENG ended 17.03 pts higher or +0.09% at 18089.93.
• Across Europe, Germany's DAX trades higher by 155.58 pts or +0.86% at 18333.31, FTSE 100 higher by 47.25 pts or +0.57% at 8294.96, CAC 40 up 28.87 pts or +0.38% at 7690.97 and Euro Stoxx 50 up 30.38 pts or +0.62% at 4966.18.
• Dow Jones mini up 6 pts or +0.02% at 39533, S&P 500 mini up 13 pts or +0.23% at 5549.75, NASDAQ mini up 87.25 pts or +0.44% at 20056.75.

Date	GMT/Local	Impact	Country	Event
26/06/2024	1100/0700	**	US	MBA Weekly Applications Index
26/06/2024	1400/1000	***	US	New Home Sales
26/06/2024	1430/1030	**	US	DOE Weekly Crude Oil Stocks
26/06/2024	1530/1130	**	US	US Treasury Auction Result for 2 Year Floating Rate Note
26/06/2024	1700/1300	*	US	US Treasury Auction Result for 5 Year Note
26/06/2024	2000/2100		GB	BBC Leaders Head-to-Head debate
27/06/2024	2350/0850	*	JP	Retail Sales (p)
27/06/2024	0130/1130		AU	Job Vacancies
27/06/2024	0700/0900	**	SE	Economic Tendency Indicator
27/06/2024	0730/0930	***	SE	Riksbank Interest Rate Decison
27/06/2024	0800/1000	**	EU	M3
27/06/2024	0800/1000	**	IT	ISTAT Business Confidence
27/06/2024	0800/1000	**	IT	ISTAT Consumer Confidence
27/06/2024	0800/1000	**	IT	PPI
27/06/2024	0900/1100	**	EU	EZ Economic Sentiment Indicator
27/06/2024	0900/1100	*	EU	Consumer Confidence, Industrial Sentiment
27/06/2024	1100/0700	***	TR	Turkey Benchmark Rate
27/06/2024	1215/1415		EU	ECB's Elderson speech on Banking Supervision at Allen & Overy
27/06/2024	1230/0830	***	US	Jobless Claims
27/06/2024	1230/0830	**	US	WASDE Weekly Import/Export
27/06/2024	1230/0830	***	US	GDP
27/06/2024	1230/0830	*	CA	Payroll employment
27/06/2024	1230/0830	**	US	Durable Goods New Orders
27/06/2024	1230/0830	**	US	Advance Trade, Advance Business Inventories
27/06/2024	1400/1000	**	US	NAR Pending Home Sales
27/06/2024	1430/1030	**	US	Natural Gas Stocks
27/06/2024	1500/1100	**	US	Kansas City Fed Manufacturing Index
27/06/2024	1530/1130	**	US	US Bill 04 Week Treasury Auction Result
27/06/2024	1530/1130	*	US	US Bill 08 Week Treasury Auction Result
27/06/2024	1700/1300	**	US	US Treasury Auction Result for 7 Year Note
27/06/2024	1900/1500	***	MX	Mexico Interest Rate