HIGHLIGHTS
- Treasuries surged higher on heavy volumes early overnight after Israel launched targeted attack against Iran
- Safe haven support in rates faded throughout Friday's session as both sides downplayed the action
- Projected rate cut pricing stabilized near recent lows with the Fed heading into blackout late Friday
US Tsys Hold Modest Gains, Fed Enters Policy Blackout Tonight
- Treasury futures have been trading sideways in modestly positive territory since midmorning Friday - a rather quiet end to a hectic week, the Federal Reserve entering their self-imposed media Blackout regarding policy at midnight tonight.
- Treasuries surged higher on heavy volumes early overnight (TYM4>1.13M by the open) after Israel launched targeted attack against Iran. Safe haven support in rates faded receded as both sides downplayed the action.
- Safe haven bid pushed Jun'24 10Y futures to 108-22.5 high late Thursday evening, while the contract currently trades 107-28.5 (+6) after the bell - well above initial technical support of 107-13+ Low Apr 16. 10Y yield 4.6125% -.0181, curves mildly flatter: 2s10s -.485 -36.050.
- Projected rate cut pricing held largely steady vs. late Thursday lvls: May 2024 -2.6% w/ cumulative -0.6bp at 5.322%; June 2024 at -13.5% w/ cumulative rate cut -4.5bp at 5.283%. July'24 cumulative at 12.1bp, Sep'24 cumulative -23bp.
- Look ahead: economic data picks up next Tuesday with regional manufacturing data from Philly and Richmond Fed, S&P PMIs and New Home Sales.
SOFR FIXES AND PRIOR SESSION REFERENCE RATES
SOFR Benchmark Settlements:
- 1M +0.00146 to 5.31690 (-0.00239/wk)
- 3M +0.00189 to 5.32640 (-0.00116/wk)
- 6M +0.00312 to 5.30290 (-0.00047/wk)
- 12M +0.01084 to 5.21451 (+0.02823/wk)
- Secured Overnight Financing Rate (SOFR): 5.30% (-0.01), volume: $1.764T
- Broad General Collateral Rate (BGCR): 5.30% (+0.00), volume: $702B
- Tri-Party General Collateral Rate (TGCR): 5.30% (+0.00), volume: $690B
- (rate, volume levels reflect prior session)
- Daily Effective Fed Funds Rate: 5.33% (+0.00), volume: $82B
- Daily Overnight Bank Funding Rate: 5.32% (+0.00), volume: $246B
FED Reverse Repo Operation
NY Federal Reserve/MNI
- RRP usage falls back below $400B but remains below Monday's near 3-year low. Usage falls to $397.234B vs. $433.006B yesterday. Compares to $327.066B on Monday -- the lowest level since mid-May 2021.
- Meanwhile, the latest number of counterparties recedes to 68 vs. 75 prior.
SOFR/TEASURY OPTION SUMMARY
Mixed SOFR and Treasury options leaned toward upside call structures Friday in addition to put unwinds and limited downside put fly interest as projected rate cut pricing held largely steady vs. late Thursday lvls: May 2024 -2.6% w/ cumulative -0.6bp at 5.322%; June 2024 at -13.5% w/ cumulative rate cut -4.5bp at 5.283%. July'24 cumulative at 12.1bp, Sep'24 cumulative -23bp.
- SOFR Options:
- total -15,000 SRZ4 94.68/94.81/95.18/95.31 iron condor 8.5-8.625 ref 95.05
- +6,000 SRQ4 94.56/94.62/94.68 put fly 1.0 vs. 94.87/0.05%
- +13,000 SRH5 95.50/96.50/97.50 Iron Flys, 85.0 vs. 95.23/0.1%
- Block: 10,000 2QN4 96.00/96.25 put spds, 17.0 net vs. 95.845/0.16%
- +10,000 SRN4 94.75/94.81/94.93/95.00 call condor, 1.5 ref 9488.5
- +5,000 SRV4/SRZ4 94.62 put spd 2.75 ref 95.055
- 2,000 SFRH5 94.00/94.37 put spds ref 95.235
- 7,250 SFRU4/SFRZ4 94.50/94.62 put spd spd, 2.0 net flattener
- +10,000 0QK4 97.50 calls, 5.5 ref 95.45
- 2,000 0QK4 95.00/95.18 put spds ref 95.43
- +3,000 SFRK4 94.68/64.75 2x1 put spds 2.25
- -2,000 0QK4 95.18/95.37/95.43 broken put trees, 1.5 ref 95.435/0.18%
- 1,500 SFRU4 94.75/94.87/94.93/95.06 put condors ref 94.925
- 1,000 SFRK4 94.75/94.81/94.87/94.93 put condors vs. SFRU4 94.75/94.87/95.00 put flys
- Treasury Options:
- +25,000 TYM4 106.5/109.5 call over risk reversals, 2 net vs. 108-01/0.53%
- +10,000 TYM4 111 calls, 10 vs 108-01, total volume over 15,000
- 1,500 TYM4 106/108 put spds 14 over TYM4 110.5 calls ref 107-30
- 4,000 TYK4 106/107 put spds, 3 ref 107-29.5
- Block, +8,255 TYK4 109 puts, 107 vs. 107-31.5/0.83%
- over 9,000 TYK 108 puts, most 20-30, 26 last
- -10,000 TYM4 107 puts, 32
- +5,000 TYK4 109 calls, 7-10 ref 108-00 to -04
- +5,000 wk4 US 109/111 put spds, 11 ref 115-01
EGBs-GILTS CASH CLOSE: UK Curve Bull Steepens On Dovish Developments
Gilts easily outperformed Bunds Friday on soft data and dovish BoE commentary.
- An early rally - triggered by Israel's attack on Iran overnight which spurred very large trading volumes in Bund futures, and softer than-expected UK retail sales - faded later in the morning as geopolitical risk premia subsided.
- Gilts pared losses in mid-afternoon after a speech by BoE's Ramsden leaned dovish, noting that inflation risks were to the downside.
- ECB's Wunsch, who has a hawkish reputation, dovishly noted potential for back-to-back cuts in June and July.
- There's now 52bp of BoE cuts priced for the year, vs around 42bp Thursday; ECB implied cuts were pared to 74bp from 76bp. Consequently, the UK curve bull steepened with Germany's twist flattening.
- Periphery EGB spreads closed mixed, with Italy underperforming. S&P reviews Greece's and Italy's credit ratings after the weekly close.
- Next week's schedule includes Eurozone flash PMIs.
Closing Yields / 10-Yr Periphery EGB Spreads To Germany
- Germany: The 2-Yr yield is up 1.8bps at 3%, 5-Yr is up 1.2bps at 2.524%, 10-Yr is up 0.3bps at 2.5%, and 30-Yr is down 0.4bps at 2.623%.
- UK: The 2-Yr yield is down 10.2bps at 4.383%, 5-Yr is down 6.1bps at 4.128%, 10-Yr is down 4.2bps at 4.23%, and 30-Yr is down 2.1bps at 4.7%.
- Italian BTP spread up 0.3bps at 143.2bps / Spanish down 0.7bps at 81.2bps
EGB Options: More Moderate Upside Tilt To Close The Week
Friday's Europe rates/bond options flow included:
- RXK4 129.50p, bought for 6 in 1k
- ERU4 96.75/97.00/97.12c ladder, bought for 1.25 in 2.5k
- SFIZ4 95.25/95.50/95.75c fly, bought for 3.5 in 3k
FOREX FX Markets Stabilise as Middle-East Tensions Simmer
- Despite the heightened level of uncertainty overnight, and the subsequent significant volatility spike, currency markets have stabilised as the weekend close approaches. The USD index has recouped the majority of its overnight losses and emerging market currencies have also recovered.
- With the missile strike appearing limited in nature and closer to a warning shot rather than a declaration of protracted hostilities, markets bottomed out to put USD/JPY a big figure above the overnight low and hovering just shy of the multi-decade highs registered earlier in the week.
- Recent USDJPY gains have confirmed a resumption of the primary uptrend and this maintains the bullish price sequence of higher highs and higher lows. The trend is overbought, however, this is clearly not a concern for bulls at this stage.
- GBP is a relative underperformer on Friday as any bullish sentiment following the week’s firmer inflation and labour market data appears to have faded. The trend condition in GBPUSD remains bearish and the pair has traded to a fresh cycle low today.
- The recent breach of 1.2519, the Feb 5 low, strengthens a downtrend and highlights a stronger reversal with scope seen for an extension towards 1.2364, a Fibonacci retracement.
- Data heats up next week with Eurozone flash PMI’s Tuesday and US GDP figures on Thursday. The Bank of Japan will also meet where no policy adjustment is anticipated at the upcoming two-day meeting ending Friday.
FX Expiries for Apr22 NY cut 1000ET (Source DTCC)
- EUR/USD: $1.0550(E9436mln), $1.0585-00(E520mln), $1.0700(E1.1bln)
- USD/JPY: Y153.25($1.4bln), Y154.00-20($1.6bln), Y155.00($1.4bln)
- GBP/USD: $1.2400(Gbp994mln)
- AUD/USD: $0.6475(A$559mln)
- USD/CAD: C$1.3775($810mln), C$1.3900($643mln)
Late Equities Roundup: IT, Communication Services Still Lagging
- Stocks remain mixed in late Friday trade, well off early overnight lows with the DJIA outperforming. Stocks came under heavy selling early overnight amid reports that Israel had counterattacked Iran.
- Stocks gradually recovered as both side downplayed the attack, marking session highs around midmorning before position squaring saw prices recede ahead of the weekend. Currently, DJIA is up 105.26 points (0.28%) at 37882.02, S&P E-Minis down 51.5 points (-1.02%) at 4998.25, Nasdaq down 330.5 points (-2.1%) at 15271.64.
- Laggers: Information Technology and Communication Services sector shares continued to underperform in late trade, chip stocks weighing on the former: Nvidia -7.12%, Advanced Micro Devices -4.66%, Micron -4.40%. Interactive media and entertainment weighed on Communication Services sector, specifically Netflix down approximately 8.5% despite strong subscriber gains - as 2Q revenue forecast underwhelms. On the flipside - Paramount surged 12.5% amid M&A bidding war between Skydance, Sony and Apollo.
- Meanwhile, Utilities and Energy sector shares continued to lead gainers in late trade. Multi energy shares supported the Utility sector: Entergy +2.76%, Edison Int +2.70%, Dominion Energy +2.49%. Oil and gas shares buoyed the former: Kinder Morgan +3.32%, ONEOK +2.18%, Williams Cos +2.02%.
- Corporate earnings expected early next week: Monday: Verizon, Nucor, Albertsons, Alexandria Real Estate, Globe Life; Tuesday: Pepsico, UPS, GM, Halliburton, Philip Morris, Pulte, Freeport McMoRan, Lockheed Martin, JetBlue, GE, Kimberly-Clark, Sherwin-Williams, Baker Hughes, Tesla, Texas Instruments, Visa, Enphase, Seagate.
E-MINI S&P TECHS: (M4) Bear Cycle Still In Play
- RES 4: 5400.00 Round number resistance
- RES 3: 5285.00/5333.50 High Apr 10 / 1 and the bull trigger
- RES 2: 5181.29 20-day EMA
- RES 1: 5095.25/5146.82 High Apr 18 / 50-day EMA
- PRICE: 5052.75 @ 14:44 BST Apr 19
- SUP 1: 4963.50 Intraday low
- SUP 2: 4907.57 50.0% retracement of the Oct 27 ‘23 - Apr 1 bull leg
- SUP 3: 4863.75 Low Jan 19
- SUP 4: 4799.50 Low Jan 17
The short-term trend condition in S&P E-Minis is unchanged and remains bearish. Today’s initial extension lower reinforces current short-term conditions. The contract has this week cleared support at the 50-day EMA, signalling scope for a continuation lower near-term. Sights are on 4907.57 next, a Fibonacci retracement. Firm resistance is seen at 5181.29, the 20-day EMA. A clear break of the average would signal a possible reversal.
COMMODITIES Spot Gold Pares Gains As Geopolitical Risks Ease
- Spot gold spiked to an intra-day high $2,418/oz early in Friday’s session following Israel’s missile strike on Iran, before paring gains as Iran downplayed the attack.
- The yellow metal is currently up 0.7% to $2,395 on the day, taking the weekly gain to 2.2%.
- The technical outlook for gold is still bullish and the next objective continues to be at $2452.5, a Fibonacci projection. Initial firm support is at $2293.4, the 20-day EMA.
- Meanwhile, silver has risen 1.7% to $28.7/oz on Friday, taking the weekly gain to around 3%.
- Copper has also rallied further today, rising another 1.3% to $449/lb, taking the weekly gain to 5.5%, driven by an improving outlook for global manufacturing and mine disruptions.
- WTI crude is headed for the US close 2.9% lower on the week, amid an easing geopolitical risk premium as fears of a further escalation of the Iran-Israel conflict reduced through Friday.
- WTI May 24 is up 0.5% at $83.2/bbl.
- A bull theme in WTI futures remains intact, although this week’s move lower signals the start of a short-term bearish corrective cycle.
- The contract has traded through the 20-day EMA and this signals scope for an extension towards the 50-day EMA, at $80.64. On the upside, key resistance and the bull trigger has been defined at $86.97, the Apr 12 high.
MONDAY DATA CALENDAR
| Date | GMT/Local | Impact | Flag | Country | Event |
| 22/04/2024 | 2301/0001 | * |  | UK | Rightmove House Prices Index |
| 22/04/2024 | 1000/1100 | ** | | UK | CBI Industrial Trends |
| 22/04/2024 | 1230/0830 | * |  | CA | Industrial Product and Raw Material Price Index |
| 22/04/2024 | 1400/1600 | ** |  | EU | Consumer Confidence Indicator (p) |
| 22/04/2024 | 1430/1030 | | CA | BOC market participants survey | |
| 22/04/2024 | 1530/1730 | | EU | ECB's Lagarde Lecture at Yale | |
| 22/04/2024 | 1530/1130 | * |  | US | US Treasury Auction Result for 13 Week Bill |
| 22/04/2024 | 1530/1130 | * | | US | US Treasury Auction Result for 26 Week Bill |
| 23/04/2024 | 2300/0900 | *** |  | AU | Judo Bank Flash Australia PMI |
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