MNI BRIEF: Panetta Says ECB On Course For Inflation Target

MNI BRIEF: China Yuan Supported By Exports, Short Swing Sees

MNI BRIEF: RRR Trim A Better Option Than Rate Cut Now: BOC

MNI China Daily Summary: Wednesday, June 26

MNI DATA TABLE: MNI China Interbank Liquidity Index (Jun) - 1

MNI CHINA LIQUIDITY INDEX: CONDITIONS TIGHTEN IN JUNE

US EIA: CRUDE OIL STOCKS EX SPR +3.59M TO 460.7M JUN 21 WK

MNI: US MAY NEW HOME SALES -11.3% TO 0.619M SAAR

EZ/UK Bond Supply Calendar: 5/10-year BTPs / CCTeu Due Thursday​

RPT-MNI: Canada Sticks To Fiscal Anchors, Spends Chunk Of Windfall

MNI BRIEF: Poilievre Calls QE 'Scam' And Would Limit BOC Remit

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MNI ASIA OPEN: Tsy Yields Subside


EXECUTIVE SUMMARY

  • MNI: Fed's Mester - Market Can Handle Larger Hike, QT in May
  • MNI BRIEF: Fed May Hike 50BPs In May, Top Neutral Next Yr-Daly
  • MNI BRIEF: Bullard Sees Brisk Rate Hike Path to Above Neutral
  • MNI WHITE HOUSE: 'Congress Must Approve Covid-19 Relief Funds'
  • PUTIN: RUSSIA TO DEMAND RUBLE GAS PAYMENTS FROM HOSTILE STATES, IFX

US

FED: Cleveland Fed President Loretta Mester said Wednesday she was confident markets can handle both a more aggressive interest rate increase in May and the start of balance sheet shrinkage.

  • "I don't have concern that would be destabilizing," she said at a reporters briefing. "I find it appealing to frontload some of the action that we're going to need to do, and I think that both of our tools would be used."
  • Mester, who votes on interest rates this year, told students at John Carroll University in Ohio on Tuesday that she wants to see the fed funds rate near 2.5% by December: https://marketnews.com/embargo-5pm and above neutral next year, and that she's open to 50bp hikes at one or more meetings this year.
FED: The Federal Reserve may hike interest rates half a percentage point at its next meeting in May on its way to going above a 2.5% neutral interest rate in 2023, San Francisco President Mary Daly said Wednesday.
  • Economic data will determine what's needed at the next meeting, which could also include moves to slim down the balance sheet, she said at the Bloomberg Equality Summit. "I have everything on the table right now. If we need to do 50, that's what we'll do," she said. "Some increase in the policy rate above neutral is likely to be required, but that's down the road in 2023," she said.
  • While the Fed must be careful not to "slam on the brakes," the odds of a U.S. recession are "very limited" and "it's too early to call that we're going to have a global recession" because of setbacks such as the Ukraine invasion, she said.
FED: St. Louis Federal Reserve President James Bullard, who dissented in favor of a 50bp rate hike at the March FOMC meeting, said Wednesday the central bank needs to move interest rates swiftly higher to neutral levels and a bit beyond in order to rein in inflation that is "way over" target.
  • "We readjust the policy rate upwards, a discreet adjustment over a reasonable timeframe up to a neutral level," he said, noting officials see that level as between 2% and 2.5%. "And then from there you should probably go a little bit above that to put some downward pressure on inflation."

US TSYS: Fed Jawboning Losing It's Charm?

Tsy futures finished strong Wednesday after trading weaker since Friday, 30YY down to 2.4980% from 2.6392% overnight (highest since Aug 2019) despite continued hawkish Fed-speak.
  • Cleveland Fed President Loretta Mester said Wednesday she was confident markets can handle both a more aggressive interest rate increase in May and the start of balance sheet shrinkage. SF Fed Daly conceded the Fed may hike interest rates half a percentage point at its next meeting in May.
  • Markets appeared to be de-risking ahead Thu's NATO address by Pres Biden, risk-off after National Security Advisor Sullivan: said "U.S. WILL UNVEIL NEW RUSSIA SANCTIONS: TARGET POLITICAL FIGURES, OLIGARCHS, ENTITIES, Bbg at the summit.
  • Tsy futures holding gains after strong $16B 20Y note auction reopen (912810TF5) trades through with 2.651% high yield vs. 2.662% WI; 2.72x bid-to-cover vs. last month's 2.44x.
  • Thursday Data Roundup: More Fed speak, weekly claims, durables, 10Y TIPS auction. Fed speak resumes:
    • MN Fed Kashkari eco-outlook, no text, moderated Q&A at 0830ET
    • Fed Gov Waller on housing mkt, text, moderated Q&A, 0910ET
    • Chicago Fed Evans, eco/mon-pol outlook, text, Q&A, 0950ET
    • Atl Fed Bostic moderated discus minority participation in economics, 1100ET

OVERNIGHT DATA

  • MNI: US FEB NEW HOME SALES -2% TO 0.772M SAAR\
  • US MBA: REFIS -14% SA; PURCH INDEX -2% SA THRU MARCH 18 WK
  • US MBA: UNADJ PURCHASE INDEX -12% VS YEAR-EARLIER LEVEL
  • US MBA: 30-YR CONFORMING MORTGAGE RATE 4.50% VS 4.27% PREV
  • US MBA: MARKET COMPOSITE -8.1% SA THRU MAR 18 WK

MARKETS SNAPSHOT

Key late session market levels:

  • DJIA down 384.99 points (-1.11%) at 34424.56
  • S&P E-Mini Future down 46.25 points (-1.03%) at 4458.75
  • Nasdaq down 147.8 points (-1%) at 13960.77
  • US 10-Yr yield is down 7.3 bps at 2.3098%
  • US Jun 10Y are up 14/32 at 123-6
  • EURUSD down 0.0024 (-0.22%) at 1.1005
  • USDJPY up 0.33 (0.27%) at 121.13
  • Gold is up $22.93 (1.19%) at $1944.56
European bourses closing levels:
  • EuroStoxx 50 down 56.9 points (-1.45%) at 3869.22
  • FTSE 100 down 16.09 points (-0.22%) at 7460.63
  • German DAX down 189.55 points (-1.31%) at 14283.65
  • French CAC 40 down 77.98 points (-1.17%) at 6581.43

US TSY FUTURES CLOSE

  • 3M10Y -4.8, 180.909 (L: 178.188 / H: 189.328)
  • 2Y10Y -0.918, 20.294 (L: 18.789 / H: 25.205)
  • 2Y30Y -2.977, 40.093 (L: 39.421 / H: 48.544)
  • 5Y30Y -2.168, 17.804 (L: 17.34 / H: 23.722)
  • Current futures levels:
  • Jun 2Y up 2.875/32 at 106-7 (L: 106-01.25 / H: 106-07.5)
  • Jun 5Y up 8.25/32 at 115-5.5 (L: 114-22 / H: 115-07.5)
  • Jun 10Y up 13.5/32 at 123-5.5 (L: 122-12 / H: 123-10)
  • Jun 30Y up 1-08/32 at 149-21 (L: 147-21 / H: 149-30)

US 10Y Treasury Technicals: (M2)‌‌ Southbound

  • RES 4: 126-26+ High Mar 10
  • RES 3: 126-04 High Mar 14
  • RES 2: 125-14+ 20-day EMA
  • RES 1: 123-25+ Low Mar 16 and a recent breakout level
  • PRICE: 122-27 @ 11:06 GMT Mar 23
  • SUP 1: 122-12 Intraday low
  • SUP 2: 122-00 Round number support
  • SUP 3: 121-15+ Low Mar 4 2019 (cont)
  • SUP 4: 121-02 Low Jan 18 2019 (cont)

Treasuries remain vulnerable following this week’s move lower and resumption of the primary downtrend. The break lower maintains the bearish price sequence of lower lows and low highs, reinforcing the current bear cycle. The focus is on the 122-00 handle next. On the upside, firm resistance is seen at 125-14+, the 20-day EMA. Initial resistance is seen at 123-25+, the Mar 16 low and this week’s breakout level.

US EURODOLLAR FUTURES CLOSE

  • Jun 22 +0.020 at 98.465
  • Sep 22 +0.040 at 97.905
  • Dec 22 +0.050 at 97.480
  • Mar 23 +0.060 at 97.235
  • Red Pack (Jun 23-Mar 24) +0.065 to +0.075
  • Green Pack (Jun 24-Mar 25) +0.065 to +0.075
  • Blue Pack (Jun 25-Mar 26) +0.060
  • Gold Pack (Jun 26-Mar 27) +0.060 to +0.065

SHORT TERM RATES

US DOLLAR LIBOR: Latest settlements:

  • O/N +0.00128 at 0.32871% (+0.00000/wk)
  • 1 Month +0.00171 to 0.45657% (+0.01000/wk)
  • 3 Month +0.01200 to 0.96571% (+0.03171/wk) ** Record Low 0.11413% on 9/12/21
  • 6 Month +0.00514 to 1.38971% (+0.10214/wk)
  • 1 Year -0.00171 to 2.01086% (+0.22443/wk)

STIR: FRBNY EFFR for prior session:

  • Daily Effective Fed Funds Rate: 0.33% volume: $76B
  • Daily Overnight Bank Funding Rate: 0.32% volume: $254B

US TSYS: Repo Reference Rates

  • Secured Overnight Financing Rate (SOFR): 0.28%, $931B
  • Broad General Collateral Rate (BGCR): 0.30%, $361B
  • Tri-Party General Collateral Rate (TGCR): 0.30%, $353B
  • (rate, volume levels reflect prior session)

FED Reverse Repo Operation, Second Highest on Record

NY Federal Reserve/MNI

NY Fed reverse repo usage climbs to new second highest on record at $1,803.186B w/ 88 counterparties vs. $1,763.183B prior session -- still well off all-time high of $1,904.582B on Friday, December 31.

PIPELINE: Standard Chartered Launched

  • Date $MM Issuer (Priced *, Launch #)
  • 03/23 $1.5B #Standard Chartered $1B 4NC3 +165, $500M 4NC3 SOFR+174
  • 03/23 $1B *L-Bank 3Y SOFR+29a
  • 03/23 $Benchmark Ford Motor Cr 5Y
  • 03/23 $600M *KEB Hana Bank 5Y +92.5
  • 03/23 $Benchmark Global Chem 10Y +215, 30Y +270

EGBs-GILTS CASH CLOSE: Gilts Get A Remit Boost

GIlts easily outperformed Bunds Wednesday as UK debt remit plans came in at the very low end of expectations alongside the government's Spring Statement.

  • The overall theme in European FI was a reversal of Tuesday's price action, with Bund and Gilt yields closing at/near the lows.
  • Though it was a generally risk-off session, with equities dipping, periphery spreads mostly held in (BTP/Bund flat, Spain a little tighter).

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

  • Germany: The 2-Yr yield is down 1.8bps at -0.253%, 5-Yr is down 3.1bps at 0.192%, 10-Yr is down 3.9bps at 0.466%, and 30-Yr is down 5.3bps at 0.619%.
  • UK: The 2-Yr yield is down 6.5bps at 1.35%, 5-Yr is down 6bps at 1.402%, 10-Yr is down 8.1bps at 1.627%, and 30-Yr is down 7.4bps at 1.848%.
  • Italian BTP spread up 0.1bps at 151.8bps / Spanish down 1.1bps at 90.4bps

FOREX: NOK Hits Cycle High as Focus Switches to Rate Path

  • GBP was Wednesday's poorest performer, reversing a large portion of the strength seen across the Tuesday trading day. Having found resistance at the 1.33 handle overnight, the pair promptly reversed, settling either side of the 1.32 handle after the London close. The break higher earlier in the week strengthens the current bull cycle and signals scope for a climb towards the 50-day EMA at 1.3349. This EMA is seen as a key short-term resistance.
  • JPY traded poorly across Asia-Pac hours, resulting in a new cycle high print at Y121.41. This confirms a resumption of the uptrend and strengthens bullish conditions. The focus shifts to 121.69 next, the Jan 29 2016 high, but there are increasing signs of discomfort at the BoJ, but its options for addressing the depreciation are narrowing as downside risks to the economy grow, leaving it to rely on verbal intervention in concert with the Ministry of Finance, MNI understands.
  • Elsewhere, a return higher for oil prices worked in favour of commodity tied currencies, pushing the likes of CAD and NOK to the top of the G10 leaderboard. WTI and Brent crude futures added close to 5% apiece as markets watched an unexpectedly large draw in DoE crude oil reserves, twinned with Russia's renewed demands that 'hostile' countries must pay for Russian gas in RUB, rather than the pre-agreed foreign currencies.
  • USD/NOK broke below the early February lows in response, putting the pair nearer to the January YTD low at 8.6293, which marks the first key downside level. Moves come ahead of Thursday's rate decision, at which Norges Bank are seen tightening policy rates and indicating a faster pace of tightening in the coming 24 months.
  • Focus Thursday turns to rate decisions from the Swiss, Norwegian, South African and Mexican central banks, all of which are coming under pressure from accelerating domestic inflation rates. Weekly US jobless claims data also crosses as well as preliminary March PMI numbers. Central bank speakers include Fed's Bullard, Kashkari, Waller, Evans and Bostic as well as ECB's Elderson & Schnabel and BoE's Mann.

Thursday Data Calendar

DateGMT/LocalImpactFlagCountryEvent
24/03/20220030/0930**JPIHS Markit Flash Japan PMI
23/03/20220105/2105USSt. Louis Fed's James Bullard
24/03/20220745/0845**FRManufacturing Sentiment
24/03/20220815/0915**FRIHS Markit Services PMI (p)
24/03/20220815/0915**FRIHS Markit Manufacturing PMI (p)
24/03/20220830/0930CHSNB interest rate decision
24/03/20220830/0930***CHSNB policy decision
24/03/20220830/0930**DEIHS Markit Services PMI (p)
24/03/20220830/0930**DEIHS Markit Manufacturing PMI (p)
24/03/20220900/1000***NONorges Bank Rate Decision
24/03/20220900/1000**EUIHS Markit Services PMI (p)
24/03/20220900/1000**EUIHS Markit Manufacturing PMI (p)
24/03/20220900/1000**EUIHS Markit Composite PMI (p)
24/03/20220930/0930***UKIHS Markit Manufacturing PMI (flash)
24/03/20220930/0930***UKIHS Markit Services PMI (flash)
24/03/20220930/0930***UKIHS Markit Composite PMI (flash)
24/03/20220930/1030EUECB Elderson at IIEA Webinar
24/03/20221030/1030UKBank of England Financial Policy Report
24/03/20221100/1100**UKCBI Distributive Trades
24/03/2022-EUECB Lagarde at European Council Meeting
24/03/20221230/0830**USJobless Claims
24/03/20221230/0830**USdurable goods new orders
24/03/20221230/0830*USCurrent Account Balance
24/03/20221230/0830**USWASDE Weekly Import/Export
24/03/20221230/0830USMinneapolis Fed's Neel Kashkari
24/03/20221300/1300UKBOE Mann Panels Institute of International Finance event
24/03/20221300/1400EUECB Elderson in Panel at LSE
24/03/20221345/0945***USIHS Markit Manufacturing Index (flash)
24/03/20221345/0945***USIHS Markit Services Index (flash)
24/03/20221350/0950USChicago Fed's Charles Evans
24/03/20221430/1030**USNatural Gas Stocks
24/03/20221500/1100USAtlanta Fed's Raphael Bostic
24/03/20221530/1130**USNY Fed Weekly Economic Index
24/03/20221530/1130*USUS Bill 08 Week Treasury Auction Result
24/03/20221530/1130**USUS Bill 04 Week Treasury Auction Result
24/03/20221700/1300**USUS Treasury Auction Result for TIPS 10 Year Note
24/03/20221900/1500***MXMexico Interest Rate
25/03/20222330/0830**JPTokyo CPI

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