MNI ASIA MARKETS ANALYSIS: Core Retail Sales Miss

US TSYS: No Debt Deal Yet

Treasury futures remain weaker but off midday lows (10Y at 114-30.5 -9, yield 5.5376 +.0358), curves flatter (2s10s -2.560 at -53.833) after maintaining steeper profile in the first half.

• Weaker stocks contributing (SPX Eminis 4128.0 low) to the general risk-off tone as markets fret over debt ceiling, Jake Sherman, Punchbowl News tweeting: "Speaker McCarthy says the debt limit deal MUST include something on work requirements. He said it’s a red line for him."
• President Biden meeting with congressional leaders (McCarthy, Schumer, McConnell and Jeffries) to discus the debt limit at this moment. Biden still expected to leave for G7 summit in Japan tomorrow.
• Additional factors weighing on rates: nominal retail sales levels remain well above early 2021 levels, but that appears to be largely the effect of inflation - and April's Y/Y nominal growth was also the slowest since the contractions of 2Q 2020.
• Corporate bond issuance, rate lock sales: $31B Pfizer 8pt jumbo (helping finance $43B Seagen deal) is the fourth largest on record.
• Fed-speak all generally in-line with recent comments, latest from Atlanta's Barkin: support for holding rates but remains open to hikes if data warrants.

OVERNIGHT DATA

• US APR RETAIL SALES +0.4%; EX-MOTOR VEH +0.4%
  
• US MAR RETAIL SALES REVISED -0.7%; EX-MV -0.5%
• US APR RET SALES EX GAS & MTR VEH & PARTS DEALERS +0.6% V MAR -0.5%
• US APR RET SALES EX MTR VEH & PARTS DEALERS +0.4% V US APR -0.5%
• US APR RET SALES EX AUTO, BLDG MATL & GAS +0.6% V MAR -0.2%

US DATA: Looking at at our series of "real" (headline CPI-deflated) Y/Y retail sales, April saw the biggest contraction since Jun 2020, at -3.4% Y/Y.

• This is a slightly unflattering comparison as Apr 2022 saw the highest level of real retail sales, and it's only a rough guide, but current levels are around where they were in 2Q 2021.
• Nominal retail sales levels remain well above early 2021 levels, but that appears to be largely the effect of inflation - and April's Y/Y nominal growth was also the slowest since the contractions of 2Q 2020.

US DATA: April retail sales came in below consensus on the headline figure (+0.4% M/M vs 0.8% expected) and was in-line on ex-autos (+0.4% vs +0.4% exp.), but there were upward revisions to March for both (respectively by 0.3pp to -0.7%, and by 0.3pp to -0.5%).

• Conversely, the more "core" categories were stronger than expected, but saw March downgraded: ex-auto and gas grew +0.6% M/M (vs +0.2% exp; March lowered 0.2pp to -0.5%), while the GDP-input control group was +0.7% M/M (vs +0.4% exp, March lowerd 0.1pp to -0.4%).
• Details by category were mixed: in the biggest 5 categories, motor vehicles strengthened, as did general and nonstore retailers; weaker were food/beverage, and food services/drinking places.
• The strength in the core readings, especially the congrol group, presents a better-than-expected picture of US consumption in April.
• But the broader picture suggests nominal retail sales continue to flatline (+2.4% Y/Y growth), and remain below the Jan 2023 peak. That's not entirely surprising given the ongoing shift toward services and away from goods consumption.

• US APR INDUSTRIAL PROD +0.5%; CAP UTIL 79.7%
• US MAR IP REV TO +0.0%; CAP UTIL REV 79.4%
• US APR MFG OUTPUT +1.0%

• US REDBOOK: MAY STORE SALES +1.5% V YR AGO MO
• US REDBOOK: STORE SALES +1.6% WK ENDED MAY 13 V YR AGO WK

• US MAR BUSINESS INVENTORIES -0.1%; SALES -1.1%
• US MAR RETAIL INVENTORIES +0.7%

• US NAHB HOUSING MARKET INDEX 50 IN MAY
• US NAHB MAY SINGLE FAMILY SALES INDEX 56; NEXT 6-MO 57

• CANADA APRIL CPI 4.4% YOY VS 4.1% FORECAST, MARCH 4.3%
• CPI YOY QUICKENS AS RENT AND MORTGAGE INTEREST COSTS ROSE
• CANADA APRIL CPI 0.7% MOM VS 0.5% FORECAST, MARCH 0.5%
• CANADA APRIL GASOLINE ROSE 6.3% MOM, FELL 7.7% YOY
• CORE TRIM SLOWS TO 4.2% IN APRIL FROM MARCH'S 4.4%
• CANADA MEDIAN CORE CPI SLOWS TO 4.2% FROM 4.5%
• CANADA APRIL CPI EX FOOD & ENERGY 0.5% MOM; 4.4% YOY

MARKETS SNAPSHOT

Key late session market levels:

• DJIA down 271.45 points (-0.81%) at 33077.43
• S&P E-Mini Future down 14.5 points (-0.35%) at 4135.25
• Nasdaq up 22 points (0.2%) at 12386.92
• US 10-Yr yield is up 4.3 bps at 3.5452%
• US Jun 10-Yr futures are down 10/32 at 114-29.5
• EURUSD down 0.0009 (-0.08%) at 1.0865
• USDJPY up 0.2 (0.15%) at 136.32
• WTI Crude Oil (front-month) down $0.38 (-0.53%) at $70.74
• Gold is down $25.87 (-1.28%) at $1990.66

TREASURY FUTURES CLOSE

• 3M10Y +0.774, -163.41 (L: -188.696 / H: -161.308)
• 2Y10Y -2.205, -53.478 (L: -55.025 / H: -49.516)
• 2Y30Y -4.172, -21.438 (L: -22.788 / H: -14.525)
• 5Y30Y -2.827, 34.161 (L: 33.506 / H: 39.952)
• Current futures levels:
• Jun 2-Yr futures down 5/32 at 103-0.125 (L: 102-30 / H: 103-07.75)
• Jun 5-Yr futures down 8.5/32 at 109-23.75 (L: 109-19.5 / H: 110-07.5)
• Jun 10-Yr futures down 10/32 at 114-29.5 (L: 114-23 / H: 115-18.5)
• Jun 30-Yr futures down 20/32 at 129-5 (L: 128-22 / H: 130-12)
• Jun Ultra futures down 24/32 at 137-0 (L: 136-08 / H: 138-17)

US 10YR FUTURE TECHS: (M3) Testing Support At The 50-Day EMA

• RES 4: 117-29+ High Aug 26 2022 (cont)
• RES 3: 117-01+ High Mar 24 and bull trigger
• RES 2: 117-00 High May 4
• RES 1: 115-18+/116-16 Intraday high / High May 11
• PRICE: 114-30+ @ 15:55 BST May 16
• SUP 1: 114-23 Intraday low
• SUP 2: 114-10 Low May 1
• SUP 3: 113-30+ Low Apr 19 and a key support
• SUP 4: 113-26 Low Mar 22

Treasury futures are trading lower again today and the contract has breached support at 115-01+, the May 9 low, and is testing the 50-day EMA, at 114-30+. A clear break of this EMA would signal scope for a deeper retracement and open 114-10 initially, May 1 low. For bulls, a reversal higher would refocus attention on resistance at 117-01+, the Mar 24 high. This is the bull trigger where a break would highlight an important bullish development.

SOFR FUTURES CLOSE

• Jun 23 -0.015 at 94.893
• Sep 23 -0.065 at 95.145
• Dec 23 -0.090 at 95.575
• Mar 24 -0.10 at 96.105
• Red Pack (Jun 24-Mar 25) -0.09 to -0.04
• Green Pack (Jun 25-Mar 26) -0.05 to -0.04
• Blue Pack (Jun 26-Mar 27) -0.05 to -0.045
• Gold Pack (Jun 27-Mar 28) -0.045 to -0.04

SHORT TERM RATES

SOFR Benchmark Settlements:

• 1M +0.00951 to 5.06642 (+.00665 total last wk)
• 3M +0.02287 to 5.08967 (+.02807 total last wk)
• 6M +0.04302 to 5.02849 (+.03996 total last wk)
• 12M +0.08027 to 4.68141 (+.04754 total last wk)

US DOLLAR LIBOR: Latest settlements:

• O/N +0.00086 to 5.06229%
• 1M +0.00228 to 5.10771%
• 3M +0.01214 to 5.33043% */**
• 6M +0.04000 to 5.38314%
• 12M +0.04743 to 5.30343%
• * Record Low 0.11413% on 9/12/21; ** New 16Y high: 5.34243% on 5/10/23

• Daily Effective Fed Funds Rate: 5.08% volume: $124B
• Daily Overnight Bank Funding Rate: 5.07% volume: $294B

• Secured Overnight Financing Rate (SOFR): 5.05%, $1.352T
• Broad General Collateral Rate (BGCR): 5.02%, $581B
• Tri-Party General Collateral Rate (TGCR): 5.02%, $574B
• (rate, volume levels reflect prior session)

FED Reverse Repo Operation

NY Fed reverse repo usage slips to $2,203.214B w/ 101 counterparties, compares to prior $2,220.927B. Compares to high usage for 2023: $2,375.171B on Friday March 31, 2023; all-time record high of $2,553.716B reached December 30, 2022.

PIPELINE: $31B Pfizer 8-Part Jumbo Launched

• Date $MM Issuer (Priced *, Launch #)
• 05/16 $31B #Pfizer 8pt jumbo: $3B 2Y +60, $3B 3Y +75, $4B 5Y +95, $3B 7Y +115, $5B 10Y +125, $3B 20Y +130, $6B 30Y +145, $4B 40Y +160
• 05/16 $6B *Saudi Arabia Sukuk $3B 6Y +80, $3B 10Y +100
• 05/16 $3B *CADES 5Y SOFR+45
• 05/16 $1.25B *JICA (Japan Int Coop Agcy) 5Y SOFR+76
• 05/16 $1B *COE Development Bank 3Y SOFR+24

• Today's $31B Pfizer 8-part debt issuance marks the forth largest on record, $1B over prior AbbVie and ATT/Discovery deals:
  • Record Size Issuance
  • 8/11/13 $49B Verizon
  • 1/13/16 $46B AB InBev
  • 9/04/18 $40B CVS 9-part
  • 05/16/23 $31B Pfizer 8-part
  • 11/12/19 $30B AbbVie jumbo 10-part
  • 3/9/2022 $30B ATT/Discovery 11pt via Magallanes inc

EGBs-GILTS CASH CLOSE: Bund Weakness Extends

Gilts easily outperformed Bunds Tuesday after weaker-than-expected UK labour market data spurred a reconsideration of potential BoE hikes.

• The early bullish move reversed and both German and UK yields closed at/near session highs, but implied BoE hikes (and the UK short end) didn't quite recover lost ground - terminal cumulative pricing was pared by 4bp to 41bp, with June pulling back 2bp to 19bp.
• Other than UK jobs, European data again had little impact: a weaker-than-expected German ZEW figure was worth a few ticks higher in Bunds - but 10Y German yields finished higher for the 3rd consecutive session..
• Periphery spreads were little changed. Following Monday's outperformance, GGBs underperformed - though spreads vs Bunds tightened slightly intraday after Wed's GGB auction announcement with size up to E400mln.
• Indeed supply looms large Wednesday, with France selling up to E11bln in OAT, UK GBP3.75bln of Gilt, and Germany E4bln of Bund.
• Apart from that, final Eurozone CPI and multiple ECB speakers feature.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is up 5.3bps at 2.657%, 5-Yr is up 6bps at 2.306%, 10-Yr is up 4.4bps at 2.353%, and 30-Yr is up 3.7bps at 2.55%.
• UK: The 2-Yr yield is down 1.4bps at 3.812%, 5-Yr is unchanged at 3.628%, 10-Yr is down 0.1bps at 3.816%, and 30-Yr is up 0.7bps at 4.257%.
• Italian BTP spread down 0.9bps at 186.8bps / Greek up 0.5bps at 170.9bps

Wednesday Data Calendar

Date	GMT/Local	Impact	Flag	Country	Event
16/05/2023	2300/1900			US	Atlanta Fed's Raphael Bostic
16/05/2023	2300/1900			US	Chicago Fed's Austan Goolsbee
17/05/2023	2350/0850	***		JP	GDP
17/05/2023	2350/0850	***		JP	Japan GDP 1st Estimate
17/05/2023	0130/1130	***		AU	Quarterly wage price index
17/05/2023	0900/1100	***		EU	HICP (f)
17/05/2023	0900/1000	**		UK	Gilt Outright Auction Result
17/05/2023	0900/1100			EU	ECB Elderson Panels Beyond Growth Conference
17/05/2023	0930/1130			EU	ECB Panetta Presentation on Digital Euro Kangaroo Group Event
17/05/2023	0950/1050			UK	BOE Bailey Keynote Speech at British Chambers of Commerce
17/05/2023	1100/0700	**		US	MBA Weekly Applications Index
17/05/2023	1230/0830	*		CA	International Canadian Transaction in Securities
17/05/2023	1230/0830	***		US	Housing Starts
17/05/2023	1430/1030	**		US	DOE Weekly Crude Oil Stocks
17/05/2023	1515/1715			EU	ECB de Guindos Closes IESE Banking Meeting
17/05/2023	1700/1300	**		US	US Treasury Auction Result for 20 Year Bond