HIGHLIGHTS
- Treasuries scaled back from midday highs by Tuesday's close, curves flatter as rate cut pricing cooled.
- Second session of no data, MN Fed President Kashkari sees Fed on hold for an "extended period".
- Return of heavy corporate issuance as the latest earnings cycle winds down, over $20B priced on the day.
US TSYS Off Midday Highs, Year-End Rate Cut Pricing Cools
- Treasuries scaled back from midday highs by the close, curves flatter with bonds outperforming. Intermediates nearly breach technical resistance, Jun'24 10Y futures tapped 109-09 vs. Friday's post employment high of 109-09.5.
- Heavy (over $20B) corporate issuance coupled with the $58B 3Y note auction weighed on the short end, 2s10s -2.210 at -36.940 after the close. Treasury held gains briefly, however, after the $58B 3Y note auction (91282CKR1) traded through: 4.605% high yield vs. 4.607% WI; 2.63x bid-to-cover (Jan high) vs. 2.50x prior month.
- Projected rate cut pricing scaled back from midmorning levels: June 2024 at -10.0% w/ cumulative rate cut -2.5bp at 5.302%, July'24 at -24% w/ cumulative at -8.5bp at 5.243%, Sep'24 cumulative -20.1bp, Nov'24 cumulative -30.3bp, Dec'24 cumulative currently -43.9bp.
- Focus turns to Wednesday's calendar with MBA Mortgage Applications, Wholesale Trade/Inventories, and more Fed Speak. US Treasury auctions $42B 10Y notes as well.
SOFR FIXES AND PRIOR SESSION REFERENCE RATES
SOFR Benchmark Settlements:
- 1M -0.00143 to 5.31987 (-0.00254/wk)
- 3M +0.00202 to 5.32322 (-0.00433/wk)
- 6M +0.00490 to 5.28738 (-0.01955/wk)
- 12M +0.00802 to 5.14518 (-0.06354/wk)
- Secured Overnight Financing Rate (SOFR): 5.31% (+0.00), volume: $1.855T
- Broad General Collateral Rate (BGCR): 5.30% (+0.00), volume: $712B
- Tri-Party General Collateral Rate (TGCR): 5.30% (+0.00), volume: $700B
- (rate, volume levels reflect prior session)
- Daily Effective Fed Funds Rate: 5.33% (+0.00), volume: $75B
- Daily Overnight Bank Funding Rate: 5.32% (+0.00), volume: $259B
FED Reverse Repo Operation
NY Federal Reserve/MNI
- RRP usage rises to $475.325B vs. $468.970B Monday. Compares to $327.066B on Monday, April 15 -- the lowest level since mid-May 2021.
- Meanwhile, the latest number of counterparties rises to 73 from 67 prior.
SOFR/TEASURY OPTION SUMMARY
SOFR options segued to better put interest as short end rates continued to underperform, while projected rate cut pricing scaled back from midmorning levels: June 2024 at -10.0% w/ cumulative rate cut -2.5bp at 5.302%, July'24 at -24% w/ cumulative at -8.5bp at 5.243%, Sep'24 cumulative -20.1bp, Nov'24 cumulative -30.3bp, Dec'24 cumulative currently -43.9bp.
- SOFR Options:
- -7,000 SFRN4 9437/9450/9462 put tree 1x1x2 1.0 (9489)
- Block, 5,000 SFRZ4 93.75/94.25/94.75 put flys, 5.0
- Block, 5,000 SFRH4 93.75/94.25/94.75 put flys, 4.0
- +5,000 SFRZ5 SRH6 9375/9425/9475 put fly strip 9.0
- +4,000 0QQ4 94.18/94.43/94.68 put fly 1.5 ref 94.905
- SFRU4 9462/9475/9487p tree -4K @3.75 (1 leg, 9490)
- SFRU4 9500/9512/9518/9531c condor +1.375/5K (9490)
- -10,000 SFRN4 94.75/94.81/94.93/95.00 call condors, 2.0 ref 94.905
- +15,000 2QM4 96.56/96.62 call spds, .625 ref 96.025
- +7,000 SFRM4 94.68/94.75/94.81 call flys, 1.0 ref 94.71
- over 6,000 SFRZ4 95.87 calls ref 95.15 to -.145
- 1,000 SFRZ4 95.50/96.00/96.50 2x4x1 put fly ref 95.145
- Treasury Options:
- Block, 9,000 TYM4 109.5 calls, 24 vs. 109-00/0.10%
- 4,000 TYU4 106 puts
- 5,000 TUN4 102.25/102.5/102.75/103.12 broken call condors
- 1,500 TYM4/TYN4 111 call spds
- 2,500 FVM4 106.5/107 call spds ref 105-25.75
- 1,500 TYM4 102.75 puts, ref 109-01.5
- 1,350 TYM4 107.25/108/109 broken put flys ref 109-01.5
EGBs-GILTS CASH CLOSE: Broad Bull Flattening Rally
Core EGBs and Gilts started Tuesday on the front foot and continued higher from there, with the German and UK curves bull flattening.
- After opening with a resumption of bullish follow-through from Friday's soft US jobs data and a less hawkish-than-expected RBA meeting overnight, gains continued after weak German factory orders data. A pullback in oil prices also provided a tailwind.
- 2024 BoE implied rate cut pricing caught up to global counterparts after Monday's UK holiday, increasing by 4bp to around 57bp (the ECB equivalent was basically unchanged at 75bp).
- There's 6-8% implied probability of a rate cut at this week's BoE meeting (MNI preview to be published later Tuesday), with the first 25bp reduction fully priced only two meetings later in August.
- Periphery EGB spreads closed marginally wider, having retraced from session wides seen in the early afternoon as equities gained.
- While the focus this week is on the BoE, in the meantime Wednesday's data docket is highlighted by German and Spanish industrial production, and Italian retail sales.
Closing Yields / 10-Yr Periphery EGB Spreads To Germany
- Germany: The 2-Yr yield is down 1.2bps at 2.9%, 5-Yr is down 3.5bps at 2.457%, 10-Yr is down 4.8bps at 2.42%, and 30-Yr is down 5.5bps at 2.54%.
- UK: The 2-Yr yield is down 4.6bps at 4.31%, 5-Yr is down 8.2bps at 4.021%, 10-Yr is down 9.7bps at 4.125%, and 30-Yr is down 9.8bps at 4.602%.
- Italian BTP spread up 0.5bps at 134.1bps / Spanish unchanged at 78.3bps
EGB Options: Lighter Flow Tuesday Leans To Upside
Tuesday's Europe rates/bond options flow included:
- RXN4 136c, bought for 26 in 2k
- ERZ4 96.87/97.00/97.12c fly, bought for 1.25 in 5k
- SFIM4 95.80c, bought for 0.25 in 5k (ref 94.98, 5 del)
FOREX USDJPY Extends Bounce From Post-NFP Lows
- The USD Index remains modestly in the green Tuesday, however, G10 ranges remain narrow and markets are awaiting the next macro cue to build momentum in either direction. Bank of Japan chief Ueda met with the Japanese PM earlier today to discuss the economy, markets and inflation - another signal that these issues are still top-of-mind for the most senior policymakers in the country, resulting in a reaffirmation of the commitment to intervene in currency markets if required.
- Despite this, USDJPY is 0.38% higher on the session at 154.50, which extends the bounce from noted support at the 50-dma support, and the key 151.95 pivot, which helps underpin from the tail-end of last week.
- A resilient single currency has helped EUR/JPY build further above its 50-dma support that contained the pullback last week (crossing today at 164.10) - and puts spot within range of the more sizeable expiries rolling off this week at 166.45 (E409mln) and 166.80 (E703mln) on Thursday.
- The RBA left rates unchanged as widely expected, but the statement didn't contain any hawkish shift in terms of the rates bias, while the RBA inflation outlook still has prices returning towards target unchanged from the prior meeting. This comes despite the Q1 upside inflation surprise and has moderately weighed on AUDUSD (-0.26%), one of the weaker major currencies throughout today’s session.
- In similar vein, GBPUSD trades 0.2% lower on Tuesday as markets gear up for this week’s Bank of England decision. Overall, GBPUSD trading higher last Friday resulted in a break of the 50-day EMA, at 1.2571 and a clear breach of the average would strengthen a short-term bullish set-up and signal scope for a stronger correction near-term. Scope is seen for a climb towards 1.2667, a Fibonacci retracement. Firm support has been defined at 1.2466, the May 1 low.
- German industrial production and Italian retail sales highlight a relatively quiet Wednesday calendar.
FX Expiries for May08 NY cut 1000ET (Source DTCC)
- EUR/USD: $1.0750(E793mln), $1.0775-80(E612mln), $1.0825(E525mln)
- USD/JPY: Y153.75($708mln), Y154.40-50($510mln)
- GBP/USD: $1.2489-00(Gbp496mln)
- EUR/GBP: Gbp0.8580-90(Gbp827mln)
- AUD/USD: $0.6600(A$629mln)
Late Equities Roundup: Autos, Chip Stocks Underperforming
- Stocks have scaled back from midday highs, trading near steady to mildly mixed in late trade. Currently, DJIA is up 14.87 points (0.04%) at 38867.23, S&P E-Minis up 4.5 points (0.09%) at 5211.25, Nasdaq down 20.6 points (-0.1%) at 16329.04.
- Laggers: Consumer Discretionary and Information Technology sectors underperformed late, automakers weighing on the former: Tesla -3.77%, Ford -2.76% while parts maker Aptiv lost 1.33%. Chip stocks weighed on the IT sector after trading stronger since last week: Monolithic Power -3.16%, Nvidia -1.89%, Microchip Technology -1.21%, Advanced Micro Devices -1.19%.
- Leading Gainers: Materials and Real Estate sectors outperformed in late trade, container/packaging stocks buoyed the former: International Paper +5.80%, Packaging Corp of America +1.56%, Avery Dennison +1.05%. Meanwhile, estate management shares supported the former: CoStar Group +1.29%, CBRE Group +1.04%.
- Earning after the close: McKesson Corp, Occidental Petroleum, Electronic Arts, Virgin Galactic, Match Group, Wynn Resorts, Lyft Inc, Twilio, Arista Networks.
- Wednesday earnings: Sunoco, Emerson Electric, Uber, Vertex, Liberty Media, HubSpot Inc, Airbnb, AppLovin, Duolingo, AMC Entertainment.
E-MINI S&P TECHS: (M4) Has Traded Through The 20-Day EMA
- RES 4: 5333.50 High Apr 1 and the bull trigger
- RES 3: 5285.00 High Apr 10
- RES 2: 5246.18 76.4% retracement of the Apr 1 - 19 bear leg
- RES 1: 5216.00 Intraday high
- PRICE: 5213.00 @ 1510 ET May 7
- SUP 1: 5130.4 50-day EMA
- SUP 2: 5036.25/4963.50 Low May 2 / 19 and the bear trigger
- SUP 3: 4907.57 50.0% retracement of the Oct 27 ‘23 - Apr 1 bull leg
- SUP 4: 4863.75 Low Jan 19
S&P E-Minis traded higher Monday, extending the current bull cycle, and the contract remains firm. Price has traded through resistance at the 20-day EMA. This highlights a stronger short-term bullish condition and a continuation higher would expose the key resistance and bull trigger at 5333.50, the Apr 1 high. Initial resistance is 5246.18, a Fibonacci retracement. Firm support lies at 5036.25, the May 2 low.
COMMODITIES Crude Ticks Down, Spot Gold Consolidates
- Crude has shown some volatility during US hours, as the market weighs a balanced outlook for 2024 in the EIA’s most recent report against continued uncertainty in the Middle East.
- WTI Jun 24 is down 0.1% at $78.4/bbl.
- For WTI futures, the breach of key support at the 50-day EMA, at $80.75, has opened $76.07, the Mar 11 low. Initial firm resistance is at $84.46, the Apr 26 high.
- Henry Hub has struggled for direction today but is approaching US close trading higher. Support from recovering LNG export flows is weighing against weaker demand and milder weather.
- US Natgas Jun 24 is up 0.5% at $2.21/mmbtu.
- Meanwhile, spot gold is down 0.4% on the day at $2,314/oz, leaving it 4.9% below its mid-April record high.
- Gold remains in consolidation mode. Having traded through the 20-day EMA, a continuation lower would signal scope for an extension towards $2,252.8, the 50-day EMA.
- Key resistance and the bull trigger is at $2431.5, the recent Apr 12 high.
WEDNESDAY DATA CALENDAR
| Date | GMT/Local | Impact | Flag | Country | Event |
| 08/05/2024 | 0600/0800 | ** |  | DE | Industrial Production |
| 08/05/2024 | 0700/0900 | ** |  | ES | Industrial Production |
| 08/05/2024 | 0730/0930 | *** |  | SE | Riksbank Interest Rate Decison |
| 08/05/2024 | 0800/1000 | * |  | IT | Retail Sales |
| 08/05/2024 | 1100/0700 | ** |  | US | MBA Weekly Applications Index |
| 08/05/2024 | 1400/1000 | ** | | US | Wholesale Trade |
| 08/05/2024 | 1430/1030 | ** | | US | DOE Weekly Crude Oil Stocks |
| 08/05/2024 | 1500/1100 | | US | Fed Vice Chair Philip Jefferson | |
| 08/05/2024 | 1545/1145 | | US | Boston Fed's Susan Collins | |
| 08/05/2024 | 1700/1300 | ** | | US | US Note 10 Year Treasury Auction Result |
| 08/05/2024 | 1730/1330 | | US | Fed Governor Lisa Cook | |
| 08/05/2024 | 1935/1535 | | US | New York Fed's Roberto Perli |
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