BRAZIL: Lula Reiterates Willingness To Negotiate With US

• Fed Funds implied rates consolidate yesterday’s belated shift higher on signs of increased tariff passthrough in the June CPI report.
• Cumulative cuts from 4.33% effective: 0.5bp Jul, 14.5bp Sep, 26.5bp Oct, 44bp Dec, 53.5bp Jan and 66.5bp Mar. The 44bp of cuts through to year end compares with 67bp prior to payrolls less than two weeks ago.
• The SOFR implied terminal yield of 3.28% (SFRZ6) is 1bp lower on the day after its highest close since Jun 16.
• A typically hawkish Logan (’26 voter) said late yesterday that the base case calls for continued restrictive policy having been disappointed before after streaks of low inflation. She doesn’t think the tariff impact will be clear until at least the fall although it’s also possible a softer labor market could require cuts soon.
• Today’s macro focus is likely on the June PPI report – both the core PCE readthrough and broader input costs – along with further Fedspeak before the Beige Book (1400ET as usual) offers another useful update on regional Fed network monitoring.
• Aside from the Beige Book, NY Fed Williams (voter) at 1830ET is likely the pick for Fedspeak, talking on the economic outlook and policy with both prepared text and Q&A. It could be an important update from a senior Fed official who last spoke Jun 24, saying it’s appropriate to maintain the current policy stance whilst there are signs that inflation is affecting some categories of goods. He viewed the economy as remaining in a good place. 

• RES 4: 112-15   61.8% retracement of the Apr 7 - 11 sell-off
• RES 3: 112-12+ High Jul 1 and a bull trigger
• RES 2: 111-13+/111-28 High Jul 10 / High Jul 3 
• RES 1: 111-01   20-day EMA  
• PRICE:‌‌ 110-12+@ 11:17 BST Jul 16
• SUP 1: 110-08+ Low Jul 14        
• SUP 2: 110-03   76.4% retracement of the May 22 - Jul 1 bull leg
• SUP 3: 109-28   Low Jun 6 and 11
• SUP 4: 109.25   Low May 27

Treasury futures traded lower yesterday. The contract has breached an important support at 110-17, 61.8% of the May 22 - Jul 1 bull leg. Note that price has also traded through a trendline support at 110-23+. The line is drawn from the May 22 low. This strengthens a bearish theme and a continuation would open 110-03, the 76.4% retracement. Resistance to watch is 111-13+, Jul 10 high. Initial resistance is at 111-01, the 20-day EMA.

OI data points to a modest bias towards net short setting on Tuesday, as contracts sold off in the wake of the CPI data.

• The biggest net positioning swing came via short setting in TY futures, although the presence of net long cover across most of the rest of the curve (modest net short setting in TU futures being the exception) made for little net change in exposure in curve-wide DV01 terms.