JAPAN DATA: BSI Q3 Sentiment Index Rises, But Within 2025 Ranges

The ESU5 overnight range was 6387.50 - 6431.50, Asia is currently trading around 6400. The ESU5 contract stalled around 6430 and drifted lower in the N/Y session as some risk was pared back going into the US CPI. This morning US futures have opened pretty muted, ESU5 +0.05%, NQU5 +0.06%. Price bounced strongly off its first support around 6200/6250, depending on what your view is I suspect bounces back towards 6450 should now find sellers initially as we enter a poor period based on seasonality. A break below 6200 is needed to potentially signal a deeper correction back to the 5900/6000 area. The price action in stocks continues to be bullish ignoring the headwinds that point to any possible retracement, let's see what CPI holds tonight.

• Guy Berger on X: “I’ll die on this hill: the net benefit (or cost) of the tariffs is more negative than you would get from naively applying a basic trade model because we are taxing imports of capital goods and other inputs into production (eg aluminum, steel, copper, etc). The “optimal tariff” argument and the “we need to produce key production inputs here” argument are at cross purposes with each other.  The more you pursue one the more you will undermine the other.” 
• Bloomberg - “CFRA’s Angelo Zino acknowledges the revenue tax on the chips(Nvidia & AMD) will have a negative impact on profit margins relating to China sales; re-entry into the market could be worth the cost. “We think the news opens up a host of other issues, as geopolitical uncertainty could change plans in place amid trade discussions and raises questions about whether it potentially creates a new precedent with other industries/trade partners,” Zino said.”
• Bloomberg - The dual force of Fed balance sheet runoff and the rebuilding of the Treasury’s general account is extracting liquidity from the financial system through multiple, compounding channels — and this will increasingly be a headwind to risk appetite

Fig 1: SPX(ESU5) 2H Chart

Source: MNI - Market News/Bloomberg Finance L.P

TYU5 is trading 111-24+, down 0-04 from its close. 

• The US 2-year yield opens around 3.766%.
• The US 10-year yield opens around 4.285%.
• MNI US CPI Preview: High Early Bar To September Fed Hold. The CPI report for July is released on Tuesday Aug 12, at 0830ET. Consensus sees core CPI inflation at a seasonally adjusted 0.3% M/M in June and unrounded analyst estimates broadly echo this with a median 0.32% M/M. It would mark a further acceleration from 0.23% M/M in June and 0.13% M/M in May for its fastest pace since January, with the latest firming seen coming from core goods inflation doubling to 0.4% M/M. 
• (Bloomberg) -- Treasuries snapped a three-day losing streak as investors prepare for fresh US inflation data that may help determine the Federal Reserve’s next move on interest-rate cuts.
• The 10-year yield had a powerful move lower in reaction to the NFP data, breaking below its 4.30% pivot within the wider range 4.10% - 4.65%. This now turns momentum lower in yields and you could expect buyers of treasuries on bounces back towards 4.30/35% now looking to initially test the 4.10% area. 
• Data/Events: NFIB Small Business Optimism, CPI, Federal Budget Balance

In post-Tokyo trade, JGB futures closed lower on Friday, -10 compared to settlement levels.

• With the US calendar light on Monday ahead of a heavy slate of data, the markets treaded water. Headlining is the key CPI release on Tuesday where the numbers will help provide some guidance for the Fed's policy path.
• MNI - The CPI report for July is released on Tuesday Aug 12, at 0830ET. Consensus sees core CPI inflation at a seasonally adjusted 0.3% M/M in June and unrounded analyst estimates broadly echo this with a median 0.32% M/M. It would mark a further acceleration from 0.23% M/M in June and 0.13% M/M in May for its fastest pace since January, with the latest firming seen coming from core goods inflation doubling to 0.4% M/M.
• Bloomberg -- "The new chief of Japan's financial regulator has a message for regional banks: don't rely on rising interest rates to fix your problems. Local lenders have been counting on last year's scrapping of negative rates to help turn them around, blaming the policy for crushing profitability. But the new era of higher rates will spark fresh competition for depositors at a time when technology is transforming the industry, according to Financial Services Agency Commissioner Yutaka Ito."
• Today, the local calendar will see Money Stock.