MNI US MARKETS ANALYSIS - Dollar Weakness Persists Post-Fed

US TSYS SUMMARY: Bear Steepening Aftermath of FOMC

Tsys trading weaker day after FOMC delivered a widely expected second consecutive 75bp rate hike, yield curves bear steepening with short end outperforming after the Fed scales back hawkish forward guidance.

• Fed remains in blackout through today, but markets still pouring through Chairman Powell's statements including the "stance of monetary policy tightens further, it'll become appropriate to slow the pace of increases while we assess how cumulative policy adjustments are affecting the economy and inflation." Chances of third 75bp hike in Sep have eased in favor of 50bp.
• "I don't think the U.S. is currently in a recession," Powell said w/ GDP that could show two quarters of negative growth this morning. There are "areas of the economy that are performing too well and of course, I'd point to the labor market. In particular. It's true that growth is slowing for reasons we understand."
• Economic data on tap at 0830ET (prior, est): Initial Jobless Claims (251k, 250k), Continuing Claims (1.384m, 1.386m), Personal Consumption (1.8%, 1.2%), GDP Price Index (8.2%, 8.0%), GDP Annualized QoQ (-1.6%, 0.4%), Core PCE QoQ (5.2%, 4.4%). KC Fed mfg index (12, 3) up at 1000ET.
• US Treasury supply: $55B 4W, $50B 8W bill auctions at 1130ET followed by $38B 7Y note auction (91282CFC0) at 1300ET.
• Equities mildly weaker (ESU2 -12.50 at 4012.00) into another heavy slate of earnings releases. Meta missed late Wednesday ($2.46 vs. $2.541 est) while Ford beat ($0.68 vs. $0.447 est).

EGB/GILT SUMMARY: Twist Steepening

Euro area government bond curves have twist steepened in the wake of yesterday's FOMC decision where policymakers doubled down with another 75bp hike. Regional equities and FX, meanwhile, trade mixed.

• Regional German CPI data for July broadly show a deceleration from the previous month. Elsewhere, Eurozone economic, industrial and service confidence all deteriorated further in July.
• In an interview published by Politico yesterday evening, the ECB's Ignazio Visco stated that the decision to adjust policy rates will depend on "the developments in prices and in the real economy, because the real economy affects prices" and that "what we see in the real economy, certainly it is not terribly encouraging".
• Gilts initially opened lower but recovered some of the earlier losses. Cash yields are now 1-4bp higher on the day with the longer-end of the curve underperforming.
• The bund curve has twist steepened with the 2s30s spread 9bp wider
• The OAT curve has similarly twist steepened with the 2s30s spread widening 8bp.
• BTPs have traded broadly in line with core EGBs.
• Supply this morning came from Italy (BTPs/CCTeu, EUR7.5bn)
• Focus now shifts to the first estimate of US GDP for the second, which is published later today.

EUROPE ISSUANCE UPDATE

• E2.75bln of the 2.65% Dec-27 BTP. Avg yield 2.28% (bid-to-cover 1.51x)
• E1.5bln of the 0.95% Jun-32 BTP. Avg yield 3.36% (bid-to-cover 1.72x)
• E2bln of the 2.50% Dec-32 BTP. Avg yield 3.46% (bid-to-cover 1.57x)
• E1.25bln of the 0.75% Oct-30 CCTeu. Avg yield 1.26% (bid-to-cover 1.76x).

EUROPE OPTION FLOW SUMMARY

US downside plays dominate in early European trade

OEU2 125/123ps 1x2, bought for 13.5 in 2k

TYU2 118.5/116.5ps, bought for 23 in 10k
TYU2 119/118.25ps bought for 15 in 12k
TYU2 119/118ps bought for 18 in 20k

FVU2 113c, sold at 44+ in 4k

FOREX: USD Holds Losses Post-Fed, USD/JPY Nears Key Support

• Following the Fed's 75bps rate rise on Wednesday, the USD Index has broken lower, touching the lowest levels since early July to drop around 1.25% from yesterday's pre-Fed levels.
• The JPY is the firmest currency so far Thursday, putting USD/JPY at the lowest levels since early July to narrow the gap with the 50-dma. This level marks a key support going forward and hasn't been tested in any material way since March. The support crosses at 134.18.
• The weakest currency in G10 is the SEK, falling alongside the single currency, which is generally shrugging off the uptick in inflationary pressures evident across German regions.
• The risk backdrop is generally positive, with the e-mini S&P holding above the 4,000 level following the Fed, with the index eyeing yesterday's highs of 4,042.75 - the best level since mid-June.
• The national read for German CPI is next up, with regional figures so far suggesting an uptick in inflationary pressures. EU-harmonized figures will be confirmed at 1300BST/0800ET.
• Focus will then turn to the Q2 advance GDP reading from the US which, if it comes in negative, would confirm two quarters of negative growth to confirm what some would define as a recession. Nonetheless, median looks for a +0.5% read today.

FX OPTIONS: Expiries for Jul28 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0050-55(E519mln), $1.0100-20(E560mln), $1.0200(E764mln), $1.0250(E593mln), $1.0300-05(E1.3bln)
• USD/JPY: Y136.15-25($1.8bln)
• AUD/USD: $0.7000-20(A$598mln)
• USD/CAD: C$1.2810($630mln), C$1.2850-70($699mln), C$1.2915($540mln)

Price Signal Summary - USDJPY Pierces Bull Channel Support

• In the equity space, S&P E-Minis traded higher Wednesday and pierced resistance at 4016.25, the Jul 22 high. The break confirms a resumption of the current bull cycle and signals potential for a climb towards 4145.75, Jun 9 high. Initial support has been defined at 3913.25, the Jul 26 low. A break would highlight a possible early bearish reversal. EUROSTOXX 50 futures traded higher Wednesday and moved above recent highs to confirm a bull flag on the daily chart and a resumption of the current uptrend. The short-term outlook remains bullish and the focus is on 3689.00, Jun 10 high. Initial firm support to watch lies at 3467.00, Jul 18 / 19 low.
• In FX, EURUSD recovered from Wednesday’s low of 1.0097 and this level marks initial support. Price is still trading below immediate resistance at 1.0278, the Jul 21 high. A break above this hurdle would once again resume bullish conditions and signal scope for an extension higher within the bull channel, drawn from the Feb 10 high. The top intersects at 1.0432. GBPUSD traded higher Wednesday, extending the recent recovery from 1.1760, Jul 14 low. Attention is on resistance at the 50-day EMA - the average intersects at 1.2210. A clear breach would strengthen bullish conditions, and open 1.2332, the Jun 27 high. USDJPY is trading lower today. The pair has pierced support at 135.50, the base of a bull channel drawn from the Mar 4 low. A clear break would strengthen current bearish conditions and expose support at 134.27, Jun 23 low. Initial resistance to watch is Wednesday’s 137.46 high.



• On the commodity front, Gold remains in a downtrend and the latest recovery is considered corrective. The yellow metal however has traded above resistance at $1745.4, the Jul 13 high. A continuation higher would open $1787.0, the May 16 low. In the Oil space, WTI futures trend conditions remain bearish. The contract is firmer but still trades below the 50-day EMA that intersects at $101.03. The average represents an important pivot point - if breached, the move higher would signal scope for a stronger rally. First support lies at $93.01, the Jul 25 low.
• In the FI space, a short-term bull cycle in Bund futures remains in play. The focus is on 157.21, 1.50 projection of the Jun 16 - 24 - 28 price swing. The trend condition in Gilts remains bullish. The focus is on 118.16, 1.382 projection of the Jun 16 - 24- 29 price swing.

EQUITIES: Paring Post-FOMC Gains

• Asian markets closed higher: Japan's NIKKEI closed up 99.73 pts or +0.36% at 27815.48 and the TOPIX ended 3.1 pts higher or +0.16% at 1948.85. China's SHANGHAI closed up 6.821 pts or +0.21% at 3282.576 and the HANG SENG ended 47.36 pts lower or -0.23% at 20622.68.
• European equities have pared most post-Fed futures implied gains, with the German Dax down 62.22 pts or -0.47% at 13096.86, FTSE 100 down 21.85 pts or -0.3% at 7324.28, CAC 40 down 2.02 pts or -0.03% at 6258.08 and Euro Stoxx 50 down 7.28 pts or -0.2% at 3598.
• U.S. futures are lower, led by tech, with the Dow Jones mini down 45 pts or -0.14% at 32127, S&P 500 mini down 15 pts or -0.37% at 4009.5, NASDAQ mini down 113.25 pts or -0.9% at 12504.75.

COMMODITIES: Copper Gaining For 3rd Straight Day

• WTI Crude up $1.68 or +1.73% at $98.92
• Natural Gas up $0 or +0.04% at $8.56
• Gold spot up $10.22 or +0.59% at $1745.05
• Copper up $6.6 or +1.92% at $349.5
• Silver up $0.3 or +1.58% at $19.408
• Platinum up $5.9 or +0.66% at $896.11