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MNI ASIA OPEN: No Time To Taper, Inflation Still Transitory


EXECUTIVE SUMMARY

  • MNI POLICY: Fed Signals Growing Optimism, Keeps Policy on Hold
  • MNI BRIEF: Fed's Powell Notes Froth in Equity Markets
  • Pres Biden to Joint Session of Congress: US President Biden will make his first address to a joint session of Congress tonight at 0900ET (broadcast on all major networks and streamed live on internet) to propose his $1.8T Family plan that includes education, child care and paid leave spending.
  • MACRON TO PRESENT GRADUAL EXIT FROM LOCKDOWN ON FRIDAY: CASTEX

US

FOMC: The Federal Reserve signaled more optimism about the economic rebound amid progress on vaccinations and fiscal stimulus, while leaving its highly-supportive QE and interest rate policies on hold.

  • "Amid progress on vaccinations and strong policy support, indicators of economic activity and employment have strengthened," the Fed said Wednesday in its post meeting policy statement, an upgrade from its March assessment. "The sectors most adversely affected by the pandemic remain weak but have shown improvement," the FOMC added.
  • The Fed also shifted to say that inflation has risen on "transitory factors," and dropped the word "considerable" when describing risks to the outlook from the pandemic.
  • The Fed reiterated its committed to keep buying USD120 billion in bonds per month until the economy makes "substantial further progress" toward the central bank's goals of price stability and full employment. For more, see MNI Main Wire at 1401ET.
FOMC: Federal Reserve Chair Jerome Powell said elevated equity prices reflect some sign of "froth" and indicated he was not overly concerned about financial stability risks in any way that might deter the Fed's easy monetary policies.
  • "The overall financial stability picture is mixed but on balance it's manageable," Powell said at a press conference on Wednesday.

US TSY SUMMARY: Substantial Further Progress Needed

Rates finish near late session highs after choppy, post-FOMC trade as markets took some time to digest steady rate and $120B monthly bond buy-backs. Inflation rising but still deemed transitory while employment metrics have improved.
  • Rates finally broke range, surged higher after Fed Chairman Powell press conf 30 minutes after policy annc. No time to talk about tapering on the back of transitory inflation providing tail wind for rates here. Equities also making new all-time highs ESM1 4193.75 before paring gains late. US$ initially rallied but reversed move on Powell presser that "substantial further progress" will "take some time."
  • On unemployment, Powell suspects "insurance benefits will run out in September. To the extent that's a factor, which is not clear, it will no longer be a factor fairly soon. My guess is it will come back to this economy where we have equilibrium between labor supply and demand. It may take some months, though."
  • Focus turns to US Pres Biden address to Joint Session of Congress: tonight at 0900ET (broadcast on all major networks and streamed live on internet) to propose his $1.8T Family plan that includes education, child care and paid leave spending.
  • The 2-Yr yield is down 1.6bps at 0.1641%, 5-Yr is down 2.7bps at 0.854%, 10-Yr is down 1.4bps at 1.6076%, and 30-Yr is down 0.8bps at 2.2858%.

OVERNIGHT DATA

  • US MAR ADVANCE CENSUS GOODS TRADE GAP $90.6B (+4.0%)
  • US MBA: MARKET COMPOSITE -2.5% SA THRU APR 23 WK
  • US MBA: REFIS -1% SA; PURCH INDEX -5% SA THRU APR 23 WK
  • US MBA: UNADJ PURCHASE INDEX +34% VS YEAR-EARLIER LEVEL
  • US MBA: 30-YR CONFORMING MORTGAGE RATE 3.17% VS 3.20% PREV
  • CANADIAN FLASH MARCH RETAIL SALES +2.3%
  • CANADIAN FEB RETAIL SALES +4.8%; SALES EX-AUTOS/PARTS +4.8%
  • CANADA FEB RETAIL SALES EX-AUTOS/PARTS-GASOLINE +3.8%

MARKETS SNAPSHOT

Key late session market levels

  • DJIA down 164.55 points (-0.48%) at 33820.38
  • S&P E-Mini Future up 0.75 points (0.02%) at 4180.5
  • Nasdaq down 39.2 points (-0.3%) at 14051.03
  • US 10-Yr yield is down 1.4 bps at 1.6076%
  • US Jun 10Y are up 4.5/32 at 132-5.5
  • EURUSD up 0.0038 (0.31%) at 1.2128
  • USDJPY down 0.11 (-0.1%) at 108.59
  • WTI Crude Oil (front-month) up $0.85 (1.35%) at $63.78
  • Gold is up $5.62 (0.32%) at $1782.27

European bourses closing levels:

  • EuroStoxx 50 up 3.12 points (0.08%) at 4015.03
  • FTSE 100 up 18.7 points (0.27%) at 6963.67
  • German DAX up 42.91 points (0.28%) at 15292.18
  • French CAC 40 up 33.22 points (0.53%) at 6306.98

MONTH-END EXTENSION ESTS: Preliminary Barclays/Bbg Extension Estimates for US

Forecast summary compared to the avg increase for prior year and the same time in 2020. TIPS 0.16Y; Govt inflation-linked, 0.17. Note broad decline in Govt/Credit and Intermediate credit from year ago levels, while MBS extension est surges.

Estimate1Y Avg IncrLast Year
US Tsys0.090.080.13
Agencies0.060.040.03
Credit0.070.10.2
Govt/Credit0.080.090.17
MBS0.250.060.05
Aggregate0.120.080.08
Long Gov/Cr0.050.090.06
Iterm Credit0.080.080.2
Interm Gov0.090.080.1
Interm Gov/Cr0.080.080.15
High Yield0.090.110.08

US TSY FUTURES CLOSE: Near Late Session Highs

Futures trading mildly higher, near late session highs after moderately choppy trade post FOMC, yield curves mostly steeper on decent ranges after several round-trips across the curve over the last 90 minutes.

  • 3M10Y -0.443, 160.201 (L: 159.593 / H: 164.035)
  • 2Y10Y +0.87, 144.858 (L: 144.006 / H: 147.433)
  • 2Y30Y +1.185, 212.433 (L: 210.905 / H: 214.191)
  • 5Y30Y +1.866, 143.005 (L: 140.915 / H: 144)
  • Current futures levels:
  • Jun 2Y up 0.75/32 at 110-12 (L: 110-11 / H: 110-12.125)
  • Jun 5Y up 3.25/32 at 123-29.75 (L: 123-22.25 / H: 123-30.5)
  • Jun 10Y up 2.5/32 at 132-3.5 (L: 131-23 / H: 132-05.5)
  • Jun 30Y up 3/32 at 157-17 (L: 156-29 / H: 157-24)
  • Jun Ultra 30Y up 1/32 at 186-6 (L: 185-03 / H: 186-15)

US EURODOLLAR FUTURES CLOSE: Paring Rate-Hike Anticipation

Futures trading steady in the short end to mixed out the strip -- Reds through Blues firmer/near late session highs as accts started to scale back rate hike expectations from 2022-2024 slightly. First hike still priced in for March 2023. Note Golds still weaker.

  • Jun 21 steady at 99.815
  • Sep 21 steady at 99.80
  • Dec 21 steady at 99.740
  • Mar 22 +0.005 at 99.775
  • Red Pack (Jun 22-Mar 23) +0.005 to +0.020
  • Green Pack (Jun 23-Mar 24) +0.020 to +0.025
  • Blue Pack (Jun 24-Mar 25) +0.015 to steady
  • Gold Pack (Jun 25-Mar 26) -0.005 to -0.015

Short Term Rates

US DOLLAR LIBOR: Latest settles

  • O/N -0.00087 at 0.07313% (-0.00025/wk)
  • 1 Month +0.00300 to 0.11325% (+0.00225/wk)
  • 3 Month +0.00837 to 0.18550% (+0.00412/wk) ** (Record Low 0.17288% on 4/22/21)
  • 6 Month -0.00825 to 0.20600% (+0.00188/wk)
  • 1 Year +0.00112 to 0.28375% (+0.00288/wk)
STIR: FRBNY EFFR for prior session:
  • Daily Effective Fed Funds Rate: 0.07% volume: $65B
  • Daily Overnight Bank Funding Rate: 0.06%, volume: $265B
US TSYS: Repo Reference Rates
  • Secured Overnight Financing Rate (SOFR): 0.01%, $879B
  • Broad General Collateral Rate (BGCR): 0.01%, $376B
  • Tri-Party General Collateral Rate (TGCR): 0.01%, $354B
  • (rate, volume levels reflect prior session)
FED: NY Fed Operational Purchases
  • No buy operations Tuesday and Wednesday, Pause for FOMC
  • Next scheduled purchases:
  • Thu 4/29 1010-1030ET: Tsy 20Y-30Y, appr $1.750B
  • Fri 4/30 1100-1120ET: Tsy 0Y-2.25Y, appr $12.825B

PIPELINE: $3.45B Coca-Cola 3Pt Leads Issuers

  • Date $MM Issuer (Priced *, Launch #)
  • 04/28 $3.45B #Coca-Cola $2B +10Y +65, $750M 20Y +70, $700M 30Y Tap +80
  • 04/28 $950M #Waste Mngmnt $475M 8Y +70, $475M 20Y +80
  • 04/28 $800M #Omnicom 10Y +97
  • 04/28 $750M #OQ (Oman energy co) 7Y 5.125%
  • 04/28 $500M *Kookmin Bank 5Y +55

FOREX: Dollar Stymied as Fed Quells Taper Talk

  • The greenback initially firmed on the FOMC statement, in which the board seemed to acknowledge the gathering pace of the US economic recovery. This price action revered throughout the presser, however, as Fed Chair Powell remained adamant that it was too soon to consider any tapering of asset purchases until 'substantial' further progress was made.
  • EUR/USD was a notable beneficiary for the weakness in the greenback, with the pair extending gains through the week's high to touch the best levels since late February. Feb 25th's 1.2243 now looks achievable should short-term momentum persist.
  • Oil-tied currencies traded particularly well Wednesday, with CAD and NOK among the session's best performers as both hit multi-year highs against the greenback. A firming crude futures curve was largely responsible, with the week's DoE data showing a far larger than expected draw in distillates reserves.
  • Focus Thursday turns to weekly jobless claims data, advance Q1 US GDP and regional German CPIs. Speeches from Fed's Quarles, ECB's de Guindos, Elderson, Holzmann and Weidmann are due.

EGBs-GILTS CASH CLOSE: Recovering Early Losses Pre-Fed

A bit of bear steepening in both the UK and German curves Wednesday, ahead of the US Fed decision and Italian supply Thursday.

  • Bunds and Gilts weakened early, but pared losses in the afternoon.
  • ECB's Lagarde and Schnabel (among others) made comments this afternoon but nothing really different from what we've heard before. No reaction in bond markets, and although the EUR appreciated sharply this was seen as a dollar-led move.
  • Beyond the Fed Wednesday evening, Thursday sees April eurozone flash inflation data and BTP supply.

Closing yields/10-Yr Spreads to Bunds:

  • Germany: The 2-Yr yield is up 0.3bps at -0.685%, 5-Yr is up 1.5bps at -0.584%, 10-Yr is up 1.8bps at -0.231%, and 30-Yr is up 1.9bps at 0.311%.
  • UK: The 2-Yr yield is down 0.6bps at 0.059%, 5-Yr is up 1.2bps at 0.356%, 10-Yr is up 2.3bps at 0.797%, and 30-Yr is up 1bps at 1.311%.
  • Italian BTP spread up 3.2bps at 110.2bps / Spanish down 0.1bps at 66.4bps

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