AUSSIE BONDS: The Wait Is Over, Q2 CPI Tomorrow Followed By FOMC
ACGBs (YM +1.5 & XM +1.0) are slightly stronger after a subdued data-light session.
- The focus of this week will be tomorrow's Q2 CPI data, which is expected to show the underlying trimmed mean measure making further progress towards the band midpoint of 2.5%. Bloomberg consensus is forecasting a 0.7% q/q rise, bringing the annual rate to 2.7% after 0.7% & 2.9% in Q1. This is slightly higher than the RBA's May Q2 forecast of 2.6%. Services developments will also be monitored. The RBA is expected to cut rates 25bp on August 12.
- Cash US tsys are ~1bp richer in today's Asia-Pac session after yesterday's modest sell-off. Wednesday's FOMC announcement is widely expected to be a steady rate outcome. It’s virtually unanimous that there will be two dissents in favour of a cut at this meeting, with Gov Waller widely expected to do so and Gov Bowman also likely (among analysts who expressed an opinion on this).
- Cash ACGBs are 1-2bps richer with the AU-US 10-year yield differential at -8bps.
- The bills strip is slightly stronger, with pricing flat to +2.
- RBA-dated OIS pricing is softer across meetings today. A 25bp rate cut in August is given an 89% probability, with a cumulative 59bps of easing priced by year-end.
- The AOFM plans to sell A$1200mn of the 2.75% 21 June 2035 bond on Friday.
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US FISCAL: Available "Extraordinary" Measures To Ward Off X-Date Pick Up
Treasury reported Friday that as of Jun 25 it had $130B in remaining "extraordinary" measures (of a total $378B available) to ward off an "x-date" of running out of resources before defaulting. That's the highest in 2 weeks.
- Combined with $334B cash as of Jun 25 (after a bit of a buildup after the mid-June tax deadline), that's a total of roughly $465B in total resources available.
- We noted earlier this week that Treasury told Congress that it was required to extend its debt issuance suspension period from Jun 27 to Jul 24, in effect prolonging the use of extraordinary measures while we await a resolution to the debt limit impasse, probably through the fiscal legislation currently going through Congress.
- Realistically, fiscal dynamics so far this year point to potential for Treasury to get into September without running out of cash + extraordinary measures. That seems to be the broad market expectation.
US DATA: Cleveland, Dallas Fed PCE Medians Show Progress But Still Above-Target
The Cleveland and Dallas Fed's median PCE metrics showed a notable drop in May. All indices suggest PCE inflation running above 2%, and higher than the actual core and headline PCE measures, but pressures appear to have cooled from a pickup in the early months of the year.
- The Cleveland Fed's median PCE measure came in at 0.22% M/M, a 10-month low after April's 15-month high 0.31%. This left median PCE at 3.01% on a Y/Y basis, down from 3.06% prior for a the joint-lowest (with Feb) since September 2021.
- The Dallas Fed's annualized median rate fell to 2.01%, from 2.65% prior for a 10-month low. The 6-month annualized rate edged lower to 2.74% (2.76% prior), a 4-month low, with the Y/Y rate ticking down to 2.55% from 2.56%, echoing the Cleveland Fed for the lowest reading since September 2021.
USDCAD TECHS: Pivot Resistance Remains Intact
- RES 4: 1.4111 High Apr 4
- RES 3: 1.4016 High May 12 and 13 and a key resistance
- RES 2: 1.3920 High May 21
- RES 1: 1.2710/3803 20- and 50-day EMA values
- PRICE: 1.3658 @ 16:23 BST Jun 27
- SUP 1: 1.3618 Low Jun 26
- SUP 2: 1.3540 Low Jun 16 and the bear trigger
- SUP 3: 1.3503 1.618 proj of the Feb 3 - 14 - Mar 4 price swing
- SUP 4: 1.3473 Low Oct 2 2024
USDCAD has pulled back from its recent highs. The primary downtrend remains intact and short-term gains appear to have been corrective. Key support and the bear trigger has been defined at 1.3540, the Jun 16 low. Clearance of this price point would resume the downtrend. Any reversal higher would instead signal scope for a stronger retracement. Pivot resistance to monitor is at the 50-day EMA, at 1.3803.
