MNI ASIA MARKETS ANALYSIS: Rates Surge on Soft ISM Data

HIGHLIGHTS

• MNI GERMANY: Germany To Introduce Legislation To Reduce Energy Consumption By 26.5%
• MNI ENERGY SECURITY: White House NSC Kirby: OPEC Production Cuts Not Advisable
• ECB'S HOLZMANN: HALF-POINT HIKE `STILL ON THE CARDS' FOR MAY, Bbg

US Tsys Near Highs, Weaker ISMs Outweigh Surge in Oil

• Tsys near midday highs after the bell, wide range for the week opener as lower than expected ISM data leavened concerns over higher inflation tied to a surge in crude prices overnight.
• Tsys gapped lower Sunday evening after OPEC+ announced over 1M bbl/day production cut, surprising markets and underscoring inflation concerns (read: prospect for renewed rate hikes).
• Tsy futures gapped higher after lower than expected ISMs quashed the oil-tied inflation/rate hike concerns. Drops in ISM sub-indices across the board (with the exceptions of production and customer inventories), with every one in below-50 territory. New orders, prices paid, and Employment down sharply.
• Fed funds implied hike for May'23 at 16.2bp, Jun'23 +13.8bp cumulative at 4.954% late. Meanwhile, projected rate cuts later in the year gained: Sep'23 cumulative -14.7bp (-11.1bp earlier) to 4.674%, to -50.4bp (40.6 earlier) for Dec'23 at 4.312.
• Front month Jun'23 10Y futures bounced back to March 27 level 115-21.5 (+24) , 115-16 after the bell, 10Y yield dropped to 3.3983% low vs. 3.4226% late. TYM3 through March 28 high resistance (115-07.5) put focus on key resistance of 116-06+/117-01+ High Mar 27 / High Mar 24 and bull trigger.
• Markets may be more volatile this week due to thin liquidity w/ early Friday close ahead Easter weekend/spring holiday for some. Nevertheless, March employment data scheduled for Friday release (+240k est vs. +310k prior); ADP private employ this Wednesday (+210k est vs. +242k prior).

SHORT TERM RATES

US DOLLAR LIBOR: Latest settlements:

• O/N +0.00543 to 4.80629% (-0.00800 total last wk)
• 1M +0.00000 to 4.85771% (+0.02714 total last wk)
• 3M +0.02986 to 5.22257% (+0.09128 total last wk)*/**
• 6M +0.00686 to 5.31986% (+0.32571 total last wk)
• 12M +0.02585 to 5.33114% (+0.46943 total last wk)
• * Record Low 0.11413% on 9/12/21; ** New 16Y high: 5.22257% on 4/3/23

• Daily Effective Fed Funds Rate: 4.83% volume: $86B
• Daily Overnight Bank Funding Rate: 4.82% volume: $175B

• Secured Overnight Financing Rate (SOFR): 4.87%, $1.408T
• Broad General Collateral Rate (BGCR): 4.80%, $479B
• Tri-Party General Collateral Rate (TGCR): 4.80%, $470B
• (rate, volume levels reflect prior session)

FED Reverse Repo Operation

NY Fed reverse repo usage falls to $2,221.010B w/ 101 counterparties, compares to Friday's 2023 record high usage of $2,375.171B. Record high of $2,553.716B from December 30, 2022 remains intact.

EURODOLLAR/SOFR/TREASURY OPTIONS SUMMARY

• SOFR Options:
• 6,900 SFRJ3 95.31/95.43 call spds vs. SFRK3 95.50/95.75 call spds
• 2,500 SFRZ3 94.50/95.00/95.50 put flys
• Block, 5,000 SFRJ3 95.12/95.25/95.37 call flys, 0.5 ref 95.06
• Block/pit, +45,000 SFRK3 94.56/95.06 put spds, 15.0-16.0 ref 95.075 to -06
• Block, 20,000 SFRJ3 95.06/95.12 call spds, 2.25 vs. 95.085/0.10%
• Block, 13,750 SFRK3 95.00/95.50 2x1 put spds
• -40,000 SFRM3 95.75 calls, 9.5-9.0 vs 95.09/0.20%
• over 6,800 SFRM3 95.75 calls ref 95.095
• 9,500 SFRM3 94.31/94.56 put spds ref 95.10
• 3,900 SFRM3 94.37/94.68/94.87 put flys, ref 95.09
• 3,000 OQJ3 95.87/96.00/96.25 broken put flys, ref 96.385 to -.37
• Block, 12,400 SFRM3 94.43/94.56 put spds, .75 ref 95.07 to -.06
• Treasury Options:
• over 6,000 TYK3 117/119 call spds, 20
• -7,500 TYM3 120/125/130 call flys, 9 ref 114-26
• 1,000 FVK3 112/114/115 call flys vs. FVM 112/113/113.5 call flys
• over 5,200 FVM3 110.75 calls, 36-37 ref 109-10 to -10.25
• 2,000 TYK3 110.5/111/112 broken put flys ref 114-24
• 2,000 USK3 138/140 call spds, 6 ref 130-27

EGBs-GILTS CASH CLOSE: From Bear Flattening To Bull Flattening

European bonds rallied after an early selloff, with Bunds and Gilts ending Monday's session stronger.

• Yields jumped on the open as oil prices shot higher on an unexpected OPEC+ output cut announcement made over the weekend. The German and UK curves bear flattened.
• But the move reversed later in the session, with curves ultimately bull flattening. A very weak US ISM manufacturing reading was a key driver in the European afternoon, with yields hitting session lows.
• ECB hawk Holzmann said a 50bp hike in May was "still on the cards", with the OPEC+ decision adding to inflation on the margin. That bumped up ECB May hike pricing slightly, but didn't have much of an impact further down the strip, and reversed alongside the broader rate move.
• ECB and BoE terminal pricing finished basically flat on the day, after early 5-6bp rises.
• Periphery EGB spreads widened, with the exception of Portugal (possibly follow-through from Friday's funding announcement).
• Comments by BoE's Pill are the highlight of Tuesday's docket.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany:

• Germany: The 2-Yr yield is down 0.9bps at 2.674%, 5-Yr is down 2.3bps at 2.287%, 10-Yr is down 3.7bps at 2.255%, and 30-Yr is down 5.7bps at 2.306%.
• UK: The 2-Yr yield is down 5.4bps at 3.39%, 5-Yr is down 5.7bps at 3.3%, 10-Yr is down 6bps at 3.43%, and 30-Yr is down 8.1bps at 3.758%.
• Italian BTP spread up 4.1bps at 184.6bps / Portuguese down 0.9bps at 82.3bps

EGB Options: Limited Schatz Downside In Quiet Options Session

Monday's Europe rates/ bond options flow included:

• DUK3 105.20/104.80 1x1.33 ratio put spread bought for 7 in 7.5k

FOREX: Greenback Reverses Early Advance, AUD Soars Before RBA

• News from Opec+ regarding surprise crude output cuts inspired a firm rally for the US dollar in early trade on Monday. However, a sharp reversal lower for US yields, exacerbated by lower-than-expected US ISM Manufacturing data have prompted a substantial reversal lower for the USD index, which sits down 0.3% as we approach the APAC crossover.
• Leading the G10 charge on the rebound has been the Australian dollar. AUDUSD is currently up 1.36% on the day and is trading at the highest levels since February 24. The 50-day exponential moving average at 0.6751 has been breached, signalling scope for a stronger short-term recovery. The significant rally comes before Tuesday’s RBA decision where analysts remain split between an unchanged decision and a 25bp rate hike.
• USDJPY (-0.45%) weakness also prevailed amid the lower US yields with the pair reversing over 1% from the overnight 133.76 highs. Overall, trend conditions remain bearish with gains being seen as technically corrective to this point. The 50-day EMA, intersecting at 133.34, was breached earlier today but remains the key short-term hurdle for bulls.
• Similar half a percent gains have been seen for the likes of EUR, CAD, NZD and GBP.
• Cable has regained the 1.24 handle on Monday with recent gains exposing resistance at 1.2448, the Jan 23 high and this remains a key medium-term hurdle for bulls. A break of this level would highlight a 3-months range breakout and more importantly, a resumption of the uptrend.
• Following the RBA decision on Tuesday, JOLTS data highlights the US docket. Focus then turns to the RBNZ on Wednesday before the US ISM Services PMI data.

​FX OPTION EXPIRY: For Tuesday 4th April

• EURUSD: 1.0900 (452mln), 1.0950 (1.01bn), 1.1000 (720mln).
• GBPUSD: 1.2400 (581mln), 1.2425 (424mnl).
• USDJPY: 132.00 (506mln).

Late Equities Roundup: Energy Shares Remain Strong, Autos Off Lows

• US stocks trading mostly higher in late afternoon trade, SPX Eminis bouncing off the post-ISM dip to around 4150.0, Dow stocks still outperforming (DJIA +312 at appr 33586), Nasdaq weaker but off lows at 12162.0 (-59.20).
• Energy sector shares continue to outperform (+5.35%) after the OPEC+ production cut surprise announced late Sunday. Leaders: Marathon (MRO) +10.3%, Conoco-Philips (COP) +9.37%, APA +8.90%, Halliburton (HAL) +8.63%.
• Autos still weaker, however, Toyota bouncing after weak sales figures while Tesla still underperforming: -6.32%.
• Bullish conditions continue for Eminis. After breaching 4148.48 (76.4% of the Feb 2 - Mar 13 downleg) to 4156.75 high, a clear breach of this level would signal scope for an extension towards 4205.50, Feb 16 high ahead of 4244.00, Feb 2 high and a key medium-term resistance.

E-MINI S&P (M3): Bull Cycle Remains In Play

• RES 4: 4223.00 High Feb 14
• RES 3: 4205.50 High Feb 16
• RES 2: 4148.48 76.4% retracement of the Feb 2 - Mar 13 downleg
• RES 1: 4142.50 High Mar 31
• PRICE: 4133.25 @ 14:31 BST Apr 3
• SUP 1: 4078.00 Low Mar 31
• SUP 2: 4027.87 50-day EMA
• SUP 3: 3980.75 Low Mar 28
• SUP 4: 3937.00 Low Mar 24

S&P E-minis maintains a bullish tone and the contract is trading at its recent highs. Price has breached resistance at 4119.50, reinforcing the bullish conditions. The move higher exposes 4148.48, a Fibonacci retracement. Clearance of this level would signal scope for an extension towards 4205.50, the Feb 16 high ahead of 4244.00, the Feb 2 high and a key medium-term resistance. Firm support lies at 4027.87, the 50-day EMA.

COMMODITIES: Oil Maintains Large Gains Post Surprise OPEC+ Cut Announcement

• Crude oil has for the most part held onto large gains following the surprise announcement on Sunday that OPEC will cuts production by about 1.1mbpd from next month while Russia also said its production cut of 500kbpd would be extended until the end of the year. The largest OPEC cuts will be from Saudi Arabia of 500kbpd. Brent is up about 5% on the day although has drifted off from the initial high of 85.87$/bbl.
• WTI is +6.0% at $80.14 off an early overnight high of $81.69. A clear break of $81.04 would signal scope for a continuation higher and open $83.04 (Jan 23 high). Most active strikes in the CLK3 are by far in $80/bbl calls, followed by $85/bbl calls.
• Brent is +6.0% at $84.65, off early overnight highs of $86.44 that cleared resistance at $86.17 (Mar 7 high). A pick up of bullish momentum could ultimately see focus on the key $88.35 (Jan 23 high).
• Gold is +0.8% at $1984.76, pushing back toward the bull trigger of $2009.7 (Mar 20 high) as the USD faded throughout the session.

Tuesday Data Calendar

Date	GMT/Local	Impact	Flag	Country	Event
04/04/2023	0430/1430	***		AU	RBA Rate Decision
04/04/2023	0600/0800	**		DE	Trade Balance
04/04/2023	0900/1100	**		EU	PPI
04/04/2023	0900/1000	**		UK	Gilt Outright Auction Result
04/04/2023	0915/1015			UK	BOE Tenreyro Keynote Speech at RES Conference
04/04/2023	1230/0830	*		CA	Building Permits
04/04/2023	1255/0855	**		US	Redbook Retail Sales Index
04/04/2023	1400/1000	**		US	IBD/TIPP Optimism Index
04/04/2023	1400/1000	**		US	Factory New Orders
04/04/2023	1400/1000	**		US	JOLTS jobs opening level
04/04/2023	1400/1000	**		US	JOLTS quits Rate
04/04/2023	1630/1730			UK	BOE Pill Speech at ICMB
04/04/2023	1730/1330			US	Fed Governor Lisa Cook
04/04/2023	2245/1845			US	Cleveland Fed's Loretta Mester
05/04/2023	2300/0900	*		AU	IHS Markit Final Australia Services PMI
05/04/2023	2300/0900	**		AU	IHS Markit Manufacturing PMI (f)