MNI US MARKETS ANALYSIS - Greenback Reverses Post-PMI Dip

US TSYS SUMMARY: Front End Richer As Durable Goods, Supply Eyed

• Cash Tsys are slightly richer at the front end with Treasuries also comfortably outperforming Europe in 10Y space whilst remaining underpinned by yesterday’s disappointing activity data, putting further focus on durable goods later on.
• Led by the front end with only the 20Y bucking smaller moves further along the curve, 2s10s have only partially unwound yesterday’s twist steepening to sit at -25.5bps for a 20bp steepening over the past week.
• 2YY -2bps at 3.307%, 5YY +0.2bps at 3.167%, 10YY +0.0bps at 3.046% and 30YY +0.1bps at 3.256%.
• TYU2 trades two ticks higher on the day at 117-22 on modestly below average volumes. It has been heading south in recent trend terms though, with key near-term support formed by double resistance at 117-14+ from both the Jul 21 and yesterday’s low.
• Data: Preliminary durable goods for July in focus plus pending home sales (after yesterday’s slump in new home sales) plus weekly MBA mortgage applications.
• Note issuance: US Tsy $22B 2Y FRN note auction (91282CFD8) at 1130ET, US Tsy $45B 5Y note (91282CFH9) at 1300ET
• Bill issuance: US Tsy $30B 119D bill CMB auction – 1130ET

STIR FUTURES: Fed Hikes Hold To Yesterday’s Modest Softening

• Relatively little change overnight for Fed Funds implied hikes, largely keeping to yesterday’s net move lower on weak US data.
• That included little reaction to Kashkari (’23 voter) late yesterday keeping to his hawkish stance in the last scheduled Fedspeak pre-Jackson Hole: it will be a long time before policymakers must debate any tradeoff with its full employment goal albeit noting that the inflation impact of strong USD may affect Fed policy.
• Sitting at 65bps for the Sept FOMC (67.5bps pre-data) before a cumulative 125bps to Dec and 140bps to a peak of 3.74% in Mar’23 (3.78% pre-data). 39bps of cuts thereafter to end-23, from 35bps this time yesterday.

FOMC-dated Fed Funds implied rate at specific meetingsSource: Bloomberg

EGB/GILT SUMMARY: Inflation Fears Drive Sovereign FI Lower

European government bonds have continued selling off with gilts leading the charge. Equities are also broadly lower while oil has edged higher.

• Absent any obvious price catalysts this morning, the sell-off in fixed income continues to reflect concerns about ever higher inflation and aggressive monetary policy tightening as central banks catch up with the unfolding reality.
• The UK has been in the spotlight recently given that headline inflation has now breached 10% and analysts have warned about the possibility of a further sharp acceleration at the turn of the year as the energy price cap is increased.
• Gilts have significantly underperformed EGBs, particularly at the short end. Yields are up 2-18bp on the day with the 2s10s spread narrowing 10bp and 2s30s 13bp.
• Bund yields are up 1-5bp across much of the curve which is 4-5bp flatter.
• OAT yields are now up 2-4bp on the day.
• BTPs have similarly sold off, but it is the longer end of the curve that has underperformed. Yields are up 3-5bp with the long end of the curve steepening slightly.
• Supply this morning came from Germany (Bund ,EUR3.32bn allotted), Greece (GTBs, EUR625mn).

EUROPE OPTION FLOW SUMMARY

Eurozone:
RXV2 136p, bought for 19 in 5k
OEV2 127.50/128.00cs, sold at 5 in 2.5k

UK:
SFIH3 95/94.5/94.00 p fly, bought for 4 in 5k

EUROPE ISSUANCE UPDATE

• Germany allots E3.32bln 1.70% Aug-32 Bund, Avg yield 1.33% (Prev. 0.94%), Bid-to-cover 1.31x (Prev. 0.90x), Buba cover 1.6x (Prev. 1.1x)

FED: Jackson Hole - What We Know So Far

The main publicly-known events on the Jackson Hole schedule so far are Chair Powell’s speech “Economic Outlook” at 1000ET Friday the 26th, and ECB’s Schnabel appearing on a panel on Saturday the 27th.

• The theme of the symposium, which begins at a private dinner Thursday evening and features speeches/panels Friday and Saturday, is “Reassessing Constraints on the Economy and Policy".
• The full schedule will be released Thursday at 2000ET (0100UK time early Friday morning), which will include the various academic paper presentations.
• There will be the usual FOMC President TV interviews on the sidelines. We don’t know of any confirmed appearances but if previous years are any guide, we will get at least some ad hoc announcements of Thursday and Friday’s TV interviews at some point today.
• Reports suggest several international policymakers will be in attendance, including BOE’s Bailey, BOJ’s Kuroda, BoC’s Macklem, and ECB’s Schnabel and Nagel (BBG reports “about half of the ECB’s 25 rate setters” will be in attendance though not Pres Lagarde). Several senior EM central bankers will also be in attendance.
• However, not all attendees will be presenting / giving media appearances.
• The full Symposium website will include links to papers, livestreams, and schedule.

FOREX: Greenback Consolidates After Tuesday Dip

• The dollar sits in minor positive territory ahead of NY hours, recovering modestly the data-inspired dip yesterday. The USD Index is well off Tuesday's 108.077 low print, but holds below cycle highs of 109.27 seen in Asia-Pac trade earlier this week.
• The JPY is recovering alongside the greenback, putting EUR/JPY at new weekly lows and within range of 134.95, the key pullback support from earlier this month. Equity futures are distinctly mixed and don't point to any material improvement in sentiment at the Wall Street opening bell later today, with European cash indices little changed on the day.
• Nonetheless, the CHF rate extends recent strength, with EUR/CHF nearing 0.9553, the cycle low and the lowest level printed since 2015. Downtrendline support drawn off the mid-May lows for the cross could then provide some support at 0.9513.
• Economic data and news across the European morning have been few and far between, with markets on watch for any further details ahead of this weekend's Jackson Hole policy symposium, with the full schedule touted for release ahead of the formalities late Thursday
• Prelim durable goods data crosses from the US, with pending home sales also on the docket.

FX OPTIONS: Expiries for Aug24 NY cut 1000ET (Source DTCC)

• EUR/USD: $0.9835-50(E811mln), $0.9925(E570mln), $1.0140-55(E972mln)
• USD/JPY: Y135.00($637mln), Y136.00-05($840mln), Y136.80-00($1.3bln)
• EUR/GBP: Gbp0.8750(E893mln), Gbp0.9000(E1.2bln)
• USD/CAD: C$1.2835-55($565mln)
• USD/CNY: Cny6.7900($1.0bln)

Price Signal Summary - FI Futures Downtrend Intact

• In the equity space, the trend condition in the S&P E-Minis is unchanged and remains bearish - a corrective cycle is still in play. The 20-day EMA has been cleared and this opens the 4082.78, the 50-day EMA - a key pivot support. EUROSTOXX 50 futures remain in a short-term downtrend and the contract is trading closer to its recent lows. The 20-day EMA has been cleared and the 50-day EMA at 3650.60, has been pierced. A clear break of the 50-day average would strengthen the bearish theme and open 3582.50, 50.0% of the Jul 5 - Aug 17 rally.
• In FX, EURUSD has cleared key support at 0.9952, the Jul 14 low. This confirms a resumption of the primary downtrend and signals scope for an extension lower. The focus is on 0.9883 next, 1.764 projection of the Jun 9 - 15 - 27 price swing. GBPUSD remains vulnerable. The pair has breached support at 1.1760, the Jul 14 low and bear trigger. This confirms a resumption of the downtrend and paves the way for weakness towards 1.1673, the 1.00 projection of the May 27 - Jun 14 - 16 price swing. USDJPY has pulled back from its most recent highs. The outlook remains bullish though and the focus is on a climb towards 137.96 next, the Jul 22 high. Initial support is at 135.25, the 20-day EMA.
• On the commodity front, Gold remains bearish following the recent extension lower and break of support at $1754.4, Aug 3 low. Sights are on $1711.7 next, the Jul 27 low. In the Oil space, WTI futures are trading higher and the recovery has improved conditions for bulls. Futures have traded above the 50-day EMA, at $94.31. A clear break would strengthen the fresh bullish case and open $99.75, the Jul 29 high.
• In the FI space, Bund futures remain in a bear trend and the contract continues to weaken. The focus is on the 150.00 handle next. Gilts remain vulnerable and sights are set on the key support and bear trigger at 109.89, the Jun 16 low. Treasuries maintain a softer tone. Scope is seen for an extension towards 117-07 next, 61.8% of the Jun 14 - Aug 2 bull cycle

EQUITIES: Defensives Outperforming Early

• Asian markets closed lower: Japan's NIKKEI closed down 139.28 pts or -0.49% at 28313.47 and the TOPIX ended 4.26 pts lower or -0.22% at 1967.18. China's SHANGHAI closed down 61.02 pts or -1.86% at 3215.203 and the HANG SENG ended 234.51 pts lower or -1.2% at 19268.74.
• European equities are trading mixed/flat, with financials and materials stocks weighing most heavily, and defensives (consumer staples, utilities) outperforming: the German Dax down 17.11 pts or -0.13% at 13179.97, FTSE 100 down 27.9 pts or -0.37% at 7460.75, CAC 40 down 0.46 pts or -0.01% at 6362.2 and Euro Stoxx 50 up 1.75 pts or +0.05% at 3656.
• U.S. futures are flat: Dow Jones mini down 3 pts or -0.01% at 32898, S&P 500 mini up 1.5 pts or +0.04% at 4132, NASDAQ mini up 7.25 pts or +0.06% at 12903.75.

COMMODITIES: Oil Extends Rally While Copper Drops

• WTI Crude up $1.19 or +1.27% at $94.99
• Natural Gas up $0.11 or +1.22% at $9.305
• Gold spot up $4.57 or +0.26% at $1752.85
• Copper down $1.45 or -0.39% at $367.7
• Silver up $0.06 or +0.3% at $19.1753
• Platinum up $2.8 or +0.32% at $887.75