HIGHLIGHTS
- Treasuries twist flatten, with 2s10s the most inverted since December
- Cash Treasuries close early ahead of full closures for Memorial Day, along with other bank holidays elsewhere
- Surprise downward revisions to final U.Mich consumer inflation expectations helped consolidate the day's USD weakness
- WTI rebounds on the day but holds sizeable declines on the week, whilst gold is set for its biggest weekly decline since December
- Potential comments from BOJ Governor Ueda and German IFO data highlight Monday’s calendar
US TSYS: 2s10s Most Inverted Since December At Early Close Ahead Of Memorial Day
- Cash Tsys close early with the curve twist flatter ahead of their full closure for Memorial Day on Monday.
- Cash yields range from 1.1bp higher (2s) to 1.3bp lower (20s), with the front end having unwound a large part of the intraday rally on the downward revision for U.Mich inflation expectations, aided by a recovery in crude oil futures, but with the longer end seeing a greater paring of earlier losses.
- 2s10s at -47.9bps (-2.3bps) has pushed through fleeting lows seen Apr 10 for its lowest since late December.
- 10Y yields met firm resistance at 4.50%, last seen May 14, and are now back at 4.465%.
- The high for yields came with TYM4 touching 108-16 as it stopped just short of a key support at 108-15 (May 14 low). It has since lifted to 108-23+ for similar levels to before the US session.
- Fed Funds implied rates have extended the post-PMIs jump higher in what’s been a thin data week, with 20bp of cumulative cuts for Nov (25bp prior to PMIs) and 34bps for Dec (38bps prior).
2s10s most inverted since DecemberSource: Bloomberg
FOREX: Broad Based USD Weakness Approaching The Week’s Close
- The USD index sits 0.35% lower on the session as a rebound in equity indices helped bolster risk sentiment in global markets. As such, the likes of EUR, GBP, AUD, NZD and CAD are all on the front foot to finish the week. Relative underperformance has been seen for the low yielding Swiss Franc and Japanese Yen.
- Friday’s price action for GBPUSD has affirmed the underlying bullish trend condition and short-term pullbacks are now considered corrective at these levels. Spot has extended the recent breach of 1.2634 and again opened 1.2754, 76.4% of the Mar 8 - Apr 22 bear leg. This level was pierced Wednesday, but a clear break would expose 1.2803, the Mar 21 high.
- Participants also 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. Note that the exact key support and bear trigger lies at 0.8493, and a sustained breach of this point would be required to enhance bearish momentum for the cross.
- EURUSD’s recovery today leaves the pair just moderately in the red on the week. The corrective move lower in EURUSD continues to ease and appears to be a flag formation - a bullish continuation pattern that reinforces the uptrend. Sights are on 1.0933 next, a Fibonacci retracement. Initial firm support to watch lies at 1.0789, the 50-day EMA.
- Potential comments from BOJ Governor Ueda and German IFO data highlight Monday’s calendar. Elsewhere next week, the focus will be on Australian and Eurozone inflation data as well as the second release of US Q1 GDP.
FX Expiries for May27 NY cut 1000ET (Source DTCC)
- EUR/USD: $1.0735-40($700mln)
- USD/JPY: Y157.00($1.2bln)
- AUD/USD: $0.6600-10(A$861mln)
- USD/CAD: C$1.3670($525mln)
Larger FX Option Pipeline
- EUR/USD: May28 $1.0900-10($1.6bln); May29 $1.0800(E1.2bln), $1.0875(E1.1bln), $1.0890-00(E1.5bln); May30 $1.0825-35(E1.3bln)
- USD/JPY: May27 Y157.00($1.3bln); May28 Y155.50($1.5bln), Y156.80-00($1.1bln); May29 Y157.90-10($1.6bln); May30 Y155.90-10($5.4bln)
- USD/CAD: May29 C$1.4050($1.0bln)
US STOCKS: S&P 500 E-Mini Trims Yesterday's Decline Away From Fresh Record Highs
- The S&P 500 e-mini has seen some mild late downward pressure, following the largest sell program of the day with 839 names per the NYSE’s TICK index ahead of the long weekend rather than any obvious headlines.
- It still sits +0.6% after what had been particularly steady trade in recent hours ever since an uplift around 1100ET on a large buy program built on a positive move as US yields fell with surprise downward revisions to U.Mich consumer inflation expectations.
- The 1396 names, along with the heavy 1520 at the cash open, are the largest buy programs since the cash open on May 15 after a dovish reaction to US CPI.
- Currently at 5315.75, ESM4 remains firmly within yesterday’s range, which included a fresh cycle high at 5368.25 after which lies resistance at 5372.73 (Fibo projection of Apr 19 – 29 – May 2 price swing).
- E-minis: S&P 500 +0.6%, Nasdaq 100 +0.9%, Dow Jones unch and Russell 2000 +0.8%
- In cash markets, SPX gains are driven by communication services (+1.2%), utilities (+1.0%) and IT (+0.9%), whilst losses are limited to health care (-0.3%) and energy (-0.1%) despite 1% gains for WTI.
- Major names are again large contributors, with Meta (+2.3%), Apple (+1.8%), Nvidia (+1.5%, continuing to gain after favorable earnings) and Alphabet (+0.9%) all up strongly.
COMMODITIES: Gold Set For Biggest Weekly Decline Since December
- WTI has rebounded today but remains around 2.7% lower on the week. Expectations of an OPEC+ output cut extension are weighing against potential Fed rate cut delays and sluggish demand.
- WTI Jul 24 is up 1.3% on Friday at $77.9/bbl.
- For WTI futures, scope is seen for a move to $75.64, the Mar 11 low. Key resistance and the bull trigger is at $86.16, the Apr 12 high.
- Henry Hub has fallen to its lowest level since May 17 as front month readjusts following a sustained rise throughout May.
- US Natgas Jun 24 is down 3.8% at $2.56/mmbtu.
- Spot gold has edged up by 0.3% to $2,336/oz on Friday, leaving the yellow metal 3.3% lower on the week, which would be the largest weekly decline since December.
- The trend structure for gold remains bullish and the move lower appears to be a correction - for now.
- On the upside, attention is still on $2,452.5, a Fibonacci projection. The 50-day EMA, at $2,298.5, represents a key support.
- Meanwhile, copper is down by 0.7% today, bringing total losses this week to 5.7%, after the red metal hit a record high on Monday.
- Analysts at Macquarie say that increased demand for copper globally is being offset by slower demand growth in China. In their view, the recent rally appears overdone and the risk of a sharp correction is very high.
PRIOR SESSION REFERENCE RATES
REPO REFERENCE RATES (rate, change from prev. day, volume):
- Secured Overnight Financing Rate (SOFR): 5.31%, no change, $1916B
- Broad General Collateral Rate (BGCR): 5.30%, no change, $725B
- Tri-Party General Collateral Rate (TGCR): 5.30%, no change, $715B
- SOFR holds at its particularly stable recent rate of 5.31%, whilst volumes remain at the high end of their range.
New York Fed EFFR for prior session (rate, chg from prev day):
- Daily Effective Fed Funds Rate: 5.33%, no change, volume: $82B
- Daily Overnight Bank Funding Rate: 5.32%, no change, volume: $267B
- Fed Funds volumes at the low end of recent ranges
FED: RRP Usage Falls On Typical GSE Seasonality
- RRP usage fell $36bn to $431bn, following the $29bn decline yesterday as GSE cash leaves funding markets.
- The $431bn takes it to its lowest since May 16 and remains off the Apr 15 low of $327bn.
- The number of counterparties was unchanged on the day at 79.
MNI POLITICAL RISK - US Elections Weekly - 24 May
Executive Summary:
- Welcome to a new weekly MNI Political Risk newsletter. This mailer will run through the 2024 US general election with updates on the presidential election race, the race for control of the Senate and House of Representatives, and political trends that could impact the election.
- The 2024 presidential election is set to be one of closest in modern US history. The electorate is faced with two divisive candidates who have struggled to motivate enthusiasm amongst their core bases. Incumbent President Joe Biden is labouring under concerns over his age and mental acuity, backlash to inflation, and fissures within his 2020 progressive alliance over policy in the Middle East.
- Former President Donald Trump is facing four criminal prosecutions and a relatively bare campaign war chest which has hampered his ability to attend campaign events and generate the same grassroots buzz which drove his 2016 campaign.
Please find the full article attached below:
US DATA: U.Mich Inflation Expectations Latest Climb Mostly Revised Away
- U.Mich inflation expectations gave back more of their preliminary rise in May than expected, leaving only a 0.1pp rise in the 1Y from April and the 5-10Y unchanged at 3.0% for well within its mostly held 2.9-3.1% range seen in recent years.
- U.Mich 1Y inflation: 3.3% (3.4 cons, 3.5 prelim) in May after 3.2% in April
- 5-10Y inflation: 3.0% (3.1 cons, 3.1 prelim) in May after 3.0% in April
- The trimming of inflation expectations helped at least partly limit what had been a particularly heavy decline in consumer sentiment in May, at 69.1 rather than 67.4 in the preliminary reading.
- That’s still a significant rolling over in confidence since the 77.2 in April and the recent peak of 79.4 in March though.
US DATA: Durable Goods Revisions Offset April Beat
- Core durable goods orders were stronger than expected in preliminary April data at 0.3% M/M (cons 0.1) but with downward revisions heavily offsetting with -0.1% in March (initial 0.1%).
- There’s a similar story in core shipments data, beating with 0.4% M/M (cons 0.1) but after a downward revised -0.3% (initial 0.0%).
- Shipments have languished recently, at exactly 0.0% annualized on a 3M/3M basis vs 0.3% three months prior, but orders suggest some strength ahead with a 1.4% annualized increase.
- There continues to be a disconnect with surveys: the ISM manufacturing survey falling heavily into implied contractionary territory in 2H23 only partly weighed on durable goods activity (at least in nominal terms) but equally the former's recent recovery hasn’t had much impact on latest orders.
CANADA DATA: Retail Sales Disappoint In March But With Flash April Hope
- USDCAD was little changed shortly after mixed Canadian retail sales and US durable goods (beat in April but with offsetting downward revisions).
- Retail sales were close to expectations in March at -0.2% M/M (cons -0.1, advance 0.0) but ex autos disappointed (-0.6% after -0.2%) as did core sales (-0.6% after +0.1%).
- Overall volumes offered a similar picture to those trimmed metrics, falling -0.4% M/M. It followed some mixed revisions (upward in Feb, downward in Jan), with the 3m/3M trend rate easing to 1.1% annualized for its softest since Oct.
- However, helping to largely offset the March gloom, the April advance estimate is indicated at a 0.7% M/M increase, which if realized would be the strongest nominal increase since September.
- Further, and in a separate release, manufacturing sales were also indicated to bounce a reasonable 1.2% after the -2.1% in March.
- The releases did little to change BoC pricing at circa 16bps of cuts for next month's decision, as broadly seen since Tuesday's CPI.
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