MNI ASIA MARKETS ANALYSIS:Need to Address Persistent Inflation

US TSYS: Pricing In Rate Hikes While Yld Curves Bear Steepen

• Early pressure in FI mkts tied to several factors focused on rate hikes to combat rising inflation: Initial pressure appr two hours after Asia open came from WH statement US Pres Biden will meet with Fed Chair Powell today to discuss economy and inflation. WH spokesman Deese did not reveal anything new at the late session presser, but underscored Pres Biden/Chair Powell's focus in reducing inflation.
• Though oil prices receded late, trading desks also cited higher crude levels (see 1526 and 1442ET bullets) and record Eurozone inflation figures (consumer prices +8.1% vs. +7.8% est).
• Little react to earlier data: FHFA HPI Q/Q SA +4.6% vs. +18.7% Q1 2021, US May Consumer Confidence: 106.4 vs. 103.6 estimate but lower than last month's 107.3.
• Latest Chicago Business BarometerTM found supply chain disruptions to have worsened in May with offshore sourcing the key driver. bi-monthly special question of whether firms were seeing easing up in supply blockages found the majority of respondents were not seeing any easing of supply chain disruptions (61.7%), followed by just under a third experiencing some easing (31.9%).

SHORT TERM RATES

US DOLLAR LIBOR: Latest settlements

• O/N -0.00357 to 0.82200% (-0.00357/wk)
• 1M +0.05829 to 1.11986% (+0.05815/wk)
• 3M +0.03028 to 1.61071% (+0.01285/wk) * / **
• 6M +0.03714 to 2.10600% (+0.01986/wk)
• 12M +0.04243 to 2.74000% (+0.04429/wk)
• * Record Low 0.11413% on 9/12/21; ** New 2Y high: 1.61071% on 5/31/22

STIR: FRBNY EFFR for prior session:

• Daily Effective Fed Funds Rate: 0.83% volume: $79B
• Daily Overnight Bank Funding Rate: 0.82% volume: $254B

US TSYS: Repo Reference Rates

• Secured Overnight Financing Rate (SOFR): 0.78%, $963B
• Broad General Collateral Rate (BGCR): 0.79%, $365B
• Tri-Party General Collateral Rate (TGCR): 0.79%, $344B
• (rate, volume levels reflect prior session)

FED Reverse Repo Operation

NY Fed reverse repo usage slips to 1,978.538B w/ 101 counterparties vs. 2,006.688B prior session, compares to Monday's record high $2,044.658B.

EURODOLLAR/SOFR/TREASURY OPTIONS SUMMARY

• 14,000 short Jul 97.62 calls, 2 ref 96.81 -.815
• 4,000 short Jun 96.00/96.50 put spds, 2.5
• 7,000 short Jun 96.50 puts
• 5,250 Dec 96.37 puts, 11.5
• 1,500 short Jun 96.75/97.00 call spds
• Overnight trade
• +3,500 Aug 97.12/97.50 put spds 3.5 over 97.68 calls
• Block, +6,000 Jul 97.12/97.43 2x1 put spds, 6.0
• 4,000 short Jun 96.56/96.68 put spds vs. 96.87 calls

• 4,000 USN 137/135 out spds, 29 ref 139-07
• 6,000 FVN 111.5/112/112.5/112.75 broken put condors
• 7,700 TYN 119.5 calls, 50
• +10,000 TYN 114.5 puts, 3 ref 119-08.5 -09.5
• 7,000 TYN 116.5/118.5 put spds, 28
• +18,000 FVN 111.75/112.75 put spds, 20.5
• +7,000 TYN 118.5/121.5 strangles, 43
• 2,500 TYN 115.5 puts, 4.0
• +5,000 TYN 121 calls, 16
• +7,000 wk1 TY 120 calls, 8-9
• -5,000 TYN 119.5/120.25/121 call trees, 2 vs. 119-21.5
• Overnight trade
• +5,500 wk1 TY 118.5/118.75 put spds 3.0 ref 119-15

FOREX: Greenback Pares Gains In Late NY Trade, JPY Weakness Prevails

• The greenback initially traded more positively on Tuesday, recovering the Memorial Day retreat. The USD index rallied just under 1% from Monday’s low of 101.30 to reach an intra-day high print of 102.16 before backing off throughout the latter half of NY trade.
• Initial US dollar strength was due to weakness across global equity benchmarks and higher core yields, however, the late recovery in equities worked against the greenback’s advance with the DXY retreating around 0.5%.
• While most other major currencies weakened against the dollar, the Japanese Yen was under particular pressure with USDJPY rising substantially from the overnight 127.53 lows. USD strength was initially to blame with the late bounce in stocks further supporting the pair. Technical support at the 50-day EMA remains intact with the average intersecting at 126.10, while a further recovery would open 129.78 resistance, May 17 high.
• EURUSD edged off recent highs Tuesday, reversing off a challenge on the top of the bear channel. The channel is drawn from the Feb 10 high and intersects at 1.0804. It marks a key short-term resistance where a break would strengthen bullish conditions and highlight a stronger short-term reversal. The primary trend remains down though and further weakness would reinforce a bearish theme.
• Aussie GDP data is the focus for the Wednesday APAC session before new data for euro area unemployment, German retail sales and final manufacturing PMIs headline the European docket.
• Wednesday’s also marks the Bank of Canada meeting. The BOC is almost unanimously expected to hike its overnight rate by another 50bp to 1.5% on Wednesday, part of its journey to neutral, defined as 2-3%. The statement-only release is likely to maintain its hawkish tone to keep inflation expectations from de-anchoring but offer little in the way of new guidance – i.e. rates need to increase further with timing and pace guided by the inflation target.

Late Equity Roundup: Off Highs as Crude Pares Gains

• West Texas crude had traded as high as 119.82 in early trade, fell to session low of 114.35 after WSJ reported some OPEC members are exploring the idea of suspending Russia's participation in an oil-production deal as Western sanctions and a partial European ban begin to undercut Moscow's ability to pump more, OPEC delegates said.
• After trading above the 50-day EMA of 4190.56 overnight (4202.25 high), SPX Jun futures bounced off lows ahead midday to 4166.75 second half high before falling back around 4144.0 (-12.5) after the FI close.
• SPX leading/lagging sectors:Consumer Discretionary seeing continued support (+1.23%) w/ component mfgs outpacing autos followed by communication Services (+1.05%).
  
• Laggers: Energy sector had lead gainers w/O&G outperforming energy equipment and servicers -- reversed w/crude (-1.45%). Materials and Health Care both appr -1.47%) as biotech and pharmaceuticals underperform.
• DJIA -133.35 (-0.41%) at 33079.85; Nasdaq -7.0 (0.1%) at 12126.27.
• Dow Industrials Leaders/Laggers: Nike (NKE) extends gains +3.19 at 119.18, Walt Disney (DIS) +1.06 at 110.38, McDonalds (MCD) +0.93 at 252.80. Laggers: United Health Care (UNH) -8.83 at 498.28, Home Depot (HD) -4.45 at 304.01.

E-MINI S&P (M2): Watching The 50-Day EMA

• RES 4: 4509.00 High Apr 21
• RES 3: 4393.25 High Apr 22
• RES 2: 4303.50 High Apr 26/28 and a key short-term resistance
• RES 1: 4190.56/4202.25 50-day EMA / Intraday high
• PRICE: 4144.5 @ 1530ET May 31
• SUP 1: 3960.50/3807.50 Low May 26 / Low May 20 and bear trigger
• SUP 2: 3801.97 38.2% of the Mar ‘20 - Jan ‘22 bull leg (cont)
• SUP 3: 3787.74 2.618 proj of the Mar 29 - Apr 18 - 21 price swing
• SUP 4: 3747.52 2.764 proj of the Mar 29 - Apr 18 - 21 price swing

S&P E-Minis maintain a firmer tone following last week’s gains. The contract has traded above the 50-day EMA, at 4190.56 today. A clear break of this average would strengthen current bullish conditions and signal potential for a climb towards a key resistance at 4303.50, the Apr 26/28 high. The recent climb is still considered corrective and the primary trend is down. A reversal lower would refocus attention on the bear trigger 3807.50.

COMMODITIES: EU Partial Russia Ban Boosts Oil, OPEC Takes It Away

• Crude oil has seen a mixed day, rising further early on after the EU agreed a partial ban on Russian oil with a six-month phase in for crude, which helped WTI eventually top out just shy of $120. However it then evaporated gains late on with WSJ reporting that OPEC is weighing suspending Russia from its oil production deal and that some OPEC members including Saudi Arabia may be planning to boost production.
• WTI is -0.2% at $114.80. There is a wide band to technical levels, with support eyed at the 20-day EMA of $108.25 and resistance still the $120 psychological resistance that proves binding today.
• On a mixed day, the most active strikes in the Jul’22 contract have been $130/bbl calls followed by $110/bbl puts.
• Brent is +1.0% at $122.90, having stopped short of testing $125.30 (1.382 proj of the May 11-17-19 price swing).
• Gold is -0.7% at $1841.6 as surging Treasury yields and dollar strength against JPY and EUR weighed on the yellow metal. It had recently maintained a firmer shorter-term tone although gains were considered corrective, leaving technical levels unchanged: resistance remains $1869.7 (May 24 high) with support at $1807.5 (May 18 low).

Wednesday Data Calendar

Date	GMT/Local	Impact	Flag	Country	Event
01/06/2022	2301/0001	*		UK	BRC Monthly Shop Price Index
01/06/2022	0030/0930	**		JP	IHS Markit Final Japan Manufacturing PMI
01/06/2022	0145/0945	**		CN	IHS Markit Final China Manufacturing PMI
01/06/2022	0715/0915	**		ES	IHS Markit Manufacturing PMI (f)
01/06/2022	0745/0945	**		IT	IHS Markit Manufacturing PMI (f)
01/06/2022	0750/0950	**		FR	IHS Markit Manufacturing PMI (f)
01/06/2022	0755/0955	**		DE	IHS Markit Manufacturing PMI (f)
01/06/2022	0800/1000	**		EU	IHS Markit Manufacturing PMI (f)
01/06/2022	0830/0930	**		UK	IHS Markit/CIPS Manufacturing PMI (Final)
01/06/2022	0900/1100	**		EU	Unemployment
01/06/2022	1100/0700	**		US	MBA Weekly Applications Index
01/06/2022	1100/1300			EU	ECB Lagarde Panelist at Green Swan Conference
01/06/2022	-	***		US	Domestic-Made Vehicle Sales
01/06/2022	1255/0855	**		US	Redbook Retail Sales Index
01/06/2022	1345/0945	***		US	IHS Markit Manufacturing Index (final)
01/06/2022	1400/1000	***		CA	Bank of Canada Policy Decision
01/06/2022	1400/1000	***		US	ISM Manufacturing Index
01/06/2022	1400/1000	*		US	Construction Spending
01/06/2022	1400/1000	**		US	JOLTS quits Rate
01/06/2022	1400/1000	**		US	JOLTS jobs opening level
01/06/2022	1515/1715			EU	ECB Panetta Into at European Parliament
01/06/2022	1530/1130			US	New York Fed's John Williams
01/06/2022	1530/1730			EU	ECB Lane Speaks at CEPR Paris Symposium
01/06/2022	1700/1300			US	St. Louis Fed's James Bullard
01/06/2022	1800/1400			US	Fed Beige Book