MNI US MARKETS ANALYSIS - Eyes on Sintra for CB Policy Panel

US TSYS: Modestly Richer Pre Powell, Note Issuance and Bank Stress Test Results

• Cash Tsys are modestly richer on the day in moves that started in European hours after narrow ranges through the Asia session, with Tsys slightly underperforming core EU FI.
• It sees benchmark yields between -2-2.5bps on the day, led by the belly, in a move that only chips away at yesterday’s sell-off after stronger than expected US data. Powell’s Sintra appearance at 0930ET headlines the docket but 7Y supply and (late on) the Fed’s annual stress test results are also of interest.
• TYU3 trades 5 ticks higher at 112-31+ on subdued volumes of 215k and within yesterday’s range. The bear trigger remains exposed at 112-12+ (Jun 14 low) after which lies 112-00 (Mar 10 low), whilst to the upside sits 113-18 (Jun 15 high).
• Data: MBA weekly mortgage data (0700ET), Retail and wholesale inventories May/May P (0830ET), Advance goods trade bal May (0830ET)
• Fed: Powell Sintra panel (0930ET), Fed Board annual bank stress tests results (1630ET)
• Note/bond issuance: US Tsy $22B 2Y FRN Note auction (91282CGY1) – 1130ET, US Tsy $35B 7Y Note auction (91282CHJ3) – 1300ET
• Bill issuance: US Tsy $46B 17W Bill sale – 1130ET

STIR FUTURES: Marginally Lower FOMC Implied Rates With Powell Eyed

• FOMC-dated OIS rates remain little changed for July & Sep meetings, as was the case on balance yesterday despite stronger US consumer confidence and new home sales, whilst subsequent meetings soften slightly but hold most of yesterday’s gains.
• The terminal sees one full cumulative hike priced for November with most of this move held onto for Dec and not fully reversed in Jan either.
• Cumulative changes from 5.08% effective: +18bp Jul (unch), +22.5bp Sep (-0.5bp), +27bp Nov (-0.5bp), +21.5bp Dec (-1.5bp) and +8.5bp Jan (-2bp).
• Powell speaks in a panel discussion at 0930ET from the ECB’s Sintra forum.

ECB: Vujcic Comments Likely Confirm Sideline Balance Sheet Discussions at ECB

Worth noting this particular comment from ECB's Vujcic at Sintra on the ECB balance sheet:

• "There might be further decisions [on halting APP reinvestments] but at the moment I think this is what we will do” and “we might reconsider [PEPP]"
• Follows a report from BBG earlier today citing unnamed officials that were considering the acceleration of the unwind of the balance sheet, with options including active sales or phasing the out of reinvestment of PEPP bonds.
• In May, the ECB confirmed that PEPP reinvestments are set to continue through to end-2024, and the bank were "determined" to use rates as the main tool while QT runs in the background. Recent rhetoric from ECB speakers suggest a more activist approach on the balance sheet could be considered as the bank nears the peak rate - although the BBG report states that "no formal discussion has taken place and no decision is imminent".
• ECB's Holzmann, in an interview with MNI in April, told us "[PEPP] is currently used as a kind of a buffer towards difference in spreads. It’s proved a useful instrument, but you cannot keep this system forever."

EUROPE ISSUANCE UPDATE

Gilt auction result

• It was a decent gilt auction of the 15-year 3.75% Jan-38 gilt with the average price higher than any point traded on the secondary market ahead of the auction (although note that gilts had generally been ticking higher through the session anyway).
• The tail of 0.3bp was tighter than seen in the March auction when 0.4bp was seen. The bid-to-cover was marginally lower at 2.26x rather than 2.41x, but this also partly reflected the larger size of today's auction (GBP2.75bln nominal vs GBP2.50bln previously).
• GBP2.75bln of the 3.75% Jan-38 Gilt. Avg yield 4.463% (bid-to-cover 2.26x, tail 0.3bp).

Italy syndicated exchange update

• New Oct-31 CCTeu to be sold with final spread Euribor + 114bp and books in excess of E13.8bln. MEF is looking to buyback 2.45% Oct-23 BTP, 0.65% Oct-23 BTP, 0.25% Nov-23 BTP Italia, Dec-23 CCTeu (ISIN: IT0005399230) and Apr-25 CCTeu.

Portugal exchange auction results

• IGCP sells E315mln of the 1.65% Jul-32 OT and E560mln of the 1.00% Apr-52 OT.
• IGCP buys E191mln of the 2.875% Oct-25 OT, E164mln of the 2.875% Jul-26 OT and E520mln of the 4.125% Apr-27 OT.

FOREX: Softer AUD CPI Drives Antipodean FX Lower

• AUD, NZD are among the session's poorest performers after a lower-than-expected CPI print from Australia. Headline CPI slowed unexpectedly to 5.6% vs. Exp. 6.1% - the lowest reading in just over a year. In response, traders marked down AUD/USD from ~0.6690 to ~0.6619 before stabilising through the European morning.
• JPY trades firmer, partially reversing the recent spell of weakness as Japan's top currency official Kanda again stressed the authorities' commitment to containing "excessive" FX volatility ahead. USD/JPY printed a new cycle high at 144.25 during overnight hours, but the price action has since reversed headed into the NY open. Spot continues to oscillate either side of the Y144.00 handle.
• Lastly, energy prices trade on the front foot, helping aide NOK toward the top-end of the G10 pile. A better-than-expected retail sales release has also helped, with May sales including auto fuel rising by 1.2% M/M vs. Exp. 0.2%. EUR/NOK reversed off a weekly high of 11.8537 in response.
• Focus ahead turns to US advance trade balance numbers as well as the rest of the ECB's Sintra policy conference - the main event today being a joint policy panel held between the heads of the ECB, Fed, BoE and BoJ at 1430BST/0930ET.

Expiries for Jun28 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0800-15(E916mln), $1.0845-50(E1.3bln), $1.0900-10(E3.0bln), $1.0970-75(E999mln), $1.0999-00(E1.4bln)
• USD/JPY: Y139.00($1.1bln)
• GBP/USD: $1.2650-65(Gbp1.2bln)
• AUD/USD: $0.6550(A$1bln), $0.6650(A$790mln)
• USD/CNY: Cny7.1500($1.4bln), Cny7.2000($512mln), Cny7.2100($544mln), Cny7.2200($553mln)

EQUITIES: E-Mini S&Ps Slightly Softer Wednesday; Hold Onto Majority of Tuesday's Gains

• The Eurostoxx 50 futures uptrend remains intact and the pair has recovered from Monday’s low. A bearish cycle since Jun 16 resulted in a correction. The contract breached support at 4301.00, the Jun 8 low. This level represented a key short-term support and an extension lower would expose 4241.00, the May 31 low and an important medium-term support point. Key resistance and the bull trigger has been defined at 4438.00, the Jun 16 high.
• A bull theme in S&P E-minis remains intact and the recent pullback appears to be a correction. The latest move lower has allowed a recent overbought condition to unwind. Initial key support lies at the 20-day EMA, at 4365.83. A break of this average would strengthen a short-term bearish theme and signal scope for a deeper pullback. On the upside, the bull trigger is 4493.75, the Jun 16 high. A break would open 4512.24 the top of a bull channel.

COMMODITIES: Gold Approaches Retracement Support at $1903

• WTI futures remain in a bear mode condition and the sharp sell-off late last week reinforces this condition. Support at $67.21, the May 31 low, has recently been pierced, a clear break would open $64.41, the May 4 low. Moving average studies are in a bear mode position highlighting a downtrend. The contract is trading below resistance at $75.70, the Jun 5 high. A break of this level would signal a reversal.
• Trend conditions in Gold are unchanged and the outlook remains bearish following last week’s move lower. Trendline support has been breached - the line is drawn from the Nov 3 2022 low and the break reinforces a bearish condition. The focus is on $1903.5, 61.8% of the Feb 28 - May 4 bull cycle. Key resistance is $1985.3, the May 24 high. Initial resistance is at $1943.2, the 20-day EMA.