MNI ASIA MARKETS ANALYSIS: Yld Curve Bull Steepen for a Change

US TSYS: March Inflation CPI Measure Less Than Feared

Tsy futures gradually extended early session highs after weaker than exp March CPI, MoM 1.2% in-line w/est., 8.5% YoY edges past 8.4% est. Core YoY 6.5% slightly weaker than est, used car prices cited.

• Support ebbed back to midmorning levels after $34B 10Y note auction re-open (91282CDY4) tailed again: 2.720% high yield vs. 2.690% WI; 2.43x bid-to-cover off last month's 2.47x.
• Yield curves bull steepened vs bear steepening for a change - underpinned by another (Mon's Bloocked print of 2s vs. 5s and ultra-bond) massive steepener package Block at 1344:06ET
  • +41,733 TUM2 105-28 buy through 105-26.5 post-time offer vs.
  • -3,000 USM2 142-21, sell through 142-26 post-time bid
  • -3,189 WNM2 165-00, sell through 165-08 post-time bid
• Stocks trade weaker after the FI close, reversing off midday highs after London close while some traders attribute late sell interest to headlines that US has credible intel Russia proposes use of chemical weapons in Ukraine.
• Markets have been taking geopol headline risk with more than a grain of salt of late. Weakness may be more attributed to start of earnings cycle with slew of banks (trading weaker) reporting: JP Morgan and BlackRock due Wed, before Citigroup, Goldman Sachs, Morgan Stanley and Wells Fargo follow.
• Data on tap for Wednesday at 0830ET:
  • PPI Final Demand MoM (0.8%, 1.1%); YoY (10.0%, 10.6%)
  • PPI Ex Food and Energy MoM (0.2%, 0.5%); YoY (8.4%, 8.4%)
  • PPI Ex Food, Energy, Trade MoM (0.2%, 0.5%); YoY (6.6%, 6.6%)
  • Last leg of the week's Tsy supply: US Tsy $20B 30Y Bond auction re-open (912810TD0) at 1300ET.

SHORT TERM RATES

US DOLLAR LIBOR: Latest settlements:

• O/N -0.00171 at 0.32586% (-0.00171/wk)
• 1 Month +0.01057 to 0.52457% (+0.01057/wk)
• 3 Month +0.01700 to 1.03843% (+0.02772/wk) ** Record Low 0.11413% on 9/12/21
• 6 Month +0.01300 to 1.55343% (+0.01300/wk)
• 1 Year +0.00886 to 2.28043% (+0.00886/wk)

STIR: FRBNY EFFR for prior session:

• Daily Effective Fed Funds Rate: 0.33% volume: $80B
• Daily Overnight Bank Funding Rate: 0.32% volume: $266B

US TSYS: Repo Reference Rates

• Secured Overnight Financing Rate (SOFR): 0.30%, $886B
• Broad General Collateral Rate (BGCR): 0.30%, $336B
• Tri-Party General Collateral Rate (TGCR): 0.30%, $327B
• (rate, volume levels reflect prior session)

FED Reverse Repo Operation

NY Fed reverse repo usage recedes to 1,710.414B w/ 85 counterparties from prior session 1,758.958B. Compares to all-time high of $1,904.582B on Friday, December 31.

EURODOLLAR/SOFR/TREASURY OPTIONS SUMMARY

• Traders reported modest put flow in the lead-up to CPI: a Block of5,000 May 98.31 puts, 7.0 ref 98.31, 7,000 short Apr 96.75/96.87 put spds, and 4,000 Green Jul 96.25/96.62 put spds vs. Gold Jul 96.50/96.87 put spds on screen.
• Better Treasury volumes via Blocks in 5s and 10s: +20,000 TYK 119.75/TYM 118.5 put spds, 6 ref 119-17 more on screen, +10,000 TYK 119.5/TYM 118.5 put spds, 3 ref 119-12, +20,000 FVK 12.25/113 put spds, 6.5 ref 112-29.
• Two-way call trade picked up as underlying futures held early gains into the second half. Late Eurodollar Blocks: +15,440 Green Jun'24 97.50 calls, 61.0 at 1452:57ET after +17,593 Red Mar'24 97.50 calls, 56.0 at 1450:36ET.
• Treasury 5Y calls saw better selling with 30,000 FVK 115.5 calls at 1 after paper sold 15,000 FVM 114/114.5 call spds, 11-12.5.

• Block, +15,440 Green Jun'24 97.50 calls, 61.0 at 1452:57ET after
• Block, +17,593 Red Mar'24 97.50 calls, 56.0 at 1450:36ET
• -15,000 Dec 97.75/98.25 put spds, 39.5 vs. 97.21/0.14%
• +5,000 Dec 98.00/98.12 call spds, 2.5
• +5,000 short Jun 96.75 calls even over short Sep 97.12 calls
• -4,000 Sep 97.00/97.25/97.50 put flys, 3.25
• +2,500 Red Dec'23 95.50/96.50 put spds, 32 ref 96.665
• Overnight trade
• Block, 5,000 May 98.31 puts, 7.0 ref 98.31
• 7,000 short Apr 96.75/96.87 put spds
• 4,000 Green Jul 96.25/96.62 put spds vs. Gold Jul 96.50/96.87 put spds

• -30,000 FVK 115.5 calls, 1
• +5,000 USM 134/136 put spds, 16
• update -15,000 FVM 114/114.5 call spds, 11-12.5
• over 11,500 FVK 113 puts, 15.5
• 2,700 TYM 121/123 call spds, 32
• Overnight trade
• Block, +20,000 TYK 119.75/TYM 118.5 put spds, 6 ref 119-17 more on screen
• Block, +10,000 TYK 119.5/TYM 118.5 put spds, 3 ref 119-12
• Block, +20,000 FVK 12.25/113 put spds, 6.5 ref 112-29
• 3,000 FVK 112.75/113 put spds, 4.5
• Block, 3,100 TUM 106 calls 1 over 104.62/105.12 put spds
• Block, 3,005 TUK 105/105.5 put spds, 10
• 4,600 wk3 TY 113.25 calls, 10

EGBS-GILTS CASH CLOSE: Soft US Inflation Report Cements Rally

A weaker-than-expected US core inflation print Tuesday afternoon cemented a reversal lower in yields from multi-year highs.

• The downside surprise helped ECB and BOE hike pricing fade slightly, and this led the German and UK curves bull flatten.
• Earlier, yields had peaked in late morning (10Y Bunds and Gilts hitting 7-yr highs).
• Periphery spreads tightened, with Italy leading the way as the the CPI release forced reconsideration of central bank hawkishness ahead of Thursday's ECB decision.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is down 5.8bps at 0.075%, 5-Yr is down 5.3bps at 0.573%, 10-Yr is down 2.6bps at 0.79%, and 30-Yr is down 0.1bps at 0.927%.
• UK: The 2-Yr yield is down 5bps at 1.508%, 5-Yr is down 4.9bps at 1.564%, 10-Yr is down 4.4bps at 1.803%, and 30-Yr is down 3.4bps at 1.95%.
• Italian BTP spread down 3bps at 161.9bps / Spanish down 1.5bps at 92.2bps

EGB Options: Bund Structures In Decent Size

Tuesday's Europe rates / bond options flow included:

• RXK2 156/155/154 put fly sold at 15.5 in 3k
• RXK2 157/159 call spread bought for 29.5 / 30 in 10.25k
• RXM2 153/152/151.5 put fly bought for 17 in 2k
• RXM2 167 call bought for 6 in 5.4k
• DUK2 110.30/110.10ps, bought for 8 in 5.2k
• DUK2 110.60/110.80cs 1x2, sold at 0.25 in 5.3k (rolling 110.60 call)

FOREX: Greenback Recovers Following Post-CPI Sell-Off

• March US inflation data showed the weakest M/M core print since September 2021 and the biggest core goods drop since April 2020. With the data putting a small spanner in the works for a 50bp May hike, the dollar was seen sharply lower across the board.
• USDJPY had a fairly aggressive move lower following the data. Having failed earlier in the session, just below the 2015 highs of 125.86, the pair fell around 75 pips to print fresh daily lows at 124.77. In similar vein, EURUSD received a solid boost to regain the 1.09 handle, albeit very briefly.
• Overall, greenback weakness was short-lived and the dollar index slowly edged its way back above the 100 mark and is trading at the best levels of the day approaching the APAC crossover.
• Interestingly, USDJPY was unable to retrace all the post-CPI losses, however, EURUSD went on to extend below last week’s lows and narrow the gap with the March low of 1.0806.
• Indeed, Euro crosses came under particular pressure today with EURAUD the hardest hit, down 1.25% on Tuesday. AUD remains the strongest currency on the day across G10, with AUD/USD bouncing off overnight lows of $0.7400 in a move that coincided with a late recovery in Asia-Pacific equities.
• The relative and notable Euro weakness comes ahead of Thursday’s ECB decision. The consensus expects no material change in policy at the April ECB meeting, however, MNI believe that it is a close call and that markets should be prepared for a hawkish surprise.
• Major central bank decisions in focus tomorrow. First up the RBNZ appear to have a close call on whether to raise the OCR by 25bp or 50bp. Secondly, the Bank of Canada is widely expected to hike its overnight rate by 50bp and end the reinvestment phase.
• On the data front, UK CPI and US PPI headline the docket.

FX: Expiries for Apr13 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0700(E1.0bln), $1.0720-35(E1.0bln), $1.0865-70(E985mln), $1.0900(E1.3bln), $1.0960-80(E903mln), $1.0995-05(E2.9bln)
• USD/JPY: Y123.90-00($655mln)
• EUR/JPY: Y136.00(E562mln)
• AUD/USD: $0.7300(A$682mln), $0.7380-00(A$941mln)
• USD/CAD: C$1.2485-00($593mln)
• USD/CNY: Cny6.3400($500mln)

EQUITIES: Late Equity Roundup: Weaker, Financials Lagging Ahead Earnings

Stocks trading mildly weaker in late FI trade, reversing off midday highs after London close while some traders attributing late sell interest to headlines that US has credible intel Russia proposes use of chemical weapons in Ukraine. Markets have been taking geopol headline risk with more than a grain of salt of late. Weakness may be more attributed to start of earnings cycle with slew of banks (trading weaker) reporting: JP Morgan and BlackRock due Wed, before Citigroup, Goldman Sachs, Morgan Stanley and Wells Fargo follow.

• SPX eminis currently -12.75 (-0.29%) at 4396.75 after breaching 50D EMA support yesterday -- reinforcing a bearish threat where a move through 4400.00 signals scope for weakness towards 4362.63 next, a Fibonacci retracement. On the flipside, initial firm resistance has been established at 4519.75 (Apr 8 high) where a break would ease the bearish threat.
• SPX leading/lagging sectors: Energy sector outperforming (+2.25%) lead by oil and gas names outpacing energy equipment makers. Utilities (+0.55%) outpace Consumer Discretionary (+0.21%) as autos pare gains.
• Laggers: Financials and Communication Services sectors (-0.90%).
• Meanwhile, Dow Industrials currently trade -55 (-0.16%) at 34256.34, Nasdaq -33.8 (-0.3%) at 13379.27.
• Dow Industrials Leaders/Laggers: Chevron (CVX) still leading (+4.35 at 169.91) as oil rebounds, followed by Boeing (BA) +1.46 at 176.49 as airline guidance sees improved revenues despite increased costs. Microsoft (MSFT) lagging late -4.44 at 280.82.

• RES 4: 4730.50 High Jan 1
• RES 3: 4663.50 High Jan 18
• RES 2: 4631.00 High Mar 29 and a key resistance
• RES 1: 4519.75/4588.75 High Apr 8 / High Apr 5
• PRICE: 4398.00 @ 1450ET Apr 12
• SUP 1: 4362.63 50.0% retracement of the Feb 24 - Mar 29 rally
• SUP 2: 4499.29 61.8% retracement of the Feb 24 - Mar 29 rally
• SUP 3: 4239.00 Low Mar 16
• SUP 4: 4220.92 76.4% retracement of the Feb 24 - Mar 29 rally

COMMODITIES: Oil Prices Surge On Some Lockdown Easing, Russian Headlines

• Oil prices rise solidly throughout most of the day, in a reversal of yesterday’s decline as China eases some lockdowns plus Putin saying he Russia will continue its invasion of Ukraine along with potential use of chemical weapons in Mariupol.
• WTI is +7.1% at $101.0. It sits close to the initial resistance at the 20-day EMA of $101.29 whilst support is yesterday’s low of $92.93.
• On a day of strong gains, the most active strikes in the May22 contract are $100/bbl calls followed by $105/bbl calls.
• Brent is +6.7% at $105.1, although close to the 20-day EMA of $105.61 after which it could open $109.9 (Apr 5 high).
• Gold is +0.8% at $1968.9 despite a miss in US core CPI inflation. It has cleared the Mar24 high of $1966.1 with a high of $1978.6. This likely forms initial resistance, closely followed by $1980.3 (the 50% retracement of the Mar 8-29 downleg).

Wednesday Data Calendar

Date	GMT/Local	Impact	Flag	Country	Event
13/04/2022	0200/1400	***		NZ	RBNZ official cash rate decision
13/04/2022	0600/0700	***		UK	Consumer inflation report
13/04/2022	0600/0700	***		UK	Producer Prices
13/04/2022	0700/0900	***		ES	HICP (f)
13/04/2022	0800/1000	*		IT	Industrial Production
13/04/2022	0830/0930	*		UK	ONS House Price Index
13/04/2022	0900/1100	**		EU	industrial production
13/04/2022	1100/0700	**		US	MBA Weekly Applications Index
13/04/2022	1400/1000	***		CA	Bank of Canada Policy Decision
13/04/2022	1400/1000			CA	BOC Monetary Policy Report
13/04/2022	1430/1030	**		US	DOE weekly crude oil stocks
13/04/2022	1500/1100			CA	BOC Governor Press Conference
13/04/2022	1630/1230			US	Richmond Fed's Thomas Barkin
13/04/2022	1700/1300	***		US	US Treasury Auction Result for 30 Year Bon