MNI US MARKETS ANALYSIS - USDJPY Fades Off Another Cycle High

US TSYS: 2YY Off Fresh Post-SVB Highs But Holding Solid Sell-Off Pre Data Heavy Session

• Cash Tsys are holding a solid cheapening seen through European hours after yesterday’s stronger US data, led by the front end to belly for a renewed flattening. It saw 2Y yields touch fresh post-SVB highs of 4.931%. There was little by way of new drivers although the extension was possibly helped by some clearing of support in futures, whilst Treasuries outperform Gilts but underperform EU FI.
• Chinese PMI data did little for the space overnight, with a steady rate of contraction seen in the manufacturing reading, while the rate of expansion in the non-manufacturing PMI reading continued to slow.
• 2YY +5.1bp at 4.910%, 5YY +4.1bp at 4.171%, 10YY +3.2bp at 3.870% and 30YY +1.8bp at 3.918%. 2s10s tilts 2bps lower at -103.5bps off yesterday’s recent low of -106bps.
• TYU3 trades 8 ticks lower at 111-28 on above average volumes of 330k. It’s off a low of 111-25+ having pushed through support at 112-01/112-00 (Jun 29 low/Mar 10 low) to open 111-14+ (Mar 9 low).
• Data: PCE report for May (0830ET), MNI Chicago PMI for Jun (0945ET), finalised U.Mich survey for Jun (1000ET).
• No Tsy issuance, no Fedspeak scheduled.

STIR FUTURES: Fed Implied Rates Drift Higher Ahead Of PCE

• Fed Funds implied rates are little changed overnight for near-term meetings but push more notably higher into 2024. The move came through European hours but with few new drivers after yesterday’s data strength.
• Cumulative changes from 5.07% effective: +21bp Jul (unch), +29bp Sep (+1bp), +36bp Nov (+1.5bp), +33bp Dec (+2bp), +26bp Jan (+3.5bp). Additional hikes from current levels are seen reversed in May with its rate climbing 7bp on the day.
• No Fedspeak scheduled today with next commentary from the FOMC Minutes on Jul 5 after Independence Day.
• Data is in focus with monthly core PCE inflation for May after yesterday's downward revisions back in Q1, along with the MNI Chicago PMI and final U.Mich survey.

EUROPE ISSUANCE UPDATE

• E3bln of the 3.80% Aug-28 BTP. Avg yield 3.81% (bid-to-cover 1.45x)
• E3.25bln of the 4.35% Nov-33 BTP. Avg yield 4.13% (bid-to-cover 1.37x)
• E1.25bln of the 5.00% Aug-34 BTP. Avg yield 4.18% (bid-to-cover 1.68x).

EUROZONE ISSUANCE: Portugal Q3 issuance

• Net financing needs have been decreased E1.8bln.
• New OT issuance is now expected to be E14.2bln in 2023 (down E1.0bln versus the Q2 estimate)
• Auction sizes for Q3 will be E1.00-1.25bln
• Net BT issuance is now expected at negative E0.8bln in 2023 (from net flat in the Q2 estimate)
• BT auctions will be held with 6/12-month maturities on 19 July (E1.00-1.25bln) and 20 September (E1.25-1.50bln).

EUROZONE ISSUANCE: Finnish Q3 issuance schedule

• No surprises in the Finnish Q3 issuance schedule. Finland will look to issue a new 5-year bond via syndication in Q3 (likely August-September).
• There will be one conventional auction on 19 September for E1.0-1.5bln.
• There will also be one ORI auctions in the quarter on 17 August and a further has been penciled in for Q4 on 26 October. There will be two RFTB auctions: on 15 August and 12 September.
• The next quarterly review will be published on Friday 29 September.

FOREX: Single Currency Softer, With CPI Below Forecast

• The single currency sits lower against all others in G10, with EUR/USD back below 1.0850 and through the Jun23 lows at 1.0844. Perhaps more importantly, the 50-day EMA support has now broken, widening the scope for a more protracted pullback in the pair toward 1.0804, the Jun 15 low and 1.0733, the Jun 12 low. Moves come alongside the Eurozone CPI estimate for June, which slipped just below forecast at 5.5% vs. Exp. 5.6%.
• NOK sits at the other end of the G10 table, firmer and tipping EUR/NOK through the 50-dma as the Norges Bank confirm that the pace of their FX purchase program is to slow to NOK 1bln per day, the slowest pace in over a year. Cross next targets support at 11.5306, a break below which would target the 100-dma.
• Outside of currency markets, risk appetite is generally firmer. Equity futures are in the green, indicating a higher open on Wall Street later today. A number of European index futures are within range of the mid-June highs, however Italian equities have pushed higher still - putting the FTSE-MIB at the best levels since 2008 during Friday trade.
• MNI Chicago PMI due later Friday is the calendar highlight. Markets expect PMI to bounce to 43.8 from 40.4 previously. US personal income/spending crosses for May as well as the monthly April Canadian GDP print. There are no central bank speakers of note.

FX OPTIONS: Expiries for Jun30 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0730(E926mln), $1.0800(E741mln), $1.0855(E500mln), $1.0870-75(E582mln), $1.0900(E1.1bln), $1.0940-50(E2.1bln), $1.0960(E553mln)
• USD/JPY: Y142.80-00($1.1bln), Y143.90-00($1.2bln), Y144.50($557mln)
• EUR/GBP: Gbp0.8650(E580mln)
• AUD/USD: $0.6600(A$586mln), $0.6650(A$635mln), $0.6690-00(A$542mln)
• NZD/USD: $0.6175(N$1.7bln)
• USD/CAD: C$1.3200($540mln), C$1.3425-45($1.7bln)
• USD/CNY: Cny7.2000($1.1bln), Cny7.2200($697mln)

BONDS: Thursday’s Cheapening Impetus Prevails

Core global FI markets extended yesterday’s U.S. data-driven cheapening move this morning, with no fresh fundamental catalysts observed. Yesterday’s lows in TY, Bund and Gilt futures have all given way.

• There hasn’t been much in the way of tangible reaction to Eurozone CPI data, which was a touch softer than expected (at least vs. the BBG survey), with the previously released national data readings holding the explanatory power.
• Bonds have generally found a bit of a base in recent trade,
• The Bund curve has seen some light bull steepening, with the major benchmarks 1-2bp cheaper, similar moves have been seen across the bulk of the core/semi-core EGB markets.
• The major 10-Year EGB peripheral spreads are little changed across the curve, with the presence of the now delivered Italian supply providing a domestic headwind for BTPs pre-auction.
• Weakness in Gilts has been more pronounced than that seen in Bunds, running 2.5-5.0bp cheaper as the curve bear flattens alongside BoE terminal rate pricing moving back to ~6.30%.
• Tsys bear flatten, as the major benchmarks cheapen by 2-5bp, with yields showing through their respective Thursday highs.
• U.S. PCE & MNI Chicago PMI data headline ahead of the weekend.

EQUITIES: Italian Equities Hit Best Level Since 2008

• The Eurostoxx 50 futures uptrend remains intact and the pair has recovered from Monday’s low. A continuation higher would open 4448.00, the Jun 16 high and the bull trigger. A break of this hurdle would confirm a resumption of the uptrend and expose 4472.40, a Fibonacci projection. On the downside, key support lies at 4241.00, the May 31 low. A breach of this level is required to signal a reversal.
• A bull theme in S&P E-minis remains intact and the recent pullback still appears to be a correction. The move lower has allowed an overbought trend condition to unwind. Key near-term support at the 20-day EMA, which intersects at 4376.94, remains intact. A break of this average would strengthen a short-term bearish theme and signal scope for a deeper pullback. On the upside, the bull trigger is 4493.75, the Jun 16 high.

COMMODITIES: Gold Lower for Tenth Session in Eleven

• WTI futures remain in a bear mode condition and recent gains are considered corrective. Support at $67.21, the May 31 low, was again pierced on Wednesday, a clear break would open $64.41, the May 4 low. Moving average studies are in a bear mode position highlighting a downtrend. The contract is trading below resistance at $75.70, the Jun 5 high. Clearance of this level would signal a reversal. Initial resistance is $72.72, the Jun 21 high.
• Trend conditions in Gold remain bearish and the yellow metal traded lower again yesterday, before finding some support. Fresh trend lows reinforce current bearish conditions, confirming a resumption of the downtrend and extending the price sequence of lower lows and lower highs. The focus is on $1885.8, the Mar 15 low. Key resistance is $1985.3, the May 24 high. Initial resistance is $1936.8, the 20-day EMA.