MNI ASIA MARKETS ANALYSIS: UK Curve Lightly Bear Steepens Pre-BoE

US TSYS: Pushing A Little Lower Late Into The Session

• Treasuries have seen a modest sell-off today and are currently only slightly lower than levels seen as US desks started filtering in this morning, having reversed a bid seen after surprisingly soft wholesale trade sales (-1.3% M/M in Mar vs cons +0.8%).
• Today’s 10Y auction tailed by 1bp although it was digested relatively well, helped by internals keeping to recent ranges, including lowest dealer and highest indirect takes since Feb.
• Cash yields sit 1-4bps higher on the day, bear steepening with 2s10s at -34.7bps (+2.2bp) but keeping within yesterday’s range.
• TYM4 has tilted back to joint lows of 108-25+, around similar levels to yesterday’s overnight lows, with volumes approaching 1.3m having tailed off throughout the session after an above average overnight.
• Support is seen at 108-15+ (20-day EMA). Nevertheless, channel resistance remains exposed after yesterday’s 109-09 tested notable resistance levels at 109-06+ (channel top from the Feb 1 high) and 109-08+ (50-day EMA) in a renewed look at 109-09+ (snap reaction after payrolls on May 3).
• Tomorrow sees focus on weekly jobless claims data, 30Y supply (after April saw the first tail since November) and then SF Fed’s Daly (’24 voter), plus any spillover from the BoE decision.

SOFR FIXES AND PRIOR SESSION REFERENCE RATES

SOFR Benchmark Settlements:

• 1M +0.00099 to 5.32086 (-0.00155/wk)
• 3M +0.00235 to 5.32557 (-0.00198/wk)
• 6M +0.00612 to 5.29350 (-0.01343/wk)
• 12M +0.00395 to 5.14913 (+0.05959/wk)

• Secured Overnight Financing Rate (SOFR): 5.31% (+0.00), volume: $1.864T
• Broad General Collateral Rate (BGCR): 5.30% (+0.00), volume: $714B
• Tri-Party General Collateral Rate (TGCR): 5.30% (+0.00), volume: $703B
• (rate, volume levels reflect prior session)

• Daily Effective Fed Funds Rate: 5.33% (+0.00), volume: $78B
• Daily Overnight Bank Funding Rate: 5.32% (+0.00), volume: $258B

FED: RRP Extends Recent Increases

• RRP usage increased $18bn to $493bn today for its fourth consecutive daily increase, further away from the mid-April low of $327bn.
• The number of counterparties increased by 1 to 74.
• Both the $ uptake and number of counterparties are at their highest since April month-end ($534bn and 76).

SOFR/TEASURY OPTION SUMMARY

SOFR and Treasury options trade looks pared in early trade, generally lighter volumes with underlying futures trading weaker after the open, TYM4 on lows at 108-26 (-6.5). Projected rate cut pricing look steady to mildly softer then late Tuesday levels: June 2024 at -10.0% w/ cumulative rate cut -2.5bp at 5.302%, July'24 at -22% w/ cumulative at -8bp at 5.248%, Sep'24 cumulative -20.5bp, Nov'24 cumulative -29bp, Dec'24 cumulative currently -43.1bp.

SOFR Options:
-10,000 0QK4 94.43/95.68 call spds, 13.25
+60,000 2QM4 96.56/96.62 call spds .625 synth ref 96.00
+5,000 SFRM4 94.75/95.12/95.37 broken call trees, 0.75 ref 94.705
+10,000 SFRN4 94.18/94.43/94.68 put flys, 1.0 vs. 94.895/0.10%
Block, 3,000 SFRN4/SFRQ4 94.18/94.43/94.68 put fly strip, 2.75 total
3,750 SFRN4 94.18/94.43/94.68 put flys ref 94.89
2,500 SFRK4 94.68/94.75 put spds

Treasury Options:
2,800 USQ4 121 calls, 53 last
4,000 TYM4 106.25 puts ref 108-31

EGBs-GILTS CASH CLOSE: UK Curve Lightly Bear Steepens Pre-BoE

Bunds underperformed Gilts Wednesday, with the latter little changed on the day, with attention already turning to the Bank of England decision Thursday.

• With another fairly quiet calendar on both the European and US fronts, ECB speakers took most focus, and they were on the hawkish side (Holzmann and Wunsch reaffirming the likelihood of a June cut but not committing any further) but not more so than would have been expected, meeting with a muted reaction.
• Data (German / Spanish industrial production, Italian retail sales) was soft but had little lasting impact.
• The belly of the German curve underperformed, while the UK saw light bear steepening.
• Periphery EGB spreads were little changed, having seen some early widening fade.
• Multiple ECB speakers including Vujcic and Guindos appear Thursday, but the main event will be the BoE.
• As we detail in our preview (PDF here), while a rate hold is virtually assured and MNI Markets team’s base case is for another 8-1 vote in favour of such a decision vs cut, risks include a more dovish 7-2 vote and the degree to which the inflation forecasts are lowered.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is up 3bps at 2.93%, 5-Yr is up 4.3bps at 2.5%, 10-Yr is up 4.2bps at 2.462%, and 30-Yr is up 3.8bps at 2.578%.
• UK: The 2-Yr yield is down 0.1bps at 4.309%, 5-Yr is up 0.1bps at 4.022%, 10-Yr is up 1.4bps at 4.139%, and 30-Yr is up 0.8bps at 4.61%.
• Italian BTP spread down 0.6bps at 133.5bps / Spanish up 0.2bps at 78.5bps

EU FI OPTION SUMMARY: Broad-Based Upside Wednesday

Wednesday's Europe rates/bond options flow included:

• RXN4 134/137cs vs 128p, bought the cs for 32 in 2k (ref 132.39 Sep)
• RXM4 130.5/129.5ps, bought for 18.5 in 1.5k
• RXM4 132.50/133.50 1x2 call spread paper paid 4.5 on 5.5K
• ERU4 96.75c, bought for 4.25 in 6k and for 4 in 10k
• SFIK4 95.15/95.25/95.35/95.45c condor, bought for half in 1k
• SFIN4 95.20/95.35/95.50c fly, bought for 2.75 in 1k
  

FOREX: Japanese Yen Weakens for Third Consecutive Session

• The USD Index is close to unchanged Wednesday, however, G10 ranges remain narrow, and currency markets are awaiting the next macro cue to build momentum in either direction.
• USDJPY is once again higher on the session, registering its third consecutive day of gains. The bounce from noted support at the 50-dma support, and the key 151.95 pivot, has helped underpin the supportive price action from the tail-end of last week and the ongoing resilient single currency has helped EUR/JPY build further above its 50-dma support that contained the pullback last week. Today’s high closely matches initial resistance at 167.39, the May 2 high.
• AUDUSD is a relative underperformer, having dipped as low as 0.6558 earlier in the session. However, last week’s break of 0.6587 resistance cancels a recent bearish threat and instead highlights a resumption of the bull leg that started Apr 19. This opens 0.6668, the Mar 8 high and a key resistance, of which clearance above here would strengthen a bullish technical theme.
• GBPUSD has pulled back from its recent 1.2634 high (May 3) and is trading a touch lower on of the Bank of England decision tomorrow. Firm support has been defined at 1.2466, the May 1 low. Clearance of this level would reinstate a bearish threat, and this would signal scope for an extension towards the bear trigger at 1.2300, the Apr 22 low. For bulls, a breach of 1.2634 would reinstate the recent upleg and open 1.2667, a Fibonacci retracement.    
• The BoE decision is the highlight of Thursday’s calendar, with markets focused on the vote split, guidance and economic forecasts. In the US, jobless claims data is scheduled. It is also worth noting there are national holidays in France, Germany and Switzerland.

FX Expiries for May09 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0625(E1.3bln), $1.0650(E998mln), $1.0670-74(E660mln), $1.0700-10(E1.1bln), $1.0745-50(E880mln), $1.0760-80(E3.0bln), $1.0795-00(E1.5bln), $1.0820-30(E2.2bln)
• USD/JPY: Y152.00($1.2bln), Y153.00-20($1.1bln), Y154.25-30($1.0bln), Y155.00($865mln), Y155.50($515mln), Y156.65($969mln)
• EUR/JPY: Y166.80(E703mln)
• GBP/USD: $1.2470(Gbp579mln), $1.2580-00(Gbp1.0bln)
• AUD/USD: $0.6530-50(A$2.7bln), $0.6625-35(A$2.8bln)
• NZD/USD: $0.6020(N$559mln)
• USD/CAD: C$1.3725($639mln)

EQUITIES: ESM4 Close To Latest Resistance But Lacking Impetus

• The S&P 500 e-mini has seen some mild upward pressure in recent trade, although at 5213 remains off session highs and of more note below yesterday’s 5226.75.
• This prior increase pierced the 20-day EMA, highlighting a stronger short-term bullish condition with potential to expose the key resistance and bull trigger at 5333.50 (Apr 1 high).
• A mixed day across the suite of indexes: the Dow leads (+0.4%), a flat S&P 500 (0.0%) and marginally lower Nasdaq 100 (-0.1%) are in the middle whilst the Russell 2000 easily underperforms (-0.7%).
• SPX leaders: utilities (+0.9%, some broad strength but Vistra a standout at +11% after beating earnings yesterday) and financials (+0.3%, led by JPM +1.4%)
• SPX laggers: real estate (-0.8%) and materials (-0.5%) with Treasury yields climbing on the day.

E-MINI S&P TECHS: (M4) Bullish Following A Breach Of The 20-Day EMA

• RES 4: 5333.50 High Apr 1 and the bull trigger
• RES 3: 5285.00 High Apr 10
• RES 2: 5246.18 76.4% retracement of the Apr 1 - 19 bear leg
• RES 1: 5226.75 High May 7
• PRICE: 5210.00 @ 1220 ET May 8
• SUP 1: 5133.68 50-day EMA
• SUP 2: 5036.25/4963.50 Low May 2 / 19 and the bear trigger
• SUP 3: 4907.57 50.0% retracement of the Oct 27 ‘23 - Apr 1 bull leg
• SUP 4: 4863.75 Low Jan 19

S&P E-Minis have traded higher this week, extending the current bull cycle. Price has moved through resistance at the 20-day EMA. This highlights a stronger short-term bullish condition and a continuation would expose the key resistance and bull trigger at 5333.50, the Apr 1 high. Initial resistance is 5246.18, a Fibonacci retracement. Firm support lies at 5036.25, the May 2 low.

COMMODITIES: Crude Finds Support, Spot Gold Remains Within Recent Ranges

• Crude markets are ending the day higher after a slightly above-expectation US stock draw in the latest weekly EIA petroleum data. The market remains resilient to the geopolitical risk associated with Israel-Hamas ceasefire talks.
• WTI Jun 24 is up 0.8% at $79.0/bbl
• A bearish theme in WTI futures remains intact, with price recently breaching the 50-day EMA, highlighting scope for a deeper correction.
• This has opened $76.07, the Mar 11 low. Initial firm resistance is at $84.46, the Apr 26 high.
• Spot gold is broadly unchanged at $2,312/oz on Wednesday, as the yellow metal continues to trade within recent ranges.
• China’s gold accumulation has slowed, with the PBoC purchasing 60k troy ounces in April, down from 160k in March and 390k in Feb according to BBG.
• Having traded through the 20-day EMA, a continuation lower for gold would signal scope for an extension towards $2,255.2, the 50-day EMA.
• Meanwhile, copper is down 1.3% at $454.5/lb today.
• A bullish theme in copper futures remains intact and the latest retracement is considered corrective. Scope is seen for $477.04 a Fibonacci projection. Key support lies at $428.19, the 50-day EMA.

THURSDAY DATA CALENDAR

Date	GMT/Local	Impact	Flag	Country	Event
09/05/2024	2301/0001	*		UK	RICS House Prices
09/05/2024	2301/0001	**		UK	KPMG/REC Jobs Report
09/05/2024	1100/1200	***		UK	Bank Of England Interest Rate
09/05/2024	1100/1200	***		UK	Bank Of England Interest Rate
09/05/2024	1130/1230			UK	BoE Press Conference
09/05/2024	1215/1415			EU	ECB's De Guindos remarks at Panel Civico
09/05/2024	1215/1415			EU	ECB's Cipollone remarks at seminar on financial instrument tokenisation
09/05/2024	1230/0830	***		US	Jobless Claims
09/05/2024	1230/0830	**		US	WASDE Weekly Import/Export
09/05/2024	-	***		CN	Trade
09/05/2024	1300/1400			UK	BOE's Decision Maker Panel Data
09/05/2024	1400/1000			CA	Bank of Canada Financial System Review (and Survey)
09/05/2024	1430/1030	**		US	Natural Gas Stocks
09/05/2024	1530/1130	*		US	US Bill 08 Week Treasury Auction Result
09/05/2024	1530/1130	**		US	US Bill 04 Week Treasury Auction Result
09/05/2024	1615/1715			UK	BOE's Pill MPR Virtual Q&A
09/05/2024	1700/1300	***		US	US Treasury Auction Result for 30 Year Bond
09/05/2024	1800/1400			US	San Francisco Fed's Mary Daly
09/05/2024	1900/1500	***		MX	Mexico Interest Rate