BONDS: EGBs-GILTS CASH CLOSE: Bunds Modestly Underperform Ahead Of HICP Data
Curve bellies underperformed Tuesday.
- Bund yields largely traded within Monday's ranges, with Gilt yields fading an early rise.
- Early core FI losses didn't appear to reflect any new news, instead continuing to trade on speculation regarding the weekend's EU-US trade pact (some details remain scarce despite the EU releasing a fact sheet).
- US Treasuries drove much of the afternoon's price action, with soft labour market data helping boost global core instruments before a modest sell-off going into the close.
- In data, UK consumer credit data and Spanish Q2 prelim GDP were stronger-than-expected, though had little market impact.
- The German curve lightly bear steepened, with the UK's leaning bull flatter - though the 5-7Y segments underperformed in both cases. Periphery/semi-core EGB spreads tightened modestly.
- Wednesday brings Eurozone Q2 GDP data, but focus will likely be more firmly placed on the first readings of flash July inflation starting with Spain (MNI's preview is here). Global attention will be on the Federal Reserve's decision (though after Wednesday's cash close).
Closing Yields / 10-Yr EGB Spreads To Germany
- Germany: The 2-Yr yield is up 2.4bps at 1.942%, 5-Yr is up 2.6bps at 2.293%, 10-Yr is up 1.9bps at 2.708%, and 30-Yr is up 0.8bps at 3.204%.
- UK: The 2-Yr yield is down 1.2bps at 3.894%, 5-Yr is down 0.8bps at 4.067%, 10-Yr is down 1.4bps at 4.633%, and 30-Yr is down 1.3bps at 5.441%.
- Italian BTP spread down 0.7bps at 81bps / French OAT down 0.6bps at 65.6bps
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US FISCAL: Available "Extraordinary" Measures To Ward Off X-Date Pick Up
Treasury reported Friday that as of Jun 25 it had $130B in remaining "extraordinary" measures (of a total $378B available) to ward off an "x-date" of running out of resources before defaulting. That's the highest in 2 weeks.
- Combined with $334B cash as of Jun 25 (after a bit of a buildup after the mid-June tax deadline), that's a total of roughly $465B in total resources available.
- We noted earlier this week that Treasury told Congress that it was required to extend its debt issuance suspension period from Jun 27 to Jul 24, in effect prolonging the use of extraordinary measures while we await a resolution to the debt limit impasse, probably through the fiscal legislation currently going through Congress.
- Realistically, fiscal dynamics so far this year point to potential for Treasury to get into September without running out of cash + extraordinary measures. That seems to be the broad market expectation.
US DATA: Cleveland, Dallas Fed PCE Medians Show Progress But Still Above-Target
The Cleveland and Dallas Fed's median PCE metrics showed a notable drop in May. All indices suggest PCE inflation running above 2%, and higher than the actual core and headline PCE measures, but pressures appear to have cooled from a pickup in the early months of the year.
- The Cleveland Fed's median PCE measure came in at 0.22% M/M, a 10-month low after April's 15-month high 0.31%. This left median PCE at 3.01% on a Y/Y basis, down from 3.06% prior for a the joint-lowest (with Feb) since September 2021.
- The Dallas Fed's annualized median rate fell to 2.01%, from 2.65% prior for a 10-month low. The 6-month annualized rate edged lower to 2.74% (2.76% prior), a 4-month low, with the Y/Y rate ticking down to 2.55% from 2.56%, echoing the Cleveland Fed for the lowest reading since September 2021.
USDCAD TECHS: Pivot Resistance Remains Intact
- RES 4: 1.4111 High Apr 4
- RES 3: 1.4016 High May 12 and 13 and a key resistance
- RES 2: 1.3920 High May 21
- RES 1: 1.2710/3803 20- and 50-day EMA values
- PRICE: 1.3658 @ 16:23 BST Jun 27
- SUP 1: 1.3618 Low Jun 26
- 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
USDCAD has pulled back from its recent highs. The primary downtrend remains intact and short-term gains appear to have been corrective. Key support and the bear trigger has been defined at 1.3540, the Jun 16 low. Clearance of this price point would resume the downtrend. Any reversal higher would instead signal scope for a stronger retracement. Pivot resistance to monitor is at the 50-day EMA, at 1.3803.
