US Open: Bond yields, equity indices & oil all soften heavily

US OPEN/EVENTS AHEAD

Late Fri, & like Citi, JPMorgan f/c 50bps rate cuts in Sep & Nov. Goldman & Barclays had already added a 3rd 25bps cut to their 2024 f/cs & BofA sees Fed cuts starting in Sep vs Dec prior. Also Fri, Fed Goolsbee said he never wants to over react to one month's numbers but if infl & the job market continue to cool, the Fed should cut. Fed Barkin is a bit more confident on inflation near term & it will take some time for rate cuts to permeate the economy. Goldman lifted its 'limited' US recession risk to 25% giving the Fed room to cut. The BoJ mins saw members say they should raise rates if the Apr outlook was realised & if appropriate, they should not be too late in acting. Goolsee & Daly speak later. USD/JPY fell to 141.70 vs a 2024 low at 140.82. Markets think the Fed is behind the curve, adding to recent stock weakness. Nikkei dumped 12.4% to a 10mth low, S&P futures fell 3.3% & WTI down to a 7mth nadir. O/night, China's Caixin Services PMI rose to 52.1 from 51.2 vs 51.5 f/c, Japan fell to 53.7 from 53.9 & US is seen unch at 56. Sep23 10yr note futures hit a 14.5mth best & 2-10yr spread out to a 25mth wide.

Extends the steep decline via 4.290 (24 July lower high) to post new 13-month lows decisively under 3.781/3.725 (27 Dec/19 Jul 23 lows)
This move suggests broader topping and give negative studies and recent Death Cross (50/200DMAs), watch for initial tests of 3.666 (76.4% retrace of 3.248/5.019 advance)
A downside break would then expose 3.563 (1 June 2023 higher low), under which suggests a return towards 3.248/3.293 (6 April/4 May higher troughs)
We'd need a return above 3.972 (2 August high) then 4.064 (1 August high) to relieve for 4.142/4.153 (17 July former low and 31 July high)

EUROPEAN ROUND UP

There were unsurprisingly, some massive moves in the first half today. The German 2yr yield softened to 2.152% at most this morning which was a low since 20th March 2023 while the UK maturity declined to 3.525%, its softest print 14th April 2023 but both subsequently pared losses. Longer dated yields also fell but 'only' to 6 month (UK 10yr) & 7 month (10yr Bund) troughs. This hefty short dated outperformance steepened the German & UK 2-10yr yield spreads to their widest levels since November 2022. Turning the attention to risky assets, core equity indices weakened heavily, down by as much as 3.2%. FTSE tumbled to levels last seen in late April, CAC saw its softest print in 9mths & DAX at a low since 21st February. Similarly, Front month Brent futures slumped to $75.05brl vs $74.79brl on the 3rd January. Event risk was comparatively light, Italian Jul Services PMI moderated, French final Jul print declined but Germany improved leaving the pan-EC print unchanged. UK Jul final Services PMI nudged a fraction higher while EC Jun PPI climbed to 0.5% m/m from -0.2% as predicted.

Surged on completing a 3-1/2 month base over 95.095 (29/30 May lows) and extended through 95.700 (21 March lower high) to test 95.825 (3-1/2 month base target)
New 6-month highs are being posted and firming studies/moving averages (note the '75% bullish' rating on this week's Sentiment Matrix) suggest continued gains
A clearance of 95.825 opens 95.905 (61.8% retrace of 96.405/95.095 fall) and potentially 96.040 (31 January/1 February lower high)
The recent upside acceleration heightens chances of a corrective pullback, but any such move should hold well above 95.460 (16 May high/recent base trigger)

MARKET HEADLINES

German & UK 2yr yields fell to lows since Mar & Apr 2023
German & UK 10yr yields down to 6-7 month lows
Short end outperformance steepens yield curves
German & UK 2-10yr spreads out to wides since Nov 2022
Risky assets were hammered hard
Core equity indices shed as much as 3.2%
FTSE fell to a nadir since April
DAX & CAC down to 5.5 & 9 month troughs respectively
Brent futures slumped to a 7 month base
Italian Jul Services PMI down to 51.7 vs unchanged 53.7 f/c
French Jul final Services PMI 50.1 vs unchanged 50.7 f/c
German Jul final Services PMI 52.5 vs steady 52 predicted
EC Jul final Services PMI unmoved at 51.9 as expected
UK Jul final Services PMI 52.5 vs unchnaged 52.4 f/c
EC Jun PPI up to 0.5% from 0.2% as anticipated

---- Subscribe to read more ----

To receive this analysis plus much more, subscribe to IGM. Request your free trial of the service today.

Request free trial