US TSY OPTIONS: Large Dec'26 10Y Call Sale

• Stocks are mixed late Wednesday, scaling off decent gains after midday - trading desks citing near 5% drop in Bitcoin and renewed selling in chip stocks for second half retreat.
• Risk sentiment had improved earlier after after Pres Trump vowed Iran would not charge tolls for the Strait of Hormuz passage.
• In the meantime, crude prices fell (WTI -3.28 at $69.93/bbl) to the lowest levels since the start of the war, Treasury yields retreated (10Y -.0929 at 4.4040%), and projected rate hike pricing consolidated (October still pricing in 25bp rate hike, however).
• The DJIA outperformed, .35% after nearly cresting Wednesday's record high (appr 52,281), while SPX emini (-0.31%) and Nasdaq (-.7%).
• Consumer Durables & Apparel sector shares led gains at midday: Expedia Group, PulteGroup, Booking Holdings and DR Horton gaining 7.5% to 9.5%.
• The drop in crude prices weighed on oil and gas stocks, the following trading -2.5-3.5%:  APA Corp, ConocoPhillips, Chevron Corp, Diamondback Energy, Exxon Mobil Corp and Occidental Petroleum Corp.

• RES 4: 0.7223 High May 15
• RES 3: 0.7149/7201 High Jun 4 / High May 29
• RES 2: 0.7088 High Jun 15 and a key short-term resistance
• RES 1: 0.7055 20-day EMA
• PRICE: 0.6901 @ 17:31 BST Jun 24
• SUP 1: 0.6899/84 Bull channel base from Apr ‘25 low / Low Jun 24
• SUP 2: 0.6860 Low Apr 2 
• SUP 3: 0.6833 Low Mar 30 and a key support
• SUP 4: 0.6757 38.2% retracement of the Apr 9 ‘25 - May 6 bull cyle

A short-term bear cycle in AUDUSD remains in play and this week’s extension reinforces the current trend condition. Price has arrived at a key support at 0.6899, the Apr 7 low and the base of a bull channel drawn from Apr ‘25 low. The support has been pierced, a clear channel breakout would strengthen the bear theme and open 0.6833, the Mar 30 low and a key support. Key S/T resistance has been defined at 0.7088, the Jun 15 high.    

Thursday’s PCE report for May should take precedence over the third release for Q1 national accounts published at the same time. 

• Core PCE inflation is likely to have accelerated to a particularly firm reading in the mid-0.30s% M/M in May after 0.24% M/M in April. Four latest estimates seen since the import prices release are in a range of 0.31-0.38% M/M, three of which were unrevised or only lifted by 1bp, whilst another three are in a narrow range of 0.35-0.36% M/M. (Bloomberg consensus is for 0.3% M/M).
• A 0.35% M/M increase with no revisions would see core inflation accelerate a tenth to 3.4% Y/Y. We judge there to be rough consensus that core Y/Y inflation could peak in May or June but then only slowly moderate. Indeed, the median FOMC forecast has just seen a marked upward revision from 2.7% to 3.3% for 4Q26.
• That said, PPI revisions in the latest report suggested that January core PCE (0.43% M/M) could be revised up by around 3bp, with March (0.30%) and April (0.24%) down 0-1bp apiece.
• The income/spending portion of the PCE report will also be watched closely for a broader look at consumption strength. Real personal spending is seen a little stronger in May (0.2% M/M) vs April's 0.1%, with nominal personal income picking up to 0.4% from 0.0% prior.
• May's retail sales report was more solid than expected, though not particularly strong in the context of higher prices boosting nominal figures. Solidity in core nominal metrics though, particularly the control group, maintained the narrative of US consumer resilience in the face of soaring gasoline prices in Q2.
• The Atlanta Fed's GDPNow estimate for real PCE rose to 2.7% Q/Q SAAR in Q2 from 2.4% after the May retail sales release; it printed 1.4% in Q1 and 1.9% in Q4.
• PCE goods were tracking negative in real terms on a quarterly (3M/3M annualized) basis through April and a rough estimate of CPI-deflated series suggests a further drag here in volume terms despite 9+% 3M/3M annualized gains in control group. That of course doesn't mean PCE won't print solidly positive in Q2, given that services consumption is the major driver, but goods look to remain a soft spot.
• It’s worth watching the household savings rate, which in April fell to 2.6% for its lowest since the 2.2% nadir in Jun 2022 (albeit prone to large revisions).
• Indeed, income growth remains a concern for the sustainability of consumption. Recall in April, employee compensation continued to rise at a decent rate in nominal terms (0.2% after 0.3%) but overall income growth was flat (due to a decrease in farm proprietors' income) vs 0.5% prior. And with the tax take picking up again, disposable income fell for the 2nd month in 3 (-0.1% after +0.5%). This left real disposable income down 0.5% M/M, the 3rd consecutive fall (and unrounded, the biggest since May 2025) and now contracting 1.1% Y/Y and 1.4% 3M/3M annualized.