MNI ASIA MARKETS ANALYSIS: Mkt Shrugs Off PPI Beat, CPI Focus

US TSYS Focus on CPI After Market Shrugs Off PPI Gain

• Treasury futures are back near session highs after the bell, well off session lows when rates reacted poorly to PPI final demand MoM coming out higher than expected (0.5% vs 0.3% est), YoY steady vs. 2.2% est.; PPI Ex Food and Energy MoM (0.4% vs 0.2% est), YoY steady vs. 2.2% est).
• After Jun'24 10Y futures tapped a session low of 108-15 briefly before rebounding to early session high of 109-02 as markets digested softer airfare and insurance components and down revisions to prior data.
• Midmorning focus turned to Fed Chairman Powell as he called for patience in allowing higher interest rates to do their work to slow the economy and bring inflation back to 2% but said his confidence in the path of disinflation has fallen.
• Focus now turns to Wednesday's CPI, Retail Sales, TIC Flows and more Fed Speak. Consensus puts core CPI inflation at 0.3% M/M in April after a surprisingly strong Q1 averaging 0.37% M/M.
• An upside surprise will dial up concerns that the Q1 acceleration wasn’t just a bump and could see 2Y Treasury yields eye 5% again, with the start point to Fed cuts pushed further out amidst a still high bar to a rate hike.
• A downside surprise would still see sensitivity but the onus is on multiple low inflation readings before cut expectations are meaningfully brought nearer.

SOFR FIXES AND PRIOR SESSION REFERENCE RATES

SOFR Benchmark Settlements:

• 1M +0.00287 to 5.31964 (-0.00023/wk)
• 3M +0.00432 to 5.32238 (+0.00472/wk)
• 6M +0.00501 to 5.29355 (+0.00924/wk)
• 12M +0.00624 to 5.15822 (+0.01929/wk)

• Secured Overnight Financing Rate (SOFR): 5.31% (+0.00), volume: $1.805T
• Broad General Collateral Rate (BGCR): 5.30% (+0.00), volume: $719B
• Tri-Party General Collateral Rate (TGCR): 5.30% (+0.00), volume: $702B
• (rate, volume levels reflect prior session)

• Daily Effective Fed Funds Rate: 5.33% (+0.00), volume: $76B
• Daily Overnight Bank Funding Rate: 5.32% (+0.00), volume: $269B

FED Reverse Repo Operation

• RRP usage declines to $468.344B from $492.068B prior; number of counterparties 76. Compares to $327.066B on Monday, April 15 -- the lowest level since mid-May 2021.

SOFR/TEASURY OPTION SUMMARY

• SOFR Options:
  • -4,000 SFRQ4 94.68/96.00 strangles 10.25 ref 94.89
  • -10,000 SFRZ4/SFRH5 96.50 call spds, 6.5 covered
  • 3,100 SFRU4 94.62/94.68/94.75 put flys ref 94.88
  • 2,000 SFRV4 94.25/94.50 put spds vs. SFRM4 94.62 puts
  • 2,400 SFRM4 94.68/94.75 call spds, ref 94.695
  • 2,000 SFRU4 94.62/94.68/94.75 call flys, ref 94.88
• Treasury Options:
  • -10,000 TYM4 108.25/109.75 strangles, 29 ref 109-00
  • +7,500 TUN4 103 calls, 4 ref 101-30.38
  • +10,000 TUN4 101.25 puts, 3.5 ref 101-30.38
  • +15,000 Wednesday weekly 5Y 105/105.25 put spds, 3
  • 2,800 TYN4 109.5/110.5/111.5 call flys ref 109-08.5
  • 1,300 TYN4 108.5/110 strangles, 1-15 ref 109-07.5
  • 3,000 FVM4 106/106.5 1x2 call spds, 0.0 ref 105-24.5
  • 3,300 wk3 FV 105/105.25 put spds ref 105-22.5 expire Friday
  • 4,500 FVM4 105.5 puts, 20.5 last ref 105-22.75
  • 2,500 wk3 TY 109.75/110.25 call spds ref 108-28.5 expire Friday
  • 3,800 Wednesday weekly 10Y 107.5/107.75 put spds, 1 ref 108-26.5 expire tomorrow
  • +20,000 TYM4 109.5 calls, 17
  • +10,000 TYM4 110 calls, 9

EGBs-GILTS CASH CLOSE: Gilts Gain As Wage Data Keeps June BoE Cut In Play

Core European FI finished mixed Tuesday, after some intraday gyrations spurred by US producer price data.

• The early highlight was the UK labour market report which brought a slightly soft private sector regular wages print of 5.9% Y/Y (3 mos to March) that marginally increases the likelihood of a June BoE cut -. MNI's review of the data is here (PDF).
• That, plus BoE's Pill noting potential for a conversation on rate cuts this summer, helped Gilts outperform on the day.
• The UK curve bull steepened, versus light bear steepening in the German curve.
• The US PPI report sparked a sharp initial sell-off in global core FI as a much stronger than expected headline/core reading hit the wires, but softer details and downward revisions led to a full reversal.
• Periphery EGB spreads initially went wider on the PPI release, but recovered to close tighter to Bunds.
• Wednesday's docket is highlighted by US inflation data, though we also get appearances by ECB's Rehn, Villeroy, Makhlouf and Muller, and preliminary Eurozone Q1 GDP.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is up 3.2bps at 2.987%, 5-Yr is up 3.8bps at 2.578%, 10-Yr is up 3.8bps at 2.548%, and 30-Yr is up 3.7bps at 2.68%.
• UK: The 2-Yr yield is down 1.1bps at 4.322%, 5-Yr is down 0.6bps at 4.049%, 10-Yr is down 0.1bps at 4.173%, and 30-Yr is down 0.6bps at 4.652%.
• Italian BTP spread down 0.9bps at 134.2bps / Spanish bond spread down 0.9bps at 78.5bps

EGB Options: UK Rate Upside Structures Feature Tuesday

Tuesday's Europe rates/bond options flow included:

• ERH5 97.25/96.62 RR vs ERZ4 97.25/96.50 RR, bought H5 for 3.5 in 17.25k
• SFIN4 95.10/95.20/95.30c fly bought 1.75 in 2k
• SFIU4 95.2595.45cs 1x1.5, bought for 3.75 in 1k
• SFIU4 95.50/95.65/95.80c fly, sold at 0.75 in 1k
• SFIU4 95.10/95.25/95.40c fly, bought for 2 in 5k
• DUN4 106.00/106.60cs bought for 4.5 in ~8k

FOREX PPI Whipsaw Sees USD, JPY Sold

• A mixed US PPI release underpinned a short spell of volatility in USD pairs, as the higher-than-expected ex-food and energy prints (0.5% vs. Exp. 0.2% M/M, 2.4% vs. Exp. 2.3% Y/Y) triggered USD strength to send EUR/USD, GBP/USD and AUD/USD to new daily lows. This price action swiftly reversed, however, as details in the PPI report showed negative revisions to the March data and few ramifications for PCE.
• The subsequent USD weakness aided GBP/USD back to the 50-dma resistance at 1.2594, a break above which opens 1.2634 and levels last seen in mid-May.
• The extended post-PPI reaction worked against JPY, which traded softer against all others in G10. This pressured a trade-weighted JPY index, and a further 0.25% depreciation puts JPY at new May lows, with another ~1.8% sell-off needed to hit pre-intervention cycle lows.
• This highlights the strength of the EUR/JPY bounce over the past two weeks - with EUR/JPY ~1.4% shy of highs vs. USD/JPY's ~2.3%. A close at current or higher levels would mark seven consecutive sessions of gains in EUR/JPY, the longest winning streak since April of last year - which extended to 10 consecutive trading days.
• Focus Wednesday shifts to the US CPI print, and in particular any signals for an out-of-consensus view on PCE. Fed market pricing still only fully discounts a first rate cut by the November FOMC decision, on which Powell commented today that policy is likely to be kept tighter for longer. Outside of the US inflation print, appearances from ECB's Rehn, Muller, Villeroy & Makhlouf and Fed's Kashkari & Bowman are due.

FX Expiries for May15 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0600-15(E1.4bln), $1.0640-50(E1.2bln), $1.0665-75(E1.6bln), $1.0750(E918mln), $1.0789-00(E1.2bln), $1.0820-25(E690mln), $1.0850(E595mln)
• GBP/USD: $1.2440-55(Gbp1.2bln)
• USD/JPY: Y155.50-60($510mln), Y156.00(1.2bln)
• AUD/USD: $0.6600(A$1.5bln)
• USD/CAD: C$1.3940($1.1bln)
• USD/CNY: Cny7.2000($822mln), Cny7.3000($611mln)

Late Equities Roundup: Marking Late Session Highs, Chip Stocks Leading

• Stocks have extended highs, SPX and DJIA rebounding in late trade after scaling back support early in the second half. Currently, the DJIA is up 130.29 points (0.33%) at 39565.68, S&P E-Minis up 22.25 points (0.42%) at 5268.75, Nasdaq up 119.3 points (0.7%) at 16508.22.
  
• Leading Gainers: Information Technology and Real Estate sectors continued to outperform in late trade, semiconductor stocks continued to supported the IT sector: Enphase +4.14%, Broadcom +2.86%, Qualcomm +2.43%. Investment trusts buoyed the former: Alexandria Real Estate +2.64%, Boston Property +2.28%, Simon Property Group +1.73%.
  
• Laggers: Energy and Consumer Staples sectors continued to underperform in late trade, oil and gas companies weighed on the former: Marathon Petroleum -3.06%, Diamondback Energy -1.50%, Hess -0.78%. Meanwhile, household products weighed on the latter, Clorox -2.22%, Kimberly-Clark -0.98%, Church & Dwight -0.83%.
  
• Late cycle earnings releases still expected this week: CIsco, B Riley, Walmart, Deere & Co, Applied Materials and Take Two Entertainment.

E-MINI S&P TECHS: (M4) Bulls Remain In The Driver’s Seat For Now

• RES 4: 5333.50 High Apr 1 and the bull trigger
• RES 3: 5285.00 High Apr 10
• RES 2: 5293.98 2.0% 10-dma envelope
• RES 1: 5274.00 intra day high May 14
• PRICE: 5269.50 @ 1525ET May 14
• SUP 1: 5152.68 50-day EMA
• SUP 2: 5036.25/4963.50 Low May 2 / Low Apr 19 and the bear trigger
• SUP 3: 4907.57 38.2% retracement of the Oct 27 ‘23 - Apr 1 bull leg
• SUP 4: 4863.75 Low Jan 19

S&P E-Minis traded higher last week, extending the current bull cycle. Price has moved through resistance at the 20-day EMA - a bullish development. This highlights scope for a continuation higher that would expose the key resistance and bull trigger at 5333.50, the Apr 1 high. Initial resistance is 5246.18, a Fibonacci retracement. Initial firm support lies at 5036.25, the May 2 low.

COMMODITIES Copper Hits Record High, Crude Weakening

• Copper is up another 2.6% on at the day at $488.9/lb, having hit a record high of $502.60 earlier in the session.
• Strong demand, given hopes of further infrastructure investment in China, and still tight supply are continuing to raise concerns of shortages.
• The break higher in copper futures today cleared resistance and tipped the RSI into technically overbought territory. Next levels seen higher are projection resistance at 490.22 and the 3.0% upper Bollinger band of 490.30. Key support lies at $456.51, the 20-day EMA.
• Meanwhile, spot gold is up by 1.0% at $2,359/oz.
• Next resistance is at $2,431.50 - the bull trigger. Any return lower would eye $2,269.1, the 50-day EMA.
• WTI is trading lower as the US PPI data adds pessimism towards near-term rate cuts - further stifling future oil demand. Headlines suggesting debate among OPEC+ members over output capacity added further pressure.
• WTI Jun 24 is down 1.4% at $78.0/bbl.
• For WTI futures, a bearish theme remains intact, with attention on $76.07 next, the Mar 11 low. Initial firm resistance is at $84.46, the Apr 26 high.

WEDNESDAY DATA CALENDAR

Date	GMT/Local	Impact	Flag	Country	Event
14/05/2024	0015/2015			US	Kansas City Fed's Jeff Schmid
15/05/2024	0130/1130	***		AU	Quarterly wage price index
15/05/2024	0600/0800	***		SE	Inflation Report
15/05/2024	0645/0845	***		FR	HICP (f)
15/05/2024	0900/1100	**		EU	Industrial Production
15/05/2024	0900/1100	***		EU	GDP (p)
15/05/2024	1100/0700	**		US	MBA Weekly Applications Index
15/05/2024	1215/0815	**		CA	CMHC Housing Starts
15/05/2024	1230/0830	***		US	CPI
15/05/2024	1230/0830	**		CA	Monthly Survey of Manufacturing
15/05/2024	1230/0830	***		US	Retail Sales
15/05/2024	1230/0830	**		US	Empire State Manufacturing Survey
15/05/2024	1300/0900	*		CA	CREA Existing Home Sales
15/05/2024	1400/1000	*		US	Business Inventories
15/05/2024	1400/1000	**		US	NAHB Home Builder Index
15/05/2024	1400/1000			US	Fed Vice Chair Michael Barr
15/05/2024	1405/1505			UK	Bernanke Review of Bank of England Forecasting
15/05/2024	1430/1030	**		US	DOE Weekly Crude Oil Stocks
15/05/2024	1600/1200			US	Minneapolis Fed's Neel Kashkari
15/05/2024	1920/1520			US	Fed Governor Michelle Bowman
15/05/2024	2000/1600	**		US	TICS