MNI US MARKETS ANALYSIS - Powell Speaks, With Sep Pricing Still a Coin Toss

US TSYS SUMMARY: Bear Steepening With Powell Leading Fedspeak Plus Core PCE

• Cash Tsys are steadily retracing yesterday’s rally with a bear steepening as front end yields nudge higher with the implied terminal rate slowly drifting to cycle highs ahead of Powell’s Jackson Hole address and the long end seeing larger increases, supported by China moving to boost growth including a widening of housing relaxations overnight before more recently financial regulators informally pushing increased loan growth. This comes with a backdrop of decent-sized month-end extension eyed, with Bloomberg bonds +0.12yrs and MS bonds +0.11yrs for Tsys.
• 2YY +1.0bps at 3.376%, 5YY +4.3bps at 3.195%, 10YY +4.7bps at 3.072%, 30YY +3.5bps at 3.276%.
• TYU2 trades -10 ticks lower at 117-15, resuming a downward trend after yesterday’s rally. The technical outlook is bearish and support is eyed at 117-03+ (Aug 24/25 low) after which sits 116-26+ (Jun 29 low). TYZ2 roll 73% complete.
• Fedspeak: Powell’s speech at 1000ET dominates proceedings today but includes a multitude of regional Fed presidents speaking – see STIR FUTURES bullet for timings.
• Data: Also of note today, core PCE (cons 0.2% after 0.6% M/M) and personal incomes/spending for July, final U.Mich survey for August plus July data for both inventories and advanced international trade.
• No issuance.

STIR FUTURES: Fed Rate Path Still Drifting Higher Pre-Powell

• Fed Funds implied hikes are hovering at yesterday’s post CPI highs of 68bps for the Sept FOMC whilst touching new cycle highs further out.
• There is 132bps to 3.65% for Dec and 147bps to a terminal 3.81% for Mar’23, before keeping to 35bps of cuts as the Dec’23 rate drifts higher to 3.46%.
• Powell is clearly the focus at 1000ET (preview and full JH schedule) but we are also hear from various regional Fed presidents. BBG TV alone has Harker (0900ET), Bullard (0915ET), Bostic (0915ET) and Mester (1130ET) – although only Mester (’22 voter) didn’t speak yesterday – with at least Harker and Bostic again on Fox later, plus former NY Fed Pres. Dudley (0830ET). Further appearances likely on other media outlets too, incl. Bostic (0830ET CNBC).

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

EGB/GILT SUMMARY: Selling Pressure Resumes

Following yesterday's rally, European sovereign bonds have traded lower as the selling pressure from earlier in the week resumes.

• Gilt yields are up 1-4bp across much of the curve.
• The UK's energy regulator has raised the energy price cap as expected by 80% with expectations of further increases in 2023. The continued surge in energy bills elevates the probability of the UK economy sliding in recession and poses an acute dilemma for the government, which is still in the middle of a leadership contest.
• Bund yields are up 2-4bp with the long of the curve flattening 2bp.
• OATs have underperformed bunds with yields up 2-6bp.
• BTPs have underperformed core EGBs with yields up 7-10bp.
• The Jackson Hole event is underway with markets looking for any cues on Fed policy.
• European supply this morning came from the UK (UKTBs, GBP3.5bn) and Italy (BOTs, EUR6bn).

EUROPE OPTION FLOW SUMMARY

Eurozone:
SX5E (16th Dec) 4000c, bought for 42.50 in 11k

US:
TYV2 117.00/116.00 ps, bought for 23 in 7.5k on block. And for 22 on screen in ~4k

MARKET INSIGHT: Elevated Oil Price Continues to Shape Global Capital Market Returns

• With global recession concerns and tightening monetary policy restricting risk appetite across developed markets, some of the largest IPOs launched within the past 12 months - particularly in the US - now trade underwater.
• This pattern is repeated across a number of territories, with just 7 of the 29 countries surveyed generating positive local currency returns for IPOs launched within the past 12 months. On weighted average terms, only companies listing in Turkey, Saudi Arabia, Indonesia, the UAE and South Korea have generated local currency returns in excess of 1% over that period:

• Adjusting returns for currency fluctuations erases much of the outperformance in a number of territories including Turkey and South Korea, leaving a clear common theme - offerings with a heavy concentration in energy and utility names (namely Saudi Arabia, Indonesia, UAE) continue to generate the loftiest returns in this part of the cycle:

• This suggests that absent the sharp oil rally across 2022, the distribution of returns across sectors and geographies would have taken a very different shape, and animal spirits across global capital markets could be on an even poorer footing.

Source: MNI/Bloomberg

CHINA: Regulators Push Banks to Juice Lending

• Reuters reports that Chinese financial regulators have informally told lenders to make more loans as well as raise some banks' loan quotas and loan-growth requirements.
  
• The piece also adds that message to banks was to lend more money to productive businesses while putting less of it in financial investments.The pieces follows reports earlier in the week that some state-backed firms had been resistant to calls to juice lending, and are more wary of taking potential losses. Additionally, other reports cited a lack of demand made meeting the new targets very difficult.

FX SUMMARY: USD Steadies Ahead of Powell's Jackson Hole Appearance

• Following Thursday's downtick, the greenback is firmer ahead of the NY crossover, with the single currency following suit. This week's spell of USD weakness has proved short-lived so far, keeping the USD uptrend in tact for now. 109.27 remains the recovery high and the first upside target. A break above here opens 109.294 and the best levels for the dollar since 2002.
• Sentiment is steadier, although the e-mini S&P is in minor negative territory on the day. Nonetheless, stocks hold the bulk of the gains posted off the mid-week low, helping aid USD/JPY to briefly trade back above the Y137.00 handle.
• In a minor reversal of Thursday's strength, NZD and AUD trade on the backfoot, although the AUD/USD recovery posted from the August low of $0.6856 remains largely intact for now. Progress through yesterday's $0.6991 opens the 100-dma above at $0.7028.
• All eyes turn to the Jackson Hole Policy Symposium that officially began late yesterday. The headline event comes at 1500BST/1000ET, with Fed Chair Powell making his address. Markets will be on watch for any policy signals ahead of September's FOMC meeting, for which markets remain split over a 50 or a 75bps rate hike.

FX OPTIONS: Expiries for Aug26 NY cut 1000ET (Source DTCC)

• EUR/USD: $0.9850(E2.3bl) $1.0000(E1.5bln), $1.0049-55(E1.1bln)
• USD/JPY: Y134.00($550mln), Y136.95-10($1.4bln)
• USD/CAD: C$1.2870-85($698mln)
• USD/CNY: Cny6.8500($576mln)

Price Signal Summary - FI Futures Trend Needle Still Points South

• In the equity space, the short-term trend condition in the S&P E-Minis remains bearish and short-term gains are considered corrective - for now. Attention is on pivot support at 4089.67, the 50-day EMA. Initial resistance is at 4221.50, the Aug 22 high. EUROSTOXX 50 futures remain in a short-term downtrend too despite recent gains. The 50-day EMA at 3652.00, has been pierced. A clear break of the average would strengthen the bearish theme and open 3582.50, 50.0% of the Jul 5 - Aug 17 rally.
• In FX, EURUSD remains bearish following the breach of key support at 0.9952, Jul 14 low. This confirmed a resumption of the primary downtrend. The focus is on 0.9883 next, 1.764 projection of the Jun 9 - 15 - 27 price swing. The GBPUSD trend needle still points south. The break of support at 1.1760, the Jul 14 low and bear trigger, confirmed a resumption of the downtrend. Sights are on 1.1673, the 1.00 projection of the May 27 - Jun 14 - 16 price swing. USDJPY remains below its most recent highs and is consolidating. This pause appears to be a bull flag, reinforcing bullish conditions with the focus on 137.96 next, the Jul 22 high. Initial support is at 135.53, the 20-day EMA.
• On the commodity front, Gold has found some support this week and remains above Monday’s low of $1727.8. Gains are considered corrective and firm resistance is seen at $1776.5, the 50-day EMA. A resumption of weakness would open $1711.7 next, the Jul 27 low. In the Oil space, the WTI futures short-term outlook remains bullish for now. Futures have traded above the 50-day EMA and the break signals scope for a climb towards $99.75, the Jul 29 high. A break below $90.42, Aug 23 low is required to signal a top.
• In the FI space, Bund futures remain in a bear trend. The focus is on the 150.00 handle next, a break would open 149.69, the Jul 21 low and key short-term support. 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 116-26+, the Jun 29 low.

EQUITIES: US Futures Edge Off Thursday High

• Japan's NIKKEI closed up 162.37 pts or +0.57% at 28641.38 and the TOPIX ended 2.99 pts higher or +0.15% at 1979.59. Elsewhere, China's SHANGHAI closed down 10.025 pts or -0.31% at 3236.223 and the HANG SENG ended 201.66 pts higher or +1.01% at 20170.04.
• Germany's DAX trades down 3.22 pts or -0.02% at 13267.92, FTSE 100 up 11.68 pts or +0.16% at 7490.52, CAC 40 up 3.3 pts or +0.05% at 6384.86 and Euro Stoxx 50 up 5.21 pts or +0.14% at 3679.75.
• Meanwhile, the Dow Jones mini sits lower by 70 pts or -0.21% at 33201, S&P 500 mini down 13 pts or -0.31% at 4187.75, NASDAQ mini down 58.75 pts or -0.45% at 13097.25.

COMMODITIES: Core Energy Higher, Partially Reversing Thursday Loss

• WTI Crude up $0.61 or +0.66% at $93.35
• Natural Gas up $0.18 or +1.9% at $9.567
• Gold spot down $7.58 or -0.43% at $1751.07
• Copper up $2.5 or +0.68% at $372.3
• Silver down $0.03 or -0.14% at $19.2004
• Platinum down $7.35 or -0.83% at $879.36