FED: Discount Facility Takeup Continues To Dwindle After July Highs (2/2)
Indeed, looking at the asset side of the Fed's balance sheet, QT continues at a fairly steady pace. Despite just a $7B reduction in holdings in the last week, over the last month the SOMA portfolio has reduced by $25B ($7B Tsys / $18B MBS), a little faster than the roughly $20B average pace that has roughly targeted since April ($5B Tsy / $15B MBS).
- Liquidity facility takeup fell by a total $0.2B in the week, with a reduction in discount window usage (which at $4.4B continues to shrink from slightly elevated levels in July (above $6B) and pandemic 13-3 programs offset by a slight increase in dealer repo operations ($0.2B), though nothing particularly noteworthy here. Overall liquidity / lending facility usage has fallen by $1.0B in the last 4 weeks.
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ECB: HSBC See ECB Reserving Rate Action For Significant Shocks
- HSBC think the ECB is unlikely to change its deposit rate of 2.0% at the July 24 meeting, aligning with its strategy to reserve action for significant economic shocks.
- “There shouldn’t be any change in July, with no need to head back from the beach (if you left early).”
- Recent euro appreciation and potential US tariffs on EU goods could lower inflation forecasts, but the ECB is expected to wait until September to assess their impact.
- Policymakers are cautious about overreacting to currency volatility, focusing instead on domestic risks like sticky services inflation and corporate margin pressures.
- The ECB's current stance reflects confidence in the eurozone's resilience, supported by fiscal policy and stable consumption trends.
- HSBC are one of the five analysts amongst the twenty nine reviewed in the MNI ECB Preview who look for no further cuts from the current deposit rate of 2.00% (see in full here).
USDCAD TECHS: Key Short-Term Resistance Intact For Now
- RES 4: 1.3920 High May 21
- RES 3: 1.3862 High May 29
- RES 2: 1.3798 High Jun 23
- RES 1: 1.3744/74 50-day EMA / High Jul 17
- PRICE: 1.3640 @ 16:03 BST Jul 22
- SUP 1: 1.3631/3557 Low Jul 22 / 03
- SUP 2: 1.3540 Low Jun 16 and the bear trigger
- SUP 3: 1.3503 1.618 proj of the Feb 3 - 14 - Mar 4 price swing
- SUP 4: 1.3473 Low Oct 2 2024
Resistance in USDCAD at 1.3744, the 50-day EMA, remains intact for now. It has been pierced, however, a clear break of it is required to highlight a possible stronger short-term reversal. This would open 1.3798 initially, the Jun 23 high. For now, a bear trend remains in place. A resumption of weakness would refocus attention on key support at 1.3540, the Jun 16 low. Clearance of this level would confirm a resumption of the downtrend.
US TSYS: Tsys Back at July 10 Lvls, Philly Fed Non-Mfg Improves, Costs Elevated
- Treasuries bounced off early Tuesday lows, initially tracking a similar move in German Bunds - before settling into a narrow range near session highs since midmorning.
- The US$ resumed its weakening trend on Tuesday, extending the pullback from last week’s highs to ~1.6% in recent trade, further eroding the cautious recovery that had been seen across the first half of July.
- Tsy Sep'25 10Y futures are +7 at 111-13 after the bell vs. -14.5 high, briefly through resistance at 111-13+, the Jul 10 high. A clear break of this hurdle would highlight a stronger reversal. Key support lies at 110-08+, the low on Jul 14 and 16. A move through this support would reinstate the recent bearish theme.
- The Philadelphia Fed's Nonmanufacturing Business Outlook Survey continued to show improvement in July, though cost pressures remained elevated. The regional current general activity index rose to a 6-month high -10.3 from -25.0 prior. This was the 3rd consecutive improvement since bottoming at -42.7 in April amid tariff policy concerns.
- The Johnson Redbook Retail Sales Index continues to post solid gains, rising 5.1% Y/Y in the week ending Jul 19, fairly steady compared with 5.2% the prior week.
- Look ahead: Wednesday's data limited to MBA Mortgage Applications at 0700ET, Existing Home Sales follow at 1000ET.
