MNI ASIA MARKETS ANALYSIS - Markets Price Ever Greater Odds of Ceasefire

US TSYS/STIR SUMMARY: Fed Hike Expectations Trimmed On Peace Hopes

• Fed hike expectations have for the second day seen a trimming of earlier overnight optimism, with FOMC-dated Fed Funds pricing 208bps of further hikes for Dec’22 from a high of 218bps.
• The drop came as inflation expectations slipped after Russia-Ukraine peace talks appeared to show convergence between the two sides. That has since been quashed by various Western officials, but the moves haven’t fully retraced.
• The move has been more exaggerated in Treasuries (10Y yields 5bps lower on the day) and Eurodollars (blues down ~10 ticks).
• The more immediate outlook is little changed though, with 44bps for May and a cumulative 86bps for June.
• Harker (2023 voter) is the latest member to speak post-FOMC, revealing himself to be one of the five dots at the median of 7x25bp hikes in 2022. He was however keen to stress being “very open” to hiking faster depending on what happens to inflation and responses from Fed liaison programmes.
• George (2022 voter) is another ‘new’ speaker tomorrow, expected to provide a more hawkish take. Text tbd but Q&A confirmed.

EGB OPTION FLOW SUMMARY: Eyeing Higher Bobl Yields

Tuesday's Europe rates / bond options flow included:

• OEM2 127.50/126.50ps 1x1.5, bought for 11.5/12 in 15k
• OEM2 127.50p, bought for 62.5 and 63 in 15k, targeting 0.61% yield
• DUK2 110.40/20 put spread bought for 4 in 3.5k
• OEK2 130/131 call spread bought for 12.5 in 5.5k
• ERN2 100.25/100.375/100.50 call fly bought for 1.5 in 2k
• ERZ2 100.37/100.50cs bought for 1.5 in 10k

FOREX: De-Escalation Headlines Weigh On Greenback, Bolsters Euro

• Newswires suggesting that Russia are to begin withdrawing forces from Kyiv have bolstered risk sentiment across global markets, weighing on the US dollar. The greenback remains bottom of the G10 pile and in turn, EURUSD briefly rose back above 1.11 as the single currency came back into favour.
• EURUSD made a clean break of the 20-day EMA that marked initial resistance at 1.1043 and traded up to key near-term resistance at 1.1137 - the high from March 17.
• Dollar weakness was fairly broad based, however, the USDJPY sell-off was as much to do with positioning and a continuation of the unwind from overbought technical conditions. USDJPY registered another huge 232 pip range on Tuesday, retreating from 124.30 highs. The pair’s decline was accelerated on the Russia/Ukraine news, briefly matching the first significant support just below the 122 handle and within one pip of the Monday lows of 121.97.
• Despite major equity benchmarks trading in the green, relative underperformance was evident in the likes of AUD, GBP and CAD, as much of the price action was focused around EUR and JPY crosses.
• Late comments have included Blinken not seeing 'real signs of seriousness' from Russia on pursuing peace whilst Biden most recently says 'we'll see' if Russia follows through on its de-escalation. Developments will be crucial as to whether the Euro can gain further traction to the topside.
• Japanese retail sales and ANZ Kiwi Business confidence highlight the APAC data schedule before regional releases of German CPI throughout the European session. Additionally, potential comments from ECB’s Lagarde, due to speak at an event hosted by the Bank of Cyprus.
• Final GDP readings headline the US docket along with March ADP employment data ahead of Friday’s Non-farm payrolls report.

FX OPTIONS: Expiries for Mar30 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.1000(E2.7bln), $1.1050-60(E1.7bln), $1.1100(E1.5bln), $1.1150-55(E1.1bln), $1.1195-00($1.6bln)
• GBP/USD: $1.3195-00(Gbp774mln)
• EUR/JPY: Y121.00-05(E636mln), Y122.00-05(E660mln), Y122.90-00(E870mln)
• USD/CAD: C$1.2500($503mln), C$1.2525($640mln)

COMMODITIES: Peace Talk Progress Questioned

• Oil and gold prices bounced today after Western officials tempered earlier optimism around peace talks by questioning the degree to which Russian participation is genuine, but prices nevertheless remain down on the day.
• That said, the decline in WTI has been concentrated in front-dated contracts, with increases from Oct’22 onwards.
• WTI is -1.5% at $104.4 having dipped below $100/bbl before reversing. Having cleared $102.83 (Mar 28 low), support is next eyed at the 50-day EMA of $96.44.
• The most active strikes in the May’22 contract are $90/bbl puts and $95/bbl puts.
• Brent is -1.9% at $110.3 having also tentatively cleared first support which next opens the 50-day EMA of $101.35.
• Gold is -0.3% at $1917.7, off an earlier low of $1890 that breached both the 50-day EMA of $1902.7 and the Mar 16 low of $1895.3, potentially opening the key short-term support of $1878.4 (Feb 24 low) in the process.