MNI US MARKETS ANALYSIS - USD/JPY Cycle Highs Back in Range

US TSYS SUMMARY: Risk On Helps Push Treasuries Lower

• Cash Tsys have moved lower this morning with broad risk-on moves whilst seeing a muted version of the move in European sovereigns as the ECB nearing anti-fragmentation tools is perceived to allow larger rate hikes. There has however been surprisingly little impact on the longer end of the curve, despite both German and French consumer confidence sliding further.
• 2YY +1.8bps at 3.124%, 5YY +3.8bps at 3.293%, 10YY +3.8bps at 3.238% and 30YY +3.4bps at 3.346%.
• TYU2 trades 10 ticks lower at 116-16 as it shifts towards the lower end of last week’s wide range on broadly average volumes. The underlying trend remains bullish, but the recent retracement has opened support at 115-20 (Jun 17 low).
• Data: Multiple second tier releases including wholesale inventories, Conference Board consumer confidence, house prices, advanced trade and the Richmond Fed manufacturing index.
• Fedspeak: Daly (’24 voter) gives LinkedIn interview at 1230ET.
• Bond issuance: US Tsy $40B 7Y Note auction (91282VEV9) at 1300ET

STIR FUTURES: Fed Hike Expectations Firm Modestly With ECB Tool Talk

• Fed Funds implied hikes have firmed slightly through the European morning, with a similar move in ECB-dated OIS following ECB anti-fragmentation talk including Lagarde saying it will aid future rate rises.
• FOMC-dated hikes sit between 71-72bps for the July meeting before a cumulative 129bp for Sep and 189bp for Dec (four meetings), the latter compared to 164bps of hikes priced for the ECB.
• Further out, Fed Funds are seen peaking at 3.62% at the Mar’23 meeting before a little over 40bps of cuts priced to the Jan’24 meeting.
• The only scheduled Fedspeak today is from Daly (’24 voter) at 1230ET, who on Friday saw a 75bp hike on Jul 27 as looking likely but was still data dependent.

Cumulative hikes implied by FOMC-dated Fed Funds futuresSource: Bloomberg

EUROPE ISSUANCE UPDATE

• UK DMO sells GBP1.0bln 0.125% Aug-31 Linker, Avg yield -1.335%, Bid-to-cover 2.77x
• Germany allots E3.235bln new 1.30% Oct-27 Bobl, Avg yield 1.41%, Bid-to-cover 1.01x, Buba cover 1.3x

EUROPE OPTION FLOW SUMMARY

RXQ2 152c, sold at 27 and 27.5 in 10k
RXQ2 152.5/153cs, bought for 3.5 in 7k

FOREX: JPY Fading Last Week's Gains

• JPY is fading early Tuesday, with USD/JPY touching the week's best levels and continuing to work its way through the pullback from last week's highs. This keeps the cycle best at Y136.71 in view over the medium-term, with the RSI fading back below the technically overbought levels seen early June.
• Commodity markets have been the movers so far Tuesday, with oil, precious metals and iron ore posting sizeable gains and underpinning the CAD, AUD strength into the NY crossover. USD/CAD weakness has put the pair at the lowest levels since June 13th, narrowing in on the 50-dma support at 1.2811.
• The single currency is mid-table, despite ECB's Kazaks this morning arguing in favour of a 50bps hike at the upcoming ECB July meeting. Lagarde argued a different path however, stating that 25bps should be the base case.
• US trade balance data takes focus going forward, with wholesale inventories, consumer confidence and S&P Case Shiller house price indices also due. The ECB's Sintra policy forum continues, with appearances from Elderson and Panetta due. Fed's Daly speaks at a separate event.

FX OPTIONS: Expiries for Jun28 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0450(E1.5bln), $1.0585-00(E1.2bln)
• USD/JPY: Y132.00-15($1.2bln), Y135.00($780mln)

Price Signal Summary - Oil Futures Extend Gains From Recent Lows

• In the equity space, S&P E-Minis are trading closer to recent highs. The contract maintains a short-term bullish theme following last week’s gains and the break of the 20-day EMA. This signals scope for a climb towards the 50-day EMA, at 4042.61. EUROSTOXX 50 futures are holding on to recent gains and short-term conditions suggest scope for an extension higher. The contract has traded above the 20-day EMA and this opens 3634.40, the 50-day EMA.
• In FX, EURUSD is slightly firmer but remains below key short-term resistance at 1.0627, the bear channel top drawn from Feb 10 high. This level is seen as a pivot point and a break would strengthen bullish conditions and highlight a channel breakout. While inside the channel, bearish conditions remain intact. A reversal lower would open 1.0350, May 13 low and the bear trigger. GBPUSD is unchanged and still trading in a tight range. Key support and the bear trigger lies at 1.1934, Jun 14 low. Resistance to watch is 1.2406, the Jun 16 high. Both 1.1934 and 1.2406 are important short-term directional triggers. USDJPY trend conditions remain bullish and short-term pullbacks are considered corrective. Last week’s gains confirmed a resumption of the primary uptrend. The focus is on 136.88 next, the Oct 30 1998 high. Support to watch is at 133.61, the 20-day EMA.



• On the commodity front, the outlook in Gold is bearish. Attention is on $1787.0, May 16 low, where a break would resume the downtrend. Key trendline resistance to watch is at $1871.7. The trendline is drawn from the Mar 8 high and a break would highlight a potential short-term reversal. In the Oil space, WTI futures remain above last week’s $101.53 low (Jun 22). A bearish threat remains present, following the move lower between Jun 14 - 22. A resumption of weakness would open $100.66, the May 19 low. Resistance to watch is at $116.58, Jun 17 high.
• In the FI space, Bund futures have pulled back from recent highs. Key short-term resistance has been defined at 149.00, the Jun 24 high where a break is required to signal scope for a stronger recovery - towards 150.06, 61.8% retracement of the May 12 - Jun 16 bear leg. First support lies at 144.81, the Jun 23 low. Gilts are weaker too as the contract pulls away from 114.55, the Jun 24 high. A break of 114.55 is required to signal scope for a stronger short-term recovery. Key support and the bear trigger lies at 109.89, the Jun 16 low.

EQUITIES: Energy And Financial Stocks Boost Europe Early

• Asian markets closed stronger: Japan's NIKKEI closed up 178.2 pts or +0.66% at 27049.47 and the TOPIX ended 19.96 pts higher or +1.06% at 1907.38. China's SHANGHAI closed up 30.025 pts or +0.89% at 3409.21 and the HANG SENG ended 189.45 pts higher or +0.85% at 22418.97.
• European equities are being driven higher by energy stocks and financials, with the German Dax up 122.35 pts or +0.93% at 13229.78, FTSE 100 up 63.83 pts or +0.88% at 7327.65, CAC 40 up 70 pts or +1.16% at 6119.04 and Euro Stoxx 50 up 37.64 pts or +1.06% at 3547.84.
• U.S. futures are higher too, with the Dow Jones mini up 200 pts or +0.64% at 31621, S&P 500 mini up 24.5 pts or +0.63% at 3928.25, NASDAQ mini up 73 pts or +0.61% at 12113.5.

COMMODITIES: Copper Continues To Regain Ground

• WTI Crude up $1.41 or +1.29% at $111.63
• Natural Gas up $0.05 or +0.75% at $6.5
• Gold spot up $4.06 or +0.22% at $1826.08
• Copper up $5.95 or +1.58% at $382.75
• Silver up $0.14 or +0.65% at $21.2471
• Platinum up $6.79 or +0.75% at $916.03