MNI ASIA OPEN: Better Wkly Claims, Fed Speak and Another Weak 7Y

EXECUTIVE SUMMARY

• MNI EXCLUSIVE: Fed Signals Patience on IOER After Repo Move
• MNI POLICY: Unclear If Nearing Inflation Outbreak-Fed's Bostic
• MNI BRIEF: Inflation Could Run Above 2% in '22: Fed's Clarida
• MNI BRIEF: Fed's Evans Says Rates May Hold Until 2024
• MNI BRIEF: Fed's Bostic Hopeful For Full Employment in 2022
• BOSTIC: SEES FIRST U.S. INTEREST-RATE INCREASE IN 2023; INFLATION AT OR ABOVE 2% IN 2023, MEETING OBJECTIVE, Bbg
  
• US PRES BIDEN: MY PLAN IS TO RUN FOR RE-ELECTION IN 2024, Bbg
• CHINA CENTRAL BANK SAYS STABLE MONETARY POLICY HAS TO BE FLEXIBLE AND PRECISE, AND TO KEEP LIQUIDITY REASONABLY AMPLE, Rtrs

US

FED: Chicago Fed President Charles Evans said Thursday the central bank may not raise its key interest rate until 2024, saying the biggest challenge will be bringing inflation up.

• "Inflation is going to be the real test of whether or not it's time for liftoff," Evans said in a question-and-answer session. Inflation may struggle to move up to 2% next year, he said. Even a rate increase would leave very stimulative conditions, he said.
• The jobless rate may fall to 4.5% this year and Evans said, "I'm hopeful that we're headed for a better trajectory but it's very difficult to understate the unevenness" in the job market.

FED: Atlanta Fed President Raphael Bostic said Thursday that while it appears that an underlying inflation surge does not appear likely, clear price readings will not come for a few months, meaning that it can't be ruled out that inflation could surprise.

• The Atlanta Fed chief, who said he is not currently thinking the FOMC will need to remove policy accommodation soon, also made a couple of points "on why I'm not sure we are staring down a fearsome inflation outbreak," including the likelihood that clear readings on underlying inflation won't appear for a few months as Covid-19 has "played havoc with prices." For more see MI Policy main wire at 1202ET.

FED: U.S. inflation could run above 2% in 2022 and 2023 but that would be consistent with the Fed's recent move to average inflation targeting. Federal Reserve Vice Chair Richard Clarida said Thursday.

• "Over the next few months, 12-month measures of inflation are expected to move temporarily above our 2 percent longer-run goal, owing to a run of year-over-year comparisons with depressed service-sector prices recorded in the spring of 2020 and supply bottlenecks limiting how quickly production can respond in the near term," he told an Institute of International Finance forum. "However, I expect most of this increase to be transitory and for inflation to return to -- or perhaps run somewhat above -- our 2 percent longer-run goal in 2022 and 2023."

OVERNIGHT DATA

• US JOBLESS CLAIMS -97K TO 684K IN MAR 20 WK
  
• US PREV JOBLESS CLAIMS REVISED TO 781K IN MAR 13 WK
• US CONTINUING CLAIMS -0.264M to 3.870M IN MAR 13 WK

• The upward revision to headline GDP mainly reflected upward revisions to private inventory investment and local government spending, the BEA said Thursday, though that was partially offset by a downward revision to nonresidential fixed investment and consumer spending. The third estimate was also based on a more "complete" dataset than the second estimate, the BEA said.
• Meanwhile, the Q4 GDP price index fell by a tenth to 2% from 2.1% in the second estimate. Q4 PCE also fell by one tenth from the second estimate to 2.3%.

U.S. WEEKLY LANGER CONSUMER COMFORT INDEX AT 49.1 VS 48.6

MARKETS SNAPSHOT

• DJIA up 89.99 points (0.28%) at 32520.48
• S&P E-Mini Future up 6.25 points (0.16%) at 3889.25
• Nasdaq down 25.4 points (-0.2%) at 12941.34
• US 10-Yr yield is up 0.5 bps at 1.6138%
• US Jun 10Y are up 1.5/32 at 132-4.5
• EURUSD down 0.0032 (-0.27%) at 1.1782
• USDJPY up 0.37 (0.34%) at 109.09
• Gold is down $4.78 (-0.28%) at $1730.00

• EuroStoxx 50 up 0.02 points (0%) at 3832.57
• FTSE 100 down 38.06 points (-0.57%) at 6674.83
• German DAX up 10.97 points (0.08%) at 14621.36
• French CAC 40 up 5.12 points (0.09%) at 5952.41

Busy Session on Data, Fed-Speak, Tsy Supply, Month-End

Fairly hectic session on decent volumes Thursday (TYM1>1.8M after the bell) with a lot of moving parts. Net change for Tsy futures after the bell mixed, near middle session range, curves steeper w/Bonds underperforming (10s/ultra-bond Blocks underscore move).

• Data: Tsys drew immediate sellers after better than exp wkly claims (684K vs. 730K est; continuing claims 3.870M vs. 4.00M est). Decent 2-way trade followed as lvls held range on buy the dip and risk-off flow over deferred re-open plans and vaccine concerns (ongoing underlying theme).
• Fed Speak: Rates and equities both sold off/pared gains around midmorning, desks hard pressed to explain the sharp drop in WNM1 ultra-bond that lead the retreat -- Fed Chair Powell NPR interview not the driver, comments innocuous despite mkt comparison to Dunkirk (!?). Mixed Fed speak from Clarida, Bostic and Evans through second half: Evans least optimistic: rates may hold until 2024.
• Tsy supply: Another weak 7Y. Tsys sold off after US Tsy $62B 7Y Note auction (91282CBS9) drews high yield 1.300% vs. vs. 1.277% WI (huge 4bp tail last month: high yield of 1.195% vs. 1.155% WI); 2.23 bid/cover vs. 2.30 prior. Indirects drew 57.27% vs. 38.06% prior, directs 18.00% vs. 22.13%, dealers 27.73% vs. 39.81%.
• Month-end rebalancing has market on edge, "Balanced mutual funds are expected to sell $136bn of equities to buy fixed income," according to JPMorgan estimates.
• The 2-Yr yield is down 1.2bps at 0.1348%, 5-Yr is up 1bps at 0.8171%, 10-Yr is up 0.5bps at 1.6138%, and 30-Yr is up 2.6bps at 2.3358%.

MONTH-END EXTENSIONS: Preliminary Barclays/Bbg Extension Estimates

Forecast summary compared to the avg increase for prior year and the same time in 2020. TIPS 0.07Y; Govt inflation-linked, 0.02. Notice the bounce in US Tsy, Agency and MBS estimates, and drop in Credit extension est vs. last year.

US TSY FUTURES CLOSE:

• 3M10Y +0.54, 159.354 (L: 156.72 / H: 161.819)
• 2Y10Y +1.91, 147.708 (L: 144.466 / H: 149.762)
• 2Y30Y +3.771, 219.673 (L: 214.722 / H: 220.8)
• 5Y30Y +1.293, 151.316 (L: 146.872 / H: 152.336)
• Current futures levels:
• Jun 2Y up 0.625/32 at 110-13.5 (L: 110-12.5 / H: 110-13.625)
• Jun 5Y up 3.25/32 at 124-0.75 (L: 123-27 / H: 124-01.75)
• Jun 10Y up 1.5/32 at 132-4.5 (L: 131-28.5 / H: 132-09.5)
• Jun 30Y down 3/32 at 156-21 (L: 156-07 / H: 157-08)
• Jun Ultra 30Y down 21/32 at 184-15 (L: 183-28 / H: 185-30)

US EURODOLLAR FUTURES CLOSE:

• Jun 21 steady at 99.830
• Sep 21 +0.005 at 99.815
• Dec 21 +0.005 at 99.750
• Mar 22 +0.005 at 99.785
• Red Pack (Jun 22-Mar 23) +0.005 to +0.015
• Green Pack (Jun 23-Mar 24) +0.015 to +0.020
• Blue Pack (Jun 24-Mar 25) steady to +0.015
• Gold Pack (Jun 25-Mar 26) -0.02 to -0.005

Short Term Rates

US DOLLAR LIBOR: Latest settles:

• O/N -0.00088 at 0.07550% (-0.00138/wk)
• 1 Month -0.00112 to 0.10913% (+0.00075/wk)
• 3 Month -0.00213 to 0.19300% (-0.00388/wk) (Record Low of 0.17525% on 2/19/21)
• 6 Month -0.00562 to 0.20388% (+0.00150/wk)
• 1 Year +0.00075 to 0.28075% (+0.00450/wk)

• Daily Effective Fed Funds Rate: 0.07% volume: $70B
• Daily Overnight Bank Funding Rate: 0.07%, volume: $248B

• Secured Overnight Financing Rate (SOFR): 0.01%, $895B
• Broad General Collateral Rate (BGCR): 0.01%, $393B
• Tri-Party General Collateral Rate (TGCR): 0.01%, $355B
• (rate, volume levels reflect prior session)

• Tsys 20Y-30Y, $1.735B accepted vs. $4.924B submission
• Next scheduled purchases:
• Fri 3/26 No buy operation
• Mon 3/29 1010-1030ET: Tsy 2.25Y-4.5Y, appr $8.825B
• Tue 3/30 1010-1030ET: TIPS 7.5Y-30Y, appr $1.225B
• Wed 3/31 1010-1030ET: Tsy 20Y-30Y, appr $1.750B
• Pause for Easter Holiday, Resume April 5:
• Mon 4/05 1100-1120ET: Tsy 0Y-2.25Y, appr $12.825B

$4.5B London Stock Exchange Leads Thu's $11.125 Total Issuance

$11.125B To price Thursday

• Date $MM Issuer (Priced *, Launch #)
  
• 03/25 $4.5B #London Stock Exchange $500M 3Y +40, $1B 5Y +60, $1B 7Y +75, $1.25B 10Y +90, $750M 20Y +100 (EUR and GBP denominated debt issuance expected Fri)
• 03/25 $2.5B *ISDB (Islamic Development Bank) 5Y Sukuk +33
• 03/25 $2.525B #AmerisourceBergen $1.525B 2NC1 +60, $1B 10Y +110
• 03/25 $1.6B #Jackson Financial $600M 3Y +105, $500M 10Y +165, $500M 30Y +215
• 03/25 $1B Pilgrims Pride 10NC5 +10a
• 03/25 $Benchmark Pakistan 5Y, 10Y, 30Y investor calls
• 03/25 $2B Imola Merger Corp 8NC3 investor calls

FOREX: EUR/USD Chews Through Key Support

• EUR/USD bears chewed through key resistance at the $1.18 handle Monday, putting the pair at the lowest level since November 2020. The moves follow the break and close below the 200-dma earlier in the week, with the move opening 1.1746 as the next support ahead of 1.1695 - a key Fibo support.
• Oil sold off after Wednesday's sharp rally, undermining the strength in commodity-tied FX ahead of the Thursday close. This left NOK at the bottom of the pile, prompting USD/NOK to eye the first close above the 100-dma since October last year.
• GBP traded well, outpacing all others in G10 to partially reverse recent underperformance. This keeps key support at the 1.3625 100-dma intact for now, with focus turning to the
• Focus Friday turns to UK retail sales, German IFO in the European morning as well as US trade balance, personal income/spending and PCE releases. Central bank speakers include ECB's Rehn and BoE's Saunders & Tenreyro.

EGBs-GILTS CASH CLOSE: Core Curves Flatten

Bunds and Gilts enjoyed a positive (generally risk-off) session with core curves flattening Thursday. Semi-core and peripheries lagged, with Greek spreads underperforming.

• Eurostoxx equity futures bounced sharply from 2-week lows to hit week's best levels.
• Mixed headlines on the day. A detente between the UK and EU over vaccine supplies seemed tentative as European Union leaders met. Notably, the cash close came just before a very poor US 7-Yr Tsy auction which dragged Bund and Gilt futures lower.
• French confidence data came in stronger than expected; Friday sees UK retail sales, German IFO and Italian confidence.
• Also Friday, we get speeches by BoE's Saunders and Tenreyro.

Closing yields/10-Yr Spreads to Bunds:

• Germany: The 2-Yr yield is down 0.4bps at -0.716%, 5-Yr is down 1.6bps at -0.698%, 10-Yr is down 3.1bps at -0.384%, and 30-Yr is down 3.5bps at 0.175%.
• UK: The 2-Yr yield is down 1.5bps at 0.046%, 5-Yr is down 1.9bps at 0.315%, 10-Yr is down 2.9bps at 0.729%, and 30-Yr is down 4bps at 1.242%.
• Italian BTP spread up 2bps at 96.4bps / Spanish bond spread up 1.8bps at 64.6bps