US EURODLR FUTURES: Post-LIBOR Settle Update: Moderating
Jul-29 11:46
Lead quarterly EDU2 trades steady to +0.005 at 96.715 after latest 3M LIBOR set' rebounds +0.00600 to 2.78829% (+0.02200/wk). Moderating, the 3M benchmark had gapped lower Thu - off Wed's highest level since Dec 31, 2018 (in turn - near highest level since late 2008) after the FOMC delivered a second consecutive 75bp hike while scaling back hawkish forward guidance for Sep.
- Short end rates continued to gain after Thu's GDP contracted by 0.9% in the second quarter, far below analyst expectations for a 0.4% gain -- futures pricing of next FOMC in Sep more in favor of 50bp as balance of Whites (EDZ2-EDM3) trades steady, Reds (EDU3-EDM4) +0.005-0.020, Greens (EDU4-EDM5) steady to +/-0.010, Blues through Golds (EDU5-EDM7 -0.015-0.030 with Blues underperforming.
- Front end inversion extends: Dec'22/Mar'23 at -0.195 vs. -0.160 early Thu. Most inverted calendar spds: EDZ2/EDZ3 at -0.735, EDH3/EDH4 at -0.670. Inversion starts to flatten out in Green Jun'25 vs. Blue Sep trading +0.010.
- Much better downside put volume reported Thursday as underlying futures rallied in response to U.S. GDP contracting 0.9% in the second quarter, far below analyst expectations for a 0.4% gain. Underlying futures rallied as more aggressive rate hike expectations evaporated, 50bp hike more likely at the next Fed policy meeting in Sep than 75bp.
- Eurodollar and SOFR option volumes were light (Block sale of 20,000 Sep 96.50/96.62 put spds at 3.5; -20,000 SFRM3 95.75/95.87 put spds, 2.0 vs. 96.995/0.05%) compared to Treasury options where 10Y put unwinds and repositioning trades noted (-30,000 TYU 115/116 put spds at 1; Block 10,000 TYU2 118.5/120 put spds, 26 vs. 120-27.5/0.18%).
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ECB: BBG Sources See ECB PEPP Tool Not Having Targets, Thresholds For Now
Jun-29 11:45
- Bloomberg run a sources-based report, stating that "ECB policymakers are allowing ample leeway for the deployment of their bond-buying firepower as a first defense rather than imposing targets or thresholds"
- Follows this morning's Reuters exclusive and looks pretty inline with their report: "Policymakers universally agree that they should exercise judgment on when to intervene and in which markets, rather than setting numerical goals"
- The outstanding element of the programme now is it's size, on which Reuters portrayed policymakers as wholly undecided on the issue: "The pros of announcing a large envelope would include to put investors' minds at rest about the ECB's commitment to fight what it calls financial fragmentation in the euro zone, the sources said. It would also put the ECB on the safe side in the likely event it is accused before the courts of bankrolling governments because it would show its intervention is contingent and does not equate to a blank cheque for states, they added. However, this option could backfire if the number is seen as too small by bond traders, the sources noted. "
ITALY: 5-Star Movement's Popularity Slumps After Di Maio Defection
Jun-29 11:29
Opinion polling shows support for the populist 5-Star Movement (M5S) hitting a multi-year low with pollster Noto following the defection of Foreign Minister Luigi Di Maio to set up a new centrist party.
- Noto poll: Brothers of Italy (FdI): 22% (-0.5), Democratic Party (PD): 21% (+2), Lega: 14% (-1), M5S: 10% (-1.5), Forza Italia (FI): 8%, Action/More Europe (A/+E): 5.5%, Italia Viva (IV): 3.5%, Together for the Future (IpF): 3% (new), Italexit: 2.5% +/- vs. 12 June 2022, Fieldwork: 27 Jun. Sample size: 1,000
- The right-wing populist Lega of former Deputy PM Matteo Salvini records support of 14%, a multi-year low for the party, while the centre-left PD records its highest level of support in a Noto poll since 2020 with 21%.
- Ahead of the next general election, likely in June 2023, the M5S will have to decide whether to contest the election as a separate entity.
- Alternatively it could do as some leftist observers are suggesting and fight in coalition with the PD in an effort to deny the centre-right coalition of the Brothers of Italy, Lega, and Forza Italia a majority (as polls currently suggest they will).
GBP: Remains under pressure
Jun-29 11:20
- The Pound continues to head lower, at session low against the EUR and the USD.
- Next support in Cable is at 1.2108.
- EURGBP will see resistance at the 0.8700 figure, followed by 0.8721 High May 26 2021 and Jun 15 / bull trigger.
