MNI ASIA MARKETS ANALYSIS: USD Index Reverses Post-JOLTS Decline

US TSYS: Treasuries Pare Gains But Softer Data Still Set The Tone

• Front end Tsys have seen a sizeable paring of gains through the session, with the 2YY of 3.786% off a fleetingly touched low of 3.642% after the ISM Services miss. It has now even unwound some of the initial rally on weaker ADP employment but yields are still 4bps lower on the day.
• 2s10s are back near the lower end of the day’s range at -49bp, with very brief post-ISM highs of -37bp and lows of -52bps prior to the US coming in.
• TYM3 at 116-15+ remains off earlier highs of 116-30 having got close to the bull trigger at 117-01+ (Mar 24 high).
• A similar story in near-term rates space, unwinding earlier declines but still down on the day: Fed Funds imply 10bp hike for May FOMC, before 39bp of cuts from current effective to 4.44% (-7bps) and 78bp of cuts to 4.05% year-end (-8bp).
• Bullard (non-voter) set to discuss the economic outlook with text + Q&A tomorrow

EGBs-GILTS CASH CLOSE: Morning Selloff, Afternoon Rally... Again

Bunds and Gilts strengthened again Wednesday, and for the third session in a row, an early sell-off reversed in the afternoon on weaker-than-expected US data.

• Core European FI sold off early on strong eurozone data including Spain/Italy Service PMIs and German factory orders.
• But as with Monday's soft ISM Manufacturing and Tuesday's disappointing US JOLTS data, today's dovish catalysts were US ADP private payrolls and ISM Services, both boosting the US slowdown narrative and adding to expectations of near-term Fed rate cuts.
• European rates responded in kind, with pronounced bull steepening in the German curve as ECB terminal hike pricing pulled back (down 6bp on the day).
• That contrasted with stubborn BoE pricing, which was basically unchanged. The UK curve twist steepened modestly.
• BTPs outperformed, with spreads falling sharply into the cash close after having earlier widened post US ISM data.
• The holiday-shortened trading week ends Thursday with German industrial production and a French OAT auction.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is down 7.7bps at 2.524%, 5-Yr is down 6.4bps at 2.178%, 10-Yr is down 6.7bps at 2.182%, and 30-Yr is down 7bps at 2.266%.
• UK: The 2-Yr yield is down 1.2bps at 3.341%, 5-Yr is down 1.8bps at 3.256%, 10-Yr is down 0.6bps at 3.428%, and 30-Yr is up 2.1bps at 3.772%.
• Italian BTP spread down 3.3bps at 183.3bps / Spanish down 0.4bps at 102.7bps

FOREX: Pressure On Equities Boosts USD, Lower Core Yields Bolster JPY

• Despite the immediate greenback dip on the lower-than-expected US ISM Services PMI data, the subsequent dent to risk sentiment provided support for safe-haven currencies and saw the USD index edge higher throughout US trade. The index has risen 0.36% on the session and has now reversed the post-JOLTS data declines from Tuesday.
• Additionally, further bull steepening in the US yield curve bolstered the Japanese Yen, which saw solid demand against non-usd G10 currencies.
• In particular, AUDJPY and EURJPY are showing losses of around 1%. The former can be explained by the residual bearish sentiment following the RBA’s unchanged decision while EURJPY’s fresh weakness has built momentum with EURUSD trading back below the prior tech resistance at 1.0930.
• Last Friday, EURJPY made a small marginal high above the March 2 high at 145.57 but price has since seen a substantial reversal to the downside. On the downside, initial firm support is seen at 142.84, the 50-day EMA which has briefly been tested today and a weekly close below this average would be considered a bearish development.
• Both SEK and NOK were notable underperformers, both falling over 1.2% against the greenback, consolidating early losses, that appear technically driven, throughout the US trading session.
• German IP and Canadian jobs data are the highlights on Thursday. Focus then turns to US non-farm payrolls on Friday ahead of the holiday weekend, where consensus is currently looking for a +240k print and average hourly earnings of +0.3% M/m.

US OPTIONS: Wednesday's Rate Options Trade

Wednesday's US rates / bond options flow included:

• SFRK3 95.00/94.75ps traded 3 in 1k
• SFRK3 95.25/95.00/94.62p fly traded 6.5 in 3k
• SFRK3 95.18/95.25cs vs 94.81/94.50ps traded 0.25 for the ps in 2k
• SFRK3 94.50/94.25ps traded 3 in 1k
• SFRM3 94.87/94.75ps, traded 3.5 in 1k
• SFRM3 94.93/94.62ps traded 7.5 in 2k
• SFRM3 94.75/95.12/95.50 iron fly traded 25.5 in 3k
• SFRM3 95.00/95.15/95.37c fly, traded 2.75 in 6.5k
• SFRM3 95.00/94.75ps vs 96.50c sold the call at flat in 2.5k
• SFRM3 94.87/95.37^^ sold at 30.5 in 2k, was sold earlier at 30 in 1k
• SFRM3 95.25^^, bought for 51.5 in 2k
• EDM3 95.87c vs SFRM3 96.00c, bought the SFR for 1 in 10k (on Block)
• SFRJ3 94.87/95.00/95.25/95.37 iron condor, bought for 5.5 in 5k (was bought for 20k yesterday)
• 3QK3 96.87/97.62 combo, bought the put for 1.5 in 3.5k

EU OPTIONS: Exiting Bund Downside, More Euribor Upside

Wednesday's Europe rates / bond options flow included:

• RXK3 134/133/132p fly sold at 8 in 3k (unwind)
• ERU3 96.50/96.62/96.75/96.87c condor sold at 1.25 in 3k
• ERZ3 97.50/98.00/98.25c fly, bought for 3.75 in 15k
• 2RM3 97.50/98.00/98.25c fly, bought for 7.5 in 4k

FX OPTIONS EXPIRY: For Tomorrow

Of note:

USDCAD 3.53bn at 1.3430/1.3455.
AUDNZD 1.09bn at 1.0650 (Tue).

• EURUSD: 1.0875 (861mln), 1.0895 (282mln), 1.0900 (221mln), 1.0915 (301mln), 1.0920 (473mln), 1.0950 (490mln), 1.1000 (255mln).
• USDJPY: 130.00 (740mln), 130.50 (578mln), 131.00 (682mln).
• USDCAD; 1.3430 (893mln), 1.3435 (905mln), 1.3455 (1.73bn).
• AUDUSD: 0.6725 (648mln).

US STOCKS: ADP & ISM Misses Weigh But Banks Move More Firmly Off Early Lows

• Similar to the retracement in US FI, the S&P E-mini has pulled back off earlier lows, having dipped just below 4100 but remains -0.4% on the day (currently 4112) with weaker economic data in ADP employment and ISM services casting its shadow.
• It began to more closely eye support at 4078 (Mar 31 low) with more sustained pressure potentially ultimately seeing focus shift to the 50-day EMA of 4036.58, whilst resistance remains at 4171.75 (Apr 4 high).
• Nasdaq sees larger losses (-1.2%) whilst banks also remain under pressure but are off earlier lows, with the KBW index -0.8% and regionals -1.1% on the day. On banks, Western Alliance released a deposits update (having spooked markets earlier with no details), showing a 11 drop in Q1 but with subsequent stabilisation and increase since Mar 20.
• North of the border, the TSX e-mini is broadly tracking in line with ESA, -0.5% on the day.

COMMODITIES: Gold Holds Onto Yesterday’s Surge Despite Stronger USD

• Crude oil edge to a small loss for their first in five sessions, in what was ultimately a relatively tight range but still broadly consolidates the adjustment higher since the OPEC+ surprise cut announcement at the weekend.
• The net declines came despite EIA weekly oil data showing a larger than expected draw in US crude, gasoline and distillate inventories. Crude stocks drew with higher exports and despite higher imports and an unexpected dip in refinery utilisation.
• WTI is -0.3% at $80.44, leaving technical levels untested with resistance at $81.81 (Apr 4 high) and support at $77.60 (23.6% retrace of Mar 20 – Apr 3 rally).
• Brent is -0.1% at $84.83, also leaving resistance at $86.44 (Apr 3 high) and support at $82.57 (23.6% retrace of Mar 7 – Apr 3 uptrend).
• Gold is +0.1% at $2022.08, whipping around various US data releases but ultimately holding onto yesterday’s surge despite the DXY pushing higher. A high of $2031.88 pushed closer towards next resistance at $2034.0 (2.00 proj of Sep 28-Oct 4 rally from Feb 28).

US DATA: ISM Services - New Orders and Prices Tumble

• Big miss for ISM services, falling to 51.2 in March (cons 54.4) after two surprisingly strong 55 readings and in turn is consistent with much more tepid, but still positive, real GDP growth.
• Particularly large decline in new orders (52.2, -10.4pts). The series has been particularly volatile in the past few months so it’s still above the 45.2 in Dec but otherwise the lowest since Dec’13 outside of two months in the pandemic.
• It's led by new export orders tumbling to 43.7 (-18.0pts), exceeding the -17.4pts from Oct for the largest monthly decline since at least 2000.
• Prices paid (59.5, -6.1pts) see their largest decline since May’17 to leave them at the lowest since Jun’20.
• Ahead of payrolls, employment (51.3, -2.7pts) unwinds most of the surprise strength in Feb with its third largest decline of the past year.

US DATA: ISM Export Orders Imply Downside Risk To World Trade Growth

• Within today's ISM Service report, the 18pt decline in new export orders to 43.7 was one of a few standout components.
• The index has been volatile in recent months and it’s still above the recent low of 38.4 in Nov, but aside from that and Apr/May’20 early in the pandemic we haven’t seen these levels since late 2009.
• The volatility in the series is notable but the low level builds on recent tepid prints in the manufacturing equivalent (47.6, -2.3pts), which unsurprisingly tends to have a better fit with global trade flows - see chart.
• These global trade flows have already cooled, judging by CPB world trade volumes at -1.5% Y/Y in Jan, and are worth watching ahead.

US: Anecdotal Evidence of Bank Deposit Flows Stabilising

Reported by Bloomberg:

• Western Alliance Bancorporation said end of quarter total deposits were $47.6b compared to $53.6b as of Dec. 31, 2022. The bank experienced elevated net deposit outflows surrounding the announcements of SVB and Signature closures.
• Since March 20, deposit balances stabilized and grew about $900m to quarter end.
• Since March 31, quarter-to-date deposit growth has continued this trajectory and increased additional $1.2b as of April 4.

See MNIs analysis of the latest official Fed statistics on Fed deposit flight here: https://marketnews.com/markets/pdfs/u-s-commercial-banking-update-further-large-deposit-drawdown

FED: Reverse Repo Operation

• RRP uptake increased $24B today to $2,243B, although unsurprisingly remains below the quarter-end $2,375B.
• Number of counterparties increases from 103 to an elevated 107.