May 23, 2024 19:49 GMT
MNI ASIA MARKETS ANALYSIS: Servicer Led PMI Highest in Two Yrs
HIGHLIGHTS
- Treasury futures look to finish weaker Thursday after higher than expected S&P Global US PMI data, a Servicer led beat saw the sharpest growth for just over two years.
- Meanwhile, initial jobless claims surprised lower with a seasonally adjusted 215k (cons 220k).
- Treasury curves bear flattened while projected rate cut pricing continued to cool with November no longer fully pricing in a 25bp rate cut.
US TSYS Near Lows, Flash PMIs Sapped Early Risk-On Tone
- Treasury futures remain weaker after the bell but off midmorning lows after higher than expected flash PMIs: Services PMI (54.8 vs. 51.2 est) and Composite PMI (54.4 vs. 51.2 est) while Manufacturing PMI slightly higher (50.9 vs. 49.9 est).
- The flash data had sapped the early risk-on tone with S&P Eminis and Nasdaq indexes marking new all-time highs before extending lows amid several rounds of program selling/profit taking ahead of the extended Memorial holiday weekend.
- Not a big reaction, Treasury futures did recede after lower than expected weekly claims at 215k vs. 220k est, prior revised to 223k from 222k. Continuing claims near in-line at 1.794M vs. 1.793M est, prior down-revised to 1.786M from 1.794M.
- Rate cut projections have receded vs late Wednesday levels (*): June 2024 at -0% w/ cumulative rate cut 0.0bp at 5.328%, July'24 at -10.0% (-16.0%) w/ cumulative at -2.5bp (-5.2bp) at 5.302%, Sep'24 cumulative -14.2bp (-17.8bp), Nov'24 cumulative -21.2bp (-26.2bp), Dec'24 -34.8bp (-40.6bp).
- Look ahead to Friday's data calendar: focus on Durables/Cap Goods and the latest UofM Sentiment. June Treasury options expire tomorrow as well.
SOFR FIXES AND PRIOR SESSION REFERENCE RATES
SOFR Benchmark Settlements:
- 1M -0.00009 to 5.32216 (+0.00240/wk)
- 3M +0.00139 to 5.33085 (+0.00505/wk)
- 6M -0.00074 to 5.29392 (+0.01071/wk)
- 12M -0.01052 to 5.14754 (+0.02502/Wk)
- Secured Overnight Financing Rate (SOFR): 5.31% (+0.00), volume: $1.900T
- Broad General Collateral Rate (BGCR): 5.30% (+0.00), volume: $725B
- Tri-Party General Collateral Rate (TGCR): 5.30% (+0.00), volume: $713B
- (rate, volume levels reflect prior session)
- Daily Effective Fed Funds Rate: 5.33% (+0.00), volume: $80B
- Daily Overnight Bank Funding Rate: 5.32% (+0.00), volume: $265B
FED Reverse Repo Operation
![](https://marketnews.com/media-library/image.png?id=52311466&width=980)
NY Federal Reserve/MNI
- RRP usage recedes up to $467.398B from $496.382B prior; number of counterparties 79. Compares to $327.066B on Monday, April 15 -- the lowest level since mid-May 2021.
SOFR/TEASURY OPTION SUMMARY
SOFR and Treasury option turned mixed on net Thursday, SOFR focus remained on downside puts as underlying futures remained weaker after this morning's higher than expected S&P Global US PMI data. Treasury options segued to large upside call buying in 10s, discounting the drop in projected rate cuts by year end. Rate cut projections have receded vs late Wednesday levels (*): June 2024 at -0% w/ cumulative rate cut 0.0bp at 5.328%, July'24 at -10.0% (-16.0%) w/ cumulative at -2.5bp (-5.2bp) at 5.302%, Sep'24 cumulative -14.2bp (-17.8bp), Nov'24 cumulative -21.2bp (-26.2bp), Dec'24 -34.8bp (-40.6bp).- SOFR Options:
- +5,000 0QM4 95.18/95.31 put spds 4.0 vs. 95.40/0.14%
- -15,000 SFRZ4 94.68/94.93 put spds vs 95.18 calls vs. 95.01 to .015/0.50%
- +5,000 0QM4 95.18/95.31 put spds, 4.0 vs. 95.40/0.14%
- +5,000 SFRH5 94.87 puts vs. 95.215/0.30% w/ 0QU4 95.00 puts vs. 95.595/0.16%, 22.5 total
- +14,000 SFRM4 94.68/94.75 call spds, 0.5 vs. 94.6825 to .67/0.10%
- -2,500 0QH4 95.87 straddles, 88.5 vs. 95.86
- +4,000 SFRM4 94.68/94.75 call spds, 0.5 vs. 94.6825/0.10%
- +4,000 SFRH5 94.75/95.06 2x1 put spds 0.75 ref 95.285
- Block, 5,000 SFRZ4/SFRH5 95.00/95.50 2x1 put spd spds, 10.0 net/Dec over
- 1,500 SFRU4 95.00/95.12/95.25 call spds
- 4,000 SFRV4 95.50/95.87 call spds vs. 94.68 puts ref 95.055
- 2,000 0QM4 95.56/95.75/95.93 call flys ref 95.495
- 2,000 0QM4 95.62/95.75 call spds vs. 95.25/95.37 put spds ref 95.515
- Treasury Options: Reminder, June options expire Friday
- +52,500 TYN4 110 calls, 18 vs. 18-31.5/0.27%
- +10,000 TYU4 109 calls, 115 ref 109-00.5
- +16,000 TYU4 109 straddles, 2-34 ref 108-26.5 to -31 (expire Aug 23)
- 6,000 TYN4 110.5 calls, 18 ref 109-12.5 to -13
EGBs-GILTS CASH CLOSE: More Bear Flattening
European curves bear flattened for a second consecutive session Thursday, as central bank cutting expectations continued to be pared.
- The major market mover on the day was a surprisingly strong US April flash Services PMI reading, which saw Treasuries drop sharply, dragging Bunds and Gilts to session lows in the afternoon.
- Earlier, firmer-than-expected German flash PMIs more than countered the impact of a softer-than-expected French services print. UK (and to a lesser extent, Eurozone) PMIs were softer than expected, while the price components appeared mildly dovish.
- Eurozone Q1 negotiated wages accelerated versus Q4, but this brought limited reaction as it had been telegraphed by Wednesday's German data.
- By the cash close, implied ECB 2024 cuts had been pared to 59bp, vs 64bp Wednesday - the BoE equivalent was 33bp, vs 37bp yesterday and 55bp prior to Wednesday's CPI print.
- Bunds underperformed Gilts. Periphery EGB spreads were little changed.
- UK retail sales and German GDP data feature first thing Friday.
Closing Yields / 10-Yr Periphery EGB Spreads To Germany
- Germany: The 2-Yr yield is up 7.1bps at 3.079%, 5-Yr is up 7.4bps at 2.658%, 10-Yr is up 6.2bps at 2.596%, and 30-Yr is up 4.2bps at 2.711%.
- UK: The 2-Yr yield is up 4.9bps at 4.501%, 5-Yr is up 3.7bps at 4.173%, 10-Yr is up 2.7bps at 4.259%, and 30-Yr is up 1.3bps at 4.696%.
- Italian BTP spread up 0.1bps at 129.1bps / Spanish down 0.7bps at 75.7bps
EGB Options: Multiple Euribor Butterfly Structures Thursday
Thursday's Europe rates/bond options flow included:
- DUM4 105.00/105.20/105.40c fly bought for 1.5 IN 3K
- RXN4 132.5c , bought for 41 in 6k total
- ERN4 96.62/96.75/96.87c fly vs ERQ4 96.62/96.75/96.87c fly, bought the Aug for half in 7k
- ERU4 96.50/96.875/97.25c fly, sold at 3 in 15k
- ERU4 96.37/96.50/96.62c fly Bought for 4 in 6k
- ERU4 96.37/96.50/96.62/96.75c condor Bought for 5.5 in +2.5k
- ERZ4 96.62/96.50/96.25p fly, bought for flat in 5k
FOREX Two Stage USD Recovery Aided By Strong US PMI Data And Sell Programs
- After initially fading in early Thursday trade, the USD index received a firm boost following the stronger than expected US PMI data, which indicated its sharpest growth for just over two years, driven by services.
- The increase then saw a second leg as large equity sell programs rolled through in what appears profit taking from earlier record highs, with the DXY punching to new best levels for the week and above the 105 mark.
- CAD sits at the bottom of the FX pack, hindered by Can-US front-end yield differentials continuing the week’s sharp push lower after subdued core CPI trends in Tuesday’s release.
- The stronger greenback also saw the earlier Euro bid (kick-started by the stronger German PMIs) dissipate and EURUSD has edged back towards the 1.08 handle as we approach the APAC crossover.
- Meanwhile, the risk-off nature of the second leg saw JPY recover some of its underperformance, with USDJPY dipping back below 157.00 after a high of 157.20. The 157.00 handle initially saw some noisy two-way price action on the original breach higher.
- NZD is moderately outperforming most at near flat on the day. New Zealand retail sales for Q1 rose +0.5%, against a consensus expectation for a fall and added some bullish sentiment to the hawkish-to-expectations RBNZ meeting earlier in the week.
- Participants remain aware of the 0.8500 handle in EURGBP marking an important support over the past 18 months. The cross has failed to close below 0.8500 since August 2022, with several tests over the past year being well respected.
- Technically we noted that Wednesday’s move resulted in a break of short-term support at 0.8531, the Apr 30 low, confirming an extension of the reversal that started May 9. Note that the key support and bear trigger lies at 0.8493, and a sustained breach of this point would be required to enhance bearish momentum. Initial resistance moves down to 0.8566, the 20-day EMA.
- UK and Canada retail sales highlight the data docket on Friday before the revised set of UMich sentiment and inflation expectations data.
FX Expiries for May24 NY cut 1000ET (Source DTCC)
- EUR/USD: $1.0700-20(E3.6bln), $1.0770-80(E557mln), $1.0820-40(E1.6bln), $1.0845-50(E1.1bln), $1.0865-77(E3.2bln), $1.0890-00(E1.7bln), $1.0940-50(E1.2bln)
- USD/JPY: Y155.50($1.1bln), Y156.00($1.1bln), Y157.00($2.8bln), Y157.25-33($1.1bln)
- AUD/USD: $0.6600-05(A$836mln)
- USD/CAD: C$1.3700-20($850mln)
- USD/CNY: Cny7.2500($955mln)
Late Equities Roundup: Extending Lows
- Stocks are trading weaker and extending lows in late Thursday trade amid several rounds of program selling/profit taking ahead of the extended Memorial holiday weekend.
- Higher than expected S&P Global US PMI data had sapped the early risk-on tone with S&P Eminis and Nasdaq indexes marking new all-time highs. Information technology sector shares buoyed stocks after Nvidia announced better than expected earnings late Wednesday.
- Currently, the DJIA is down 621.32 points (-1.57%) at 39049.82, S&P E-Minis down 51.25 points (-0.96%) at 5276.5, Nasdaq down 106.7 points (-0.6%) at 16694.64.
- Real Estate and Consumer Discretionary sector shares underperformed in the second half, REITs and estate management shares weighed on the former: Alexandria Real Estate and Boston Properties both -3.45%, Prologis -2.92%, VICI Properties -2.51%. Auto makers and parts suppliers weighed on the Consumer Discretionary sector: Tesla -3.43%, Borg Warner -1.95%, Aptiv -1.70%.
- The IT sector continued to outperform in late trade led by semiconductor makers: strong AI demand helped Nvidia gain +9.39%, Synopsys +1.70%, Western Digital +1.05%. Materials sector resisted the sell-off better than Communication Services, with International Paper +5.08%.
- Still some notable earnings announcements expected next week, including: Dick's Sporting Goods, Advanced Auto Parts, HP Inc, Salesforce, Agilent Technologies, Dollar General, Kohl's, Best Buy, Costco, The Gap, Nordstrom and Dell Technologies.
E-MINI S&P TECHS: (M4) Fresh Cycle High
- RES 4: 5417.75 2.00 proj of the Apr 19 - 29 - May 2 price swing
- RES 3: 5400.00 Round number resistance
- RES 2: 5372.73 1.764 proj of the Apr 19 - 29 - May 2 price swing
- RES 1: 5368.25 Intraday high
- PRICE: 5328.50 @ 14:52 BST May 23
- SUP 1: 5248.99 20-day EMA
- SUP 2: 5191.51 50-day EMA
- SUP 3: 5099.25 Low May 3
- SUP 4: 5036.25 Low May 2
The uptrend in S&P E-Minis remains intact and the contract traded to a fresh cycle high earlier today. Recent gains have resulted in a break of a key resistance at 5333.50, the Apr 1 high. This confirmed a resumption of the primary uptrend and has signalled scope for a climb to 5372.73, a Fibonacci projection. Moving average studies remain in a bull-mode set-up, highlighting a clear uptrend. Initial support is at 5248.99, the 20-day EMA.
COMMODITIES Precious Metals Pull Back Further, WTI Lowest Since February
- Spot gold is down by 1.9% to $2,335/oz on Thursday, following the stronger than expected US PMI data, which saw markets push back expectations again for the first Fed rate cut later this year.
- Although gold has pulled back from its recent high, the medium-term trend structure remains bullish and short-term weakness is considered corrective.
- On the upside, attention remains on $2,452.5 next, a Fibonacci projection. The 50-day EMA, at $2297.2, represents a key support.
- Silver has also pulled back more than 7% from Monday’s high, with the precious metal down another 2.0% today to $30.2/oz.
- Meanwhile, copper has also fallen by 1.5% today to $478/lb, leaving the metal 8% below its record high reached earlier this week.
- Technicals suggest that copper futures remain in a clear uptrend and the latest pullback appears to be a correction. A clear breach of key resistance at $503.95 would open $520.65, a Fibonacci projection. Initial key support lies at $475.40, the 20-day EMA.
- WTI is headed for its lowest close since late February, as concerns of ‘higher-for-longer’ interest rates weigh on the oil demand outlook.
- WTI Jul 24 is down 1.2% at $76.7/bbl.
- A bearish theme remains intact for WTI futures, with scope seen for a move to $75.64, the Mar 11 low.
FRIDAY DATA CALENDAR
Date | GMT/Local | Impact | Flag | Country | Event |
24/05/2024 | 2301/0001 | ** | ![]() | UK | Gfk Monthly Consumer Confidence |
24/05/2024 | 2330/0830 | *** | ![]() | JP | CPI |
24/05/2024 | 0600/0700 | *** | ![]() | UK | Retail Sales |
24/05/2024 | 0600/0800 | *** | ![]() | DE | GDP (f) |
24/05/2024 | 0600/0800 | ** | ![]() | SE | PPI |
24/05/2024 | 0645/0845 | ** | ![]() | FR | Manufacturing Sentiment |
24/05/2024 | 0700/0900 | ** | ![]() | ES | PPI |
24/05/2024 | 0700/0900 | ![]() | EU | ECB's Schnabel speech at Germany PhD conference | |
24/05/2024 | 1230/0830 | * | ![]() | CA | Quarterly financial statistics for enterprises |
24/05/2024 | 1230/0830 | ** | ![]() | CA | Retail Trade |
24/05/2024 | 1230/0830 | ** | ![]() | US | Durable Goods New Orders |
24/05/2024 | 1335/0935 | ![]() | US | Fed Governor Christopher Waller | |
24/05/2024 | 1400/1000 | ** | ![]() | US | U. Mich. Survey of Consumers |
24/05/2024 | 1700/1300 | ** | ![]() | US | Baker Hughes Rig Count Overview - Weekly |
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