MNI ASIA MARKETS ANALYSIS: Risk-On In Lead-Up to FOMC

HIGHLIGHTS

• SENATE BANKING TO HOLD MARCH 28 HEARING ON SVB COLLAPSE, Bbg
• MNI NATO: Sec Gen Stoltenberg: Members To Agree To More Ambitious Spending At Summit
  
• MNI US: Yellen: Actions Could Be Taken To Prevent Deposit Runs On Smaller Banks
  
• YELLEN: PRIORITIZATION IS NOTHING BUT DEFAULT BY ANOTHER NAME, Bbg
• RUSSIA SAYS PLEDGED OIL OUTPUT CUT TO BE IN FORCE UNTIL JULY, Bbg

Key links: MNI BRIEF: Yellen Says U.S. Banking System Is Stabilizing / MNI: Frugal Fury At EU Guidance Endangers Pact Reform-Officials / MNI INTERVIEW: Swiss Should Explain Why Emergency Plan Ignored / MNI BOE Preview - Mar 2023: Feb CPI to Determine Hike or Hold / MNI SNB WATCH: Caution On Rates After UBS-CS Deal / MNI Europe Pi (Positioning Indicator): Bank Fears=Short Cover / US Treasury Auction Calendar / US$ Credit Supply Pipeline

US TSYS: Yields Gain Ahead Expected 25Bp Hike From Fed

• Front month US Treasury futures are near late session lows after the close (10Y yield at 3.5923%, 2Y yield at 4.1749% vs. 3.9126% overnight low), yield curves bear flattening (2s10s -8.305 at -58.091).
• The main focus on Wednesday's FOMC policy announcement, 25bp hike widely anticipated. Otherwise there was little reaction to a surge in latest existing home sales data earlier: +14.5% to 4.58M SAAR vs. estimate of 4.2M +5%, while futures held near midday lows after $12B 20Y bond auction (912810TQ1) reopen tailed slightly: 3.909% high yield vs. 3.905% WI; 2.53x bid-to-cover vs. prior month's 2.54x.
• Indirect take-up 67.03% vs. 75.3% prior month; direct bidder take-up 21.06% vs. 17.97% prior; primary dealer take-up climbs to 11.93% vs. 6.73%.
• From a technical perspective, front month 10Y futures remain volatile as the price continues to pull away from yesterday’s high of 116-24. TYM3 currently at 114-07 (-28), above next support at 114-01+, the Mar 17 low and firmer support is seen at 113-12, the 50-day EMA.
• A break of this average is required to signal a stronger reversal. A move higher higher would once again refocus attention on the key resistance zone between 116-24, yesterday’s high and 116-28+, the Jan 19 high. This zone is a bull trigger.

SHORT TERM RATES

US DOLLAR LIBOR: Latest settlements:

• O/N +0.00500 to 4.56057% (-0.00029/wk)
• 1M +0.02700 to 4.77929% (+0.00158/wk)
• 3M +0.07057 to 5.01771% (+0.01928/wk)*/**
• 6M +0.15786 to 5.00657% (-0.04572/wk)
• 12M +0.29328 to 4.99671% (-0.03743/wk)
• * Record Low 0.11413% on 9/12/21; ** New 16Y high: 5.15371% on 3/9/23

• Daily Effective Fed Funds Rate: 4.58% volume: $92B
• Daily Overnight Bank Funding Rate: 4.57% volume: $277B

• Secured Overnight Financing Rate (SOFR): 4.55%, $1.288T
• Broad General Collateral Rate (BGCR): 4.52%, $506B
• Tri-Party General Collateral Rate (TGCR): 4.52%, $489B
• (rate, volume levels reflect prior session)

FED Reverse Repo Operation

NY Fed reverse repo usage rebounds to $2,194.631B w/ 104 counterparties vs. prior session's $2,.098.393B. Compares to Friday, Dec 30 record/year-end high of $2,553.716B (prior record high was $2,425.910B on Friday, September 30.

EURODOLLAR/SOFR/TREASURY OPTIONS SUMMARY

• SOFR Options:
  • Block, 5,000 SFRZ3 96.50/97.75 1x2 call spds, 5.0 ref 95.66
  • -20,000 SFRJ3 96.00 calls, 6.5
  • Block, 20,000 SFRU3 94.25/94.75/95.25 put trees, 16.0 net ref 95.39
  • over +14,700 OQJ3 96.00 puts, 14.0 ref 96.39
  • +3,000 SFRZ3 94.62 puts, 21.0 vs. 96.766/0.22%
  • -10,000 SFRM3 94.25/94.50/94.75 put flys, 3.5-3.25
  • +20,000 SFRZ3 94.50/94.75/95.00/95.25 put condors, 4.5 ref 96.765
  • 6,000 SFRZ3 93.25/93.50/93.75/94.00 put condors, ref 95.775
  • 4,750 OQM3 95.87/96.00 strangles, ref 96.375
  • 5,000 SFRM3 96.25 calls, ref 95.295
  • over 8,800 OQJ3 96.00/2QJ3 96.50 put spds around even
  • Block, 3,500 SFRM3 94.68/94.75 put spds, 1.5 ref 95.45
• Treasury Options:
  • 14,000 FVK3 108.75/109.25 strangle ref 108-30
  • 2,100 FVK3 107.5 puts, ref 109-10.25
  • 1,000 TYK3 112/118 call over risk reversal, 1 net ref 114-19

EGBs-GILTS CASH CLOSE: German Short-End Underperforms

The German short end underperformed across the global core FI space Tuesday, with 2Y Schatz yields rising the most in a single day since 2008 (just under 26bp).

• The price action saw few headline drivers and was mostly steady through the session - it mainly reflected a resumption of Monday's retracement from panicked extremes following the weekend's UBS-Credit Suisse tie-up.
• Such has been the magnitude of recent moves: though up over 50bp from Monday's lows, German 2Y yields remain 80bp below the month's highs.
• Periphery spreads tightened alongside an equity relief rally.
• Central bank hike expectations continued to retrace higher from the past week's lows, with end-year ECB pricing up 25bp on the session.
• BoE pricing rose by 15bp though as our preview of Thursday's meeting points out, tomorrow's CPI will likely determine whether we get a hike or a hold.
• Later Wednesday, the Federal Reserve decision takes centre stage.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is up 25.6bps at 2.617%, 5-Yr is up 21bps at 2.312%, 10-Yr is up 16.7bps at 2.292%, and 30-Yr is up 11.1bps at 2.319%.
• UK: The 2-Yr yield is up 5.4bps at 3.278%, 5-Yr is up 4.8bps at 3.216%, 10-Yr is up 5.7bps at 3.367%, and 30-Yr is up 2bps at 3.842%.
• Italian BTP spread down 3.9bps at 182.4bps / Greek down 7.2bps at 191bps

EGB Options: Schatz Trades Feature As 2Y Yields Soar Tuesday

Tuesday's Europe rates/bond options flow included:

• DUK3 105.70/105.20/104.70/104.40p condor (broken), bought for 14 in 7.3k
• DUK3 105.40/105.20ps vs 107.40/107.60cs, bought the ps for 1 in 3k
• DUK3 106.1/106.3cs, sold at 7.5 in 16.6k.
• ERZ3 98.00/99.00cs sold at 10 down to 9.25 in 8k

FOREX: Pressure On Core Fixed Income Weighs On Japanese Yen

• Pressure on core fixed income on Tuesday mainly reflected a resumption of Monday's retracement from panicked extremes following the weekend's UBS-Credit Suisse tie-up. Higher core yields played into a weaker Japanese Yen, with USDJPY posting a notable bounce from 131.04 overnight lows to 132.60 as we approach Wednesday’s APAC crossover.
• With the German short end notably underperforming (2Y Schatz yields rising just under 26bp), the Euro has been a relative outperformer across G10, along with the Swiss Franc.
• EURUSD moved above resistance at 1.0760, the Mar 15 high and a clear break of this level in coming sessions would strengthen the current bull theme. This would signal scope for gains towards 1.0803 next, the Feb 14 high. On the downside, key short-term support has been defined at 1.0516, the Mar 15 low, where a break is required to reinstate a bearish technical threat.
• AUD and NZD make up the poorest performers in G10 alongside the Yen following the RBA minutes release overnight, which raised the prospect of a pause to the rate hike cycle. The RBA minutes showed the board took uncertainty surrounding the economic outlook into consideration, and could keep rates unchanged at upcoming meetings in order to judge the impact of the tightening cycle so far.
• In emerging markets, HUF (+1.96%) and MXN (+1.07%) have had the most notable rallies/recoveries against the greenback after their sharp selloffs across both last week and early on Monday’s session.
• Wednesday’s docket commences with UK CPI, seen as a key data point before the BOE decision on Thursday. ECB president Lagarde is then due to speak at ECB and Its Watchers conference, in Frankfurt. Focus then quickly turns to the March FOMC rate decision/statement.

FX: Expiries for Mar22 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0600(E916mln), $1.0620-25(E612mln), $1.0660-80(E1.4bln), $1.0715-35(E1.2bln), $1.0775(E646mln), $1.0810(E564mln)
• USD/JPY: Y132.00($519mln), Y132.45-55($826mln), Y134.00($712mln), Y134.22-25($511mln)

Late Equities Roundup: Best Levels Since March 9

• US stocks holding moderate gains in late trade, front month S&P futures currently at 4020.0 after breaching the 50-day EMA short term resistance of 4025 earlier to a session high of 4028.0, the best level since March 9.
• Leading gainers were Energy (+3.37%), Consumer Discretionary (+2.35%) and Financials (+2.20%) sectors.
• Banks outperformed while Treasury Secretary Janet Yellen said Tuesday the U.S. banking system is stabilizing, while Treasury remains committed to ensuring the ongoing health and competitiveness of America's regional banks.
• From a technical standpoint, S&P E-Minis continue to extend a recovery from 3839.25, Mar 13 low. Key short-term resistance to watch is the 50-day EMA which today intersects at 4025.01. This EMA represents an important pivot level.
• While price remains below the EMA, it is likely that gains are a correction ahead of a resumption of the downtrend. A clear break of the average would change that and highlight a stronger bullish environment.

E-MINI S&P (M3): Approaching Pivot Resistance At The 50-Day EMA

• RES 4: 4244.00 High Feb 2 and key resistance
• RES 3: 4200.00 Round number resistance
• RES 2: 4119.50 High Mar 6
• RES 1: 4025.01 50-day EMA
• PRICE: 4022.50 @ 1500 ET Mar 21
• SUP 1: 3839.25 Low Mar 13
• SUP 2: 3822.00 Low Dec 22 and a key support
• SUP 3: 3778.00 Low Nov 3
• SUP 4: 3724.86 76.4% retracement of the Oct 13 - Feb 2 bull cycle

S&P E-Minis have continued to climb as the contract extends the recovery from 3839.25, Mar 13 low. Key short-term resistance to watch is the 50-day EMA which today intersects at 4025.01. This EMA represents an important pivot level. While price remains below the EMA, it is likely that gains are a correction ahead of a resumption of the downtrend. A clear break of the average would change that and highlight a stronger bullish environment.

COMMODITIES: Oil Climbs and Gold Slumps on Reduced Bank Fears

• Crude oil prices have pushed higher for the second day along with more upbeat risk sentiment concerning the US regional banking crisis (potentially considering raising deposit insurance limit), with Tsy yields up strongly and the S&P e-mini climbing more than 1%.
• Coming after the bulk of the day’s increase had already been seen, Russia’s Novak said it will continue its 500kbpd oil production cut until the end of Jun’23, with those cuts being reached in coming days.
• Of the more bullish trader calls, Pierre Andurand predicts a surge to as high as $140 by year-end.
• WTI is +2.5% at $69.33 as it nears resistance at $69.83 (Mar 17 high) after which lies $72.71 (Mar 15 high).
• Brent is +1.8% at $75.13, also nearing resistance at $75.92 (Mar 17 high) after which lies $78.84 (Feb 6 low).
• Gold is -2.2% at $1935.64 in a significant reversal of equally sizeable increases that had pushed it above $2000 yesterday. It crashes through support at $1959.7 (Feb 2 high and recent breakout level) to next open $1918.3 (Mar 17 low).

Wednesday Data Calendar

Date	GMT/Local	Impact	Flag	Country	Event
22/03/2023	0001/0001	*		UK	XpertHR pay deals for whole economy
22/03/2023	0700/0700	***		UK	Consumer inflation report
22/03/2023	0700/0700	***		UK	Producer Prices
22/03/2023	0845/0945			EU	ECB Lagarde Address at ECB and its Watchers Conference
22/03/2023	0900/1000	**		EU	EZ Current Account
22/03/2023	0930/0930	*		UK	ONS House Price Index
22/03/2023	0930/1030			EU	ECB Lane in Debate at ECB and its Watchers Conference
22/03/2023	1000/1000	**		UK	Gilt Outright Auction Result
22/03/2023	1100/0700	**		US	MBA Weekly Applications Index
22/03/2023	1100/1100	**		UK	CBI Industrial Trends
22/03/2023	1345/1445			EU	ECB Panetta in Debate at ECB and its Watchers Conference
22/03/2023	1430/1030	**		US	DOE Weekly Crude Oil Stocks
22/03/2023	1730/1330			CA	BOC minutes from last rate meeting
22/03/2023	1800/1400	***		US	FOMC Statement