MNI US MARKETS ANALYSIS - USD Remains on Backfoot Despite Treasury Yields Off Bottom

US TSYS: Mildly Cheaper Ahead Of ADP and 2nd GDP Release

• Tsys remain a little softer on the day, although moves in European peers have been more pronounced, with CPI readings from the continent front and centre thus far after German regions suggest stronger than expected national CPI.
• Cash Tsys run 1.5-2.5bp cheaper across the curve, while TYZ3 is -0-05 at 110-21 off a low of 110-18+ at the low end of a contained 0-09+ range. The corrective cycle is seen in play with resistance at 110-29+ (Aug 29 high) and support at 109-18+ (Aug 25 low).
• Flow has seen a FV/US block steepener (+8,020/-2,500) for the second time in as many London sessions, with similar size deployed at around the same time of day on both occasions.
• FOMC-dated OIS is incrementally firmer on the day but holds the bulk of yesterday's data inspired dovish repricing. Terminal policy rate pricing shows at 5.46% (come November), before 45bp of cuts are priced through June '24.
• Data: MBA mortgage data (0700ET), ADP employment Aug (0815ET), GDP and core PCE deflator 2^nd Q2 (0830ET), Advance trade balance Jul (0830ET), Pending home sales (1000ET)
• Bill issuance: US Tsy to sell $50B 17-week bills (1130ET).

GERMANY: MNI Projects National CPI At 6.1-6.2% Y/Y

We have now received state data that equates to 86.7% weighting of the national German CPI print (due at 1300 BST / 1400 CET).

• MNI calculations estimate that national CPI rose by 0.34% m/m and 6.14% y/y. This is based on the published index values for available state data. The data implies readings above expectations for the y/y print of 6.0%, rounded to 0.3% m/m and 6.1% y/y.
• This would mark a slight deceleration from 6.2% Y/Y in July, though the final rounded figure could yet end up at 6.2% depending on how the final state readings come out.
• Today's state data points to core CPI of 5.4% Y/Y, vs 5.5% in July. Core CPI data is only available for 3 states accounting for 45.7% of the headline index. Core inflation in North Rhine Westphalia, Hesse and Bavaria fell between 0.1 and 0.2 percentage points in August compared to July.
• There is no BBG consensus print for core CPI but Morgan Stanley forecast 5.5% Y/Y so we would say roughly in line, perhaps slightly soft.
• Note: these estimates are in relation to the national CPI print, not the HICP print which feeds into the Eurozone HICP print that the ECB targets. The magnitude of surprises to consensus can sometimes be different due to the different methodologies and weights used in national CPI vs HICP - but the direction of the surprise is normally the same.

EUROPE ISSUANCE UPDATE:

• E3.25bln of the 3.80% Aug-28 BTP. Avg yield 3.79% (bid-to-cover 1.43x).
• E1.5bln of the 4.35% Nov-33 BTP. Avg yield 4.2% (bid-to-cover 1.59x).
• E3.75bln of the 4.20% Mar-34 BTP. Avg yield 4.24% (bid-to-cover 1.33x).
• E1.5bln of the 1.15% Oct-31 CCTeu. Avg yield 4.62% (bid-to-cover 1.93x).

• That was an average green Bobl auction with the lowest accepted price of 94.94 in line with the pre-auction mid-price, but only because the Green Bobl moved to its lowest price since 7:30BST / 8:30CET in the 4 minutes leading to the auction cutoff.
• The bid-to-offer and bid-to-cover were both weaker than the March auction, although the tail between the average price and the LAP was consistent at 0.02 with a higher allotted amount at today's auction.
• E1.5bln (E1.431bln allotted) of the 1.30% Oct-27 Green Bobl. Avg yield 2.61% (bid-to-cover 1.43x).

UK DMO Consultation Feedback:

GILTS: DMO consultation feedback on 3 long auctions and conventional syndication

• As noted earlier there was "almost unanimous" support for a new 20-year gilt amongst GEMMs and this was also "generally recommended" by investors. A 2043 maturity was favoured by both groups.

GILTS: DMO consultation feedback on 4 medium auctions

• New Jan-34 gilt: Strongly supported for 2 auctions from both GEMMs and investors. MNI had previously expected 3 auctions (one per month) of the new long 10-year gilt with an expected maturity of 31 January 2034. The DMO has offered the on-the-run 10-year conventional gilt at auction at least every month since July 2022, and demand has remained strong in this area. We now expect 2-3 auctions.

GILTS: DMO consultation feedback on 4 short auctions

• 3.50% Oct-25 gilt: Investors and GEMMs both look for "at least one" reopening of the 3.50% Oct-25 gilt with a "majority" of GEMMs supporting a second auction. MNI expects 1-2 reopenings in the quarter of this gilt.

• https://marketnews.com/dmo-consultation-feedback-o...
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• https://marketnews.com/dmo-consultation-feedback-o...

FOREX: AUD Dips as CPI Slips to Slowest in 18 Months

• The greenback posts early gains across G10, rising against all others, albeit within a tight range. The late USD sell-off Tuesday triggered by the soft JOLTs print has largely held, with EUR/USD remaining above 1.0860 and USD/JPY at 146.50. Trajectory later today will likely continue to be swung by market-implied Fed rate expectations, with a further 25bps hike by the November meeting now just 50% priced.
• Antipodean currencies are the underperformers so far Wednesday, with July CPI from Australia falling well short of expectations: 4.9% vs. Exp. 5.2% - the lowest inflation print since February last year. AUD/USD looks to 0.6401 for direction, a break below which opens the cycle low and bear trigger of 0.6365.
• Focus for the Wednesday session ahead turns to the national print for German inflation later today. Regional measures have been mixed, with North-Rhine Westphalia, Brandenburg and Baden Wuerttemberg reading accelerating from July, while Hesse and Bavaria slowed. The national print is expected at 6.3%, from 6.5% prior for the harmonized figure.
• US ADP employment change crosses later today, with markets expecting 195k jobs added. The secondary reading for US Q2 GDP also crosses, expected unrevised at 2.4%. Pending home sales are also set for release. There are no notable central bank speakers.

EQUITIES: E-Mini S&P Gains Tuesday to Mark Extension of Bull Cycle

• Eurostoxx 50 futures traded higher yesterday as the contract extends the corrective recovery from 4187.00, the Aug 18 low. The contract has breached resistance at the 50-day EMA at 4330.7. A continuation higher would signal scope for a climb towards resistance at 4420.00. On the downside, a breach of 4187.00 would be a bearish development and confirm a resumption of bearish activity.
• The E-mini S&P contract remains in a downtrend, however, yesterday’s gains highlights an extension of the current bull cycle. The contract is testing a key resistance at 4515.52 - the base of a bull channel, drawn from the Mar 13 low that was breached on Aug 16. A clear break of this level would strengthen the upleg and open 4560.75, Aug 4 high. On the downside, the bear trigger lies at 4350.00, the Aug 18 low. A break would resume the downtrend.

COMMODITIES: Outlook in Gold Still Technically Bearish Despite Recent Gains

• The uptrend in WTI futures remains intact and recent weakness is considered corrective. Last week’s move lower resulted in a print below support at $78.33, the Aug 3 low, however price action has since recovered. Note that a key support also lies at the 50-day EMA, which intersects at $77.81. A clear break of this level would highlight a stronger bear cycle. Price is approaching resistance at $81.75, a break would be a bullish development.
• The outlook in Gold remains bearish, however, a short-term correction remains in play and the yellow metal has breached resistance at the 50-day EMA - at $1930.6. This strengthens the short-term bull cycle and signals scope for a stronger recovery. Attention turns to $1948.3, a Fibonacci retracement. On the downside, initial firm support lies at $1903.9, the Aug 25 low. A break of this level would signal a resumption of bearish activity.