Americas Breakfast Briefing

US OPEN/EVENTS AHEAD

The Japanese 0.6% 2029 JGB auction results overnight were very strong at 0.612% & 4.256 b/c compared to 0.512% & 3.971 b/c prior. Looking ahead, the US sells $58bn 3yr notes this afternoon (4.659% & 2.43 b/c previously). The second half data calendar is limited to US Jun NFIB Small Business Optimism (90.2 f/c from 90.5 predicted). There are a few official central bank speakers on the calendar, including the Fed's Barr & Bowman later but perhaps most importantly, Fed Chair Powell is scheduled for 14.00GMT. Markets are pricing in two interest rate cuts this year with a 70% chance of one occurring in September & players will be disecting Powell's remarks for further policy clues. Turning our attention to the markets, S&P500 added 0.1% to a record high close at 5572.8 & likewise, Nasdaq100 up 0.25% to a new all time best of 20439.5. S&P futures have gained 0.25% to a contract high in EZ activity. Japan's Nikkei spiked as much as 2.2% to hit a record apex at 41683.5. Conversely, WTI futures fell to an 8 day low. Sep24 10yr notes shed 6 ticks at most to 110-13 with a tight 5 tick range so far.

- Flattens from 380 (25/30 April wides) to re-test key support at 318 (27 December 2023/1 February 2024 troughs)

- Deteriorating studies, the 50/200DMA Death Cross and differing directional ratings for US and JGB yield on this week's Sentiment Matrix suggest a sustained downside break

- Below would mark new 14-1/2-month troughs and expose 299 (12 May 2023 low), perhaps 283 (2023 trough - 5 April) on extension

- The 340/346 zone (1 July and 7 June lower peaks) should limit any near-term corrective steepening

EUROPEAN ROUND UP

First half event risk was, to all intents and purposes, non-existent. However, the was some official rhetoric from the ECB's Panetta who affirmed that the ECB can continue to lower interest rates gradually as concerns regarding Services inflation needs to be put in perspective. He added that analysis of data is reducing the worries over rate hikes. Sep24 Bunds & Gilts softened in the region of 1/4pt while trading ranges were extremely tight (sub-1/5pt in Gilts). Sep24 OATs declined around 1/3pt & the German/French 10yr yield spread steepened a fraction from the circa four week tight settlement at 62.7bps yesterday. The German & UK 2-10yr yield spreads are marginally wider on the day. The German differential up to 157.8bps from a six month tight settlement at 156.9bps on Friday. Turning to risky assets, core equity indices are narrowly mixed with the UK FTSE index bucking the slightly softer bias as a big gain for the utilities sector underpins. Front month Brent futures have shed 0.65% to change hands at a one week trough.

- The US/UK 10yr yield spread narrowed from 0.404 (2024 peak - 22 April) to 0.091 (5 June trough), before ranging

- Watch for renewed narrowing amid negative studies, the recent Death Cross (50/200DMAs) and the differing ratings for US and UK yields on this week's Sentiment Matrix

- Below 0.091 exposes 0.055/0.065 (1 December/1 March key troughs), under which confirms broad topping and risks inversion to -0.020 (38.2% retrace of -0.730/0.419 advance)

- The 0.225/0.269 zone (27 June/28 May peaks, near 200DMA) should limit any near-term corrective steepening

MARKET HEADLINES

* ECB's Panetta: rate cuts will 'continue gradually'

* Panetta: analysis of data 'reduces concerns of rate hikes'.

* Panetta: worries over services inflation must be 'put in perspective'

* Core EGB futures trade in narrow ranges

* Bunds & Gilts decline circa 1/4pt

* Sep24 OATs shed 1/3pt

* French/German 10yr spread widens 1.5bps from 4wk tight

* UK/Gernany 10yr yield spread steepens a fraction

* German & UK 2-10yr yield spreads also a shade steeper

* Core equity indices narrowly mixed

* UK FTSE bucks softer bias (Utilities +1.2%)

* Front month Brent futures soften to 1wk low

* UK weak goods versus strong 'having fun' demand on show

DAY AHEAD

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