Americas Breakfast Briefing

US OPEN/EVENTS AHEAD

Goldman Sachs said yesterday that the Fed has a 'solid rationale' for an interest rate cut in July. Fed Chair Powell affirmed they have made more progress on inflation in Q2, that the last three readings are a 'pretty good' pace & have added to confidence. ECB's Villeroy & the Fed's Kugler speak today. Former President Trump has picked Ohio Senator JD Vance has his running mate for the presidency. In the markets, the DJIA & S&P500 hit more record highs on Monday but S&P futures are down 0.1% in EZ flows. The US 2yr yield is down to 4.4151% & pierced the 4.4154% circa 4mth low seen yesterday & the 2-10yr yield spread at -24.0bps compared to a 5.5mth wide at -22.8bps yesterday (2024 high at -16.1bps). Sep24 10yr note futures hit 111-10+ (+11 ticks on the day) & matched the circa 4mth high made on the 11th July. The second half data slate sees US Jun Retail Sales (-0.3% predicted from 0.1%), Import Price Index (-0.2% f/c, up from -0.4% prior) while Export Prices are predicted to firm to -0.1%% from -0.6%. Note, Business Inventories (0.5% f/c) & NAHB Housing Market Index (43 f/c) also due.

- The US 5/30yr spread steepened from 1.4 (7 June low, also 12-month rising channel base) to post new 5-1/2 month highs over 28.2 (7 February high)

- Studies strengthen (note the '88% higher' rating on this week's Sentiment Matrix) suggest a return to test 38.2 (2024 peak - 16 January)

- A clearance would mark new 14-month highs and suggest a return to key resistance at 48.8 (2023 peak - 4 May), beyond which signals far broader basing

- The 16.8/21.6 zone (3/11 July lows) should limit any near-term dips and only below delays and suggests extended consolidation over 9.2 (18/26 June troughs)

EUROPEAN ROUND UP

There were a few impulses for players to navigate in the first half. Italian Jun final EU Harmonised CPI was unchanged at 0.9% y/y as expected. German Jul ZEW Survey data was mixed, Expectations softened heavily to 41.8 from 47.5 but beat the 41.0 f/c but Current Situation improved to -68.9 from -73.8 vs -74.8 predicted. EC Jul ZEW Expectations slumped to 43.7 from 51.3 & May Trade Balance was EUR 12.3bn from 18.5bn vs 18.1bn anticipated. Turning to supply, the UK sold GBP 2.5bn 4.75% 2043 Gilts at an average yield of 4.519% & 3.29 b/c vs 4.58% & 3.67 b/c prior & Germany sold EUR 4bn 2.5% 2029 Bobl at 2.39% & 2.01 b/c ratio vs 2.45% & 2.1 b/c previously. The ECB said that EZ loan demand rose for the first time since 2022. Market participants have fully priced in two quarter point BoE interest rate cuts this year. The Dec24/Dec25 Sonia futures spread has flattened 4.5 ticks to -84.0bps to match the all time tight settlement (6th July 2023) but is a fraction above the -85.5bps contract low. The UK 2-10yr yield spread has steepened to a 2 week wide while the FTSE index hit a 1wk nadir.

- The UK 2/10yr spread accelerated broad steepening to 8.3 (1 July, 15-month high), before easing to range over -3.8 (8 July trough, near 11 June former high at -5.5)

- Studies are generally constructive (note the 88% higher rating on this week's Sentiment Matrix) and we await a return to 8.3, which guards the 11.4-14.8 zone

- This consists of 5 April 2023 peak at 11.4, 20 March 2023 high at 13.8 and equality of the -97.0 to -17.1 steepening projected up from -65.1

- Beyond would then re-open the 2023 peak at 20.5 (posted 2 March)

- Only a return below the -3.8/-5.5 zone would delay, but follow-through flattening should hold over -16.2 (26 May higher trough)

MARKET HEADLINES

* Italian Jun final EU Harmonised CPI was unchanged at 0.9% y/y as expected

* German Jul ZEW Survey data mixed, Expectations fell to 41.8 from 47.5 vs 41.0 f/c

* German ZEW Current Situation improved to -68.9 from -73.8 vs -74.8 predicted

* EC Jul ZEW Expectations slumped to 43.7 from 51.3

* EC May Trade Balance was EUR 12.3bn from 18.5bn vs 18.1bn anticipated

* UK sold GBP 2.5bn 4.75% 2043 Gilts at 4.519% & 3.29 b/c vs 4.58% & 3.67 b/c prior

* Germany sold EUR 4bn 2.5% 2029 Bobl at 2.39% & 2.01 b/c vs 2.45% & 2.1 b/c prev

* ECB said EZ loan demand rose for the first time since 2022

* Markets have fully price in two 2024 quarter point BoE interest rate cuts

* Core EGB futures advance to 3 week highs

* UK 2-10yr yield spread steepens to 2 week wide

* FTSE declines to 1wk low

* Brent futures traded $84.05brl vs 4wk low at $84.00brl

* ECB Q2 BLS: Household lending up, outlook for corporate loans turns positive

DAY AHEAD

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