US INFLATION: Fed Beige Book Warns On More Rapid Price Increases Ahead
Jul-17 10:11
- In case missed from yesterday’s Beige Book, probably the most important finding for the FOMC was that the biggest price increases are yet to come: "Contacts in a wide range of industries expected cost pressures to remain elevated in the coming months, increasing the likelihood that consumer prices will start to rise more rapidly by late summer."
- Yesterday saw a volatile session for near-term inflation expectations, with 1Y inflation swaps falling 4bps to 3.40% on a dovish PPI report before surging almost 8bp on multiple media reports that Trump was considering firing Powell imminently. Trump himself then partly backtracked but with a for-clause caveat left open. It saw the 1Y swap close at 3.45% for highs seen after a hawkish CPI report on Tuesday.
- There has been a pronounced climb in 1Y expectations in the month to date, ending June at 3.08%. For context, it saw a high of 3.61% on Apr 8 before reciprocal tariff backtracking.
- The climb following the Powell firing headlines, and the associated legal challenges that could come with it, is also eye catching considering the 1Y swap is only running two months beyond when Powell’s Fed chair term expires.
- The inflation expectations profile continues to be front-loaded 1Y out but 1Y1Y expectations have also been drifting higher, closing at 2.56% for the past two days at highs since late March. That’s of course prior to Apr 2 reciprocal tariffs which were associated with expectations of a shorter-term spike in inflation.
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CROSS ASSET: BofA Fund Manager Survey Points To Ongoing U/weight In USD Assets
Jun-17 10:05
The latest Bank of America fund manager survey suggested that funds remain underweight global equities (although this narrowed to a net 2% underweight from 13% the month prior) and bonds (net underweight 5% vs. 1% the month prior), while they remain overweight cash (net 16% overweight vs. 26% the month prior).
- The survey details point to a continued hesitance to redeploy assets in the U.S.
- A net 61% of investors surveyed suggest that the USD is overvalued vs. 57% last month. Bank of America note that the current USD valuation is 1.5 standard deviations above the long-term average, based on a trade weighted index.
- Investors responding to the survey are a net 36% underweight U.S. equities vs. 38% last month. The current allocation is 1.7 standard deviations below the long-term average.
- Note that the survey took place between June 6-12, before the surge in geopolitical risk in the Middle East.
OUTLOOK: Price Signal Summary - Monitoring Support In The EUROSTOXX50 Contract
Jun-17 09:55
- In the equity space, the trend condition in S&P E-Minis is unchanged, it remains bullish and the contract traded to a fresh cycle high last Wednesday, reinforcing current bullish conditions. For now, the most recent pullback is considered corrective. The contract has pierced support at 6000.18, the 20-day EMA. A clear breach of this average would expose the 50-day EMA, at 5890.99. Key short-term resistance and the bull trigger, has been defined at 6128.75, the Jun 11 high.
- The latest pullback in the EUROSTOXX 50 futures contract has resulted in a breach of the 50-day EMA at 5299.04. Price has also pierced 5255.00, the May 23 low. A clear break of both support points would signal a short-term top and highlight scope for a deeper retracement. This would open 5178.00, the May 6 low and 5081.16, 38.2% of the Apr 7 - May 20 bull leg. Initial resistance to watch is 5363.03, the 20-day EMA.
EU-BOND SYNDICATION: 3.375% Oct-39 EU-bond: E5bln WNG: Allocations out
Jun-17 09:53
- Spread set at MS+73bps (guidance was MS + 75bps area)
- HR: 88% vs 4.25% Jul-39 Bund (DE0001135325)
- Tap Size set earlier: E5bln (WNG) (the bottom of the E5-9bln range MNI expected)
- Final books in excess of E93bln (inc E5.9bln JLM interest)
- ISIN: EU000A3LZ0X9 (immediately fungible)
- JLMs: BofA (DM/B&D) / GSBE SE / NatWest / SG / UBS
- Timing: Hedge deadline 11:10BST / 12:10CET. Pricing later today
From market source / MNI colour
