US Open: FOMC decision in the spotlight

US OPEN/EVENTS AHEAD

The BoJ hiked target rate by 0.15% to 0.25% & said it would reduce the pace of monthly bond buying to Y3tln in Q1 2026. BoJ's Ueda sees inflation goal being reached in the latter half of their outlook, FX moves are more likely to affect inflation than prev & it was appropriate to reduce bond buying 'predictably'. He added real rates will stay 'significantly low' & they will adjust the bond plan 'if needed' while another rate hike before year end is data dependent & 0.5% is not considered a 'particular rate limit'. USD/JPY traded at 150.07 (low since 19th Mar) & the 10yr JGB yield hit a 6 day high at 1.083%. Today sees the US FOMC decision (no change f/c). Overnight, Japanese retail sales fell to 0.6% m/m from 1.6% vs 0.2% f/c, IP down to -3.6% from 3.6% vs -4.5% f/c & consumer confidence up to 36.7 vs 36.6 f/c. Chinese Jul Mfg PMI eased to 49.4 as f/c & Non-Mfg PMI to 50.2 vs 50.3 f/c. US ADP Employment is seen unmoved at 150k, Chicago PMI seen at 45 from 47.4 & Jun Pending Home Sales f/c at 1.4% vs -2.1% prior. Sep24 10yr futures matched Tues' 4.5mth 111-21 high & S&P futures added 1%.

• Extends the fall from 4.735 (25 April YTD high) through 4.142 (17 July, four-month low, near 61.8% retrace of 3.781/4.735 at 4.146)
• Negative studies and the latest Death Cross (50/200DMAs) suggest risk to 4.034 (8 March higher low), which guards 4.007 (76.4% retrace of 3.781/4.735 rally)
• 4.290/4.327 (24/9 July highs) should cap any short-term gains

EUROPEAN ROUND UP

The 10yr Gilt yield dipped to 3.994%, a low since the 4th April with 3.92% next big bull target (50% Fibo) & the German 10yr yield softened to 2.307% which is the weakest print since the 28th March. Note, the 50% Fibonacci retacement level of the retrace of the Dec 2023-May 2024 bear move stands at 2.30%. The German 2-10yr yield spread steepened to -20.8bps vs a long term target at -19.1bps from Oct 2023. There was fairly chunky first half data slate for investors to navigate. French inflation outturns firmed from prior but were not as strong as expected, EC Jul CPI Estimate rose to 2.6% vs an unchanged 2.5% predicted while the Core print was steady at 2.9% & missed the 2.8% predicted. Italian Jul preliminary CPI jumped to 1.7% y/y from 0.9% & exceeded the 1.2% expected. Turning to suply, Germany sold EUR 3bn 2.4% 2030 bonds at an average yield of 2.25% with 2.2 bid to cover ratio compared to 2.55% & 2.6 b/c last time out. Looking at risk, FTSE rallied to a 10wk high, CAC & DAX to 8 day peaks while front month Brent futures added as much as 2.5%.

• Resumes the decline from 4.403 (29 May peak) via 4.182 (26 July lower high) to post new four-month lows towards 3.978 (4 April low)
• Negative studies suggest downside risk to 3.888-3.919 (12/22 March lows and 50% retrace of 3.434/4.403 advance)
• Any near-term corrective gains should stall under the 4.182 lower high

MARKET HEADLINES

• German Jun Import Prices up to 0.4% m/m from 0% vs 0.1% f/c
• French Jul Prelim CPI up to 2.3% m/m from 2.2% vs 2.4% f/c
• French Jul prelim EUH CPI 2.6% from 2.5% vs 2.8% expected
• French Jun PPI up to -0.3% m/m from -1.6% prior
• EC Jul CPI Estimate up to 2.6% y/y vs steady 2.5% predicted
• EC Jul prelim Core CPI unch at 2.9% vs 2.8% anticipated
• Italian Jul prelim EUH CPI up to 1.7% y/y from 0.9% vs 1.2% f/c
• Germany sold EUR 3bn 2.4% 2030 bonds at 2.25% & 2.2 b/c
• ....vs 2.55% & 2.6 b/c previously
• German & UK 10yr yields softened to circa 4mth lows
• German 2-10yr yield spread steeened to a 9 month wide
• UK FTSE index rallied to a 10 week high
• Brent futures advance 2.6% but still in circa 4wk bear trend
• French inflation rises due to energy, but services CPI drops

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