MNI ASIA OPEN: Has Risk-Off Run It's Course?

EXECUTIVE SUMMARY

• MNI: Fed Seen Taking Bumpy Road to Avoid Wage-Price Spiral
• MNI BRIEF: Fed Nominee Barr Vows To Bring Inflation Down
• US PRES BIDEN WEIGHS MEETING WITH SAUDI CROWN PRINCE AS EARLY AS JUNE, Bbg

US

FED: The Fed is determined to head off a potential wage-price spiral with aggressive monetary tightening, even at the cost of larger-than-desired losses to growth and jobs, former Federal Reserve economists told MNI.

• Persistently elevated inflation has renewed fears of a wage-price spiral as employers compete for a limited labor pool and workers look for pay increases to keep up with inflation. Surging prices, initially caused by broken supply chains, could become everlasting if they start feeding into wage demands.
• "The goal is to return the labor market to a more sustainable position where wage increases are consistent with the 2% inflation objective. That's the key indicator and it's too high at the moment," former Fed Board research director David Wilcox told MNI.
• How that gets accomplished is likely to be bumpy, he said. "It may land with broken crockery, but one important message we’ve heard is Chair Powell is determined to control the inflation rate. They hope to avoid recession, but if it’s necessary to pay that price, that’s what they’ll do." For more see MNI Policy main wire at 0917ET.

Fed: KC Fed Pres George playing down the middle with that CNBC interview, though leaning dovish overall compared w her historically hawkish-end-of-the-FOMC reputation.

• She showed no inclination to hike 75bp ("I am very comfortable with doing 50 basis points because I see the combination of that balance sheet runoff taking place."), but when asked about whether the Funds rate could ultimately go as high as 4%, she wasn't particularly dismissive.
• When asked about QT impact, said estimates were varied, but cited one study saying it could be equivalent to 150bp of short-term rate increases.
• Didn't sound particularly concerned about the current volatility / downside in financial markets.
• Very much "wait-and-see" on the path ahead: uncertainty about everything from the neutral rate to Americans' consumption patterns and supply chains.
• Ultimately, ending the tightening cycle (in her words, in determining when "enough is enough") will require the Fed to see inflation level out and then decelerate.

US TSYS: Risk-Off Tone Cools, Techs & Retailers Bounce

• Better buying across the curve after weekly claims climbs 218k vs. 200k est, Philly Fed 2.6 vs. 15.0 est.
• Early carry-over weakness in stocks as supply shocks and operation costs still hitting large retailers: Kohl's fell -11.0% after earnings miss, profit guidance cut -- but managed to rebound 4.3% in late trade.
• Rates see-sawed off highs through the second half as major indexes held mildly weaker levels for the most part in late trade, Nasdaq outperforming as tech and large retailer companies stage a rebound while Industrials underperform. Earnings after the close: Ross Stores (RSS) and Applied Materials (AMAT).
• Two-way trade ahead Fri's June option expiration and June/Sep rolling saw volumes surge, particularly in 5s (FVM/FVU lead w/ over 170k late) and 10s (TYM/TYU over 112k after the bell).
• Cross-asset update: Gold surged (+26.05 at 1842.65), crude bounced (WTI +2.26 at 111.85) and US$ index fell by roughly 1%.

OVERNIGHT DATA

• US JOBLESS CLAIMS +21K TO 218K IN MAY 14 WK
  
• US PREV JOBLESS CLAIMS REVISED TO 197K IN MAY 07 WK
• US CONTINUING CLAIMS -0.025M to 1.317M IN MAY 07 WK

• US MAY PHILADELPHIA FED MFG INDEX 2.6

• APRIL US EXISTING HOME SALES -2.4% TO 5.61M SAAR, LOWEST SINCE JUNE 2020

• CANADA APR INDUSTRIAL PRICES +0.8% MOM; EX-ENERGY +0.1%
• CANADA APR RAW MATERIALS PRICES -2.0% MOM; EX-ENERGY +0.9%

MARKETS SNAPSHOT

• DJIA down 176.55 points (-0.56%) at 31324.31
• S&P E-Mini Future down 16.5 points (-0.42%) at 3907.75
• Nasdaq up 0.7 points (0%) at 11422.28
• US 10-Yr yield is down 3.8 bps at 2.846%
• US Jun 10Y are up 10/32 at 119-24
• EURUSD up 0.0125 (1.19%) at 1.0589
• USDJPY down 0.5 (-0.39%) at 127.73
• WTI Crude Oil (front-month) up $2.56 (2.34%) at $112.15
• Gold is up $23.87 (1.31%) at $1840.46

• EuroStoxx 50 down 57.29 points (-1.55%) at 3640.55
• FTSE 100 down 147.44 points (-1.98%) at 7302.74
• German DAX down 150.73 points (-1.08%) at 13882.3
• French CAC 40 down 94.11 points (-1.48%) at 6272.71

US TSY FUTURES CLOSE

• 3M10Y -4.816, 179.139 (L: 172.554 / H: 186.64)
• 2Y10Y +1.37, 22.418 (L: 18.454 / H: 23.511)
• 2Y30Y +3.941, 43.053 (L: 38.019 / H: 46.888)
• 5Y30Y +3.728, 20.714 (L: 16.256 / H: 23.194)
• Current futures levels:
• Jun 2Y up 2.875/32 at 105-21.625 (L: 105-18 / H: 105-24.62)
• Jun 5Y up 7.25/32 at 113-4.5 (L: 112-24.5 / H: 113-14.5)
• Jun 10Y up 10/32 at 119-24 (L: 119-06 / H: 120-10)
• Jun 30Y up 10/32 at 140-20 (L: 139-23 / H: 142-02)
• Jun Ultra 30Y up 19/32 at 156-23 (L: 155-06 / H: 158-31)

‌‌US 10Y FUTURES TECH: (M2)‌‌ Watching Resistance

• RES 4: 122-12+ High Apr 4
• RES 3: 121-09 High Apr 14
• RES 2: 121-01+ 50-day EMA
• RES 1: 120-00+/120-18+ High May 12 / High Apr 27
• PRICE: 119-29+ @ 11:13 BST May 19
• SUP 1: 118-03+/117-08+ Low May 11 / Low May 9 and a bear trigger
• SUP 2: 116-28 0.764 proj of the Mar 7 - 28 - 31 price swing
• SUP 3: 116-17+ 2.0% 10-dma envelope
• SUP 4: 116.00 Round number support

Treasuries are firmer today, but remain below the recent high of 120-00+ on May 12. The trend direction is down and recent short-term gains are still considered corrective. Any resumption of gains however would open 120-18+, the Apr 27 high. This level represents an important short-term resistance where a break would signal scope for a stronger retracement. Key support and the bear trigger remains 117-08+, the May 9 low.

US EURODOLLAR FUTURES CLOSE

• Jun 22 +0.005 at 98.185
• Sep 22 +0.030 at 97.360
• Dec 22 +0.030 at 96.850
• Mar 23 +0.025 at 96.685
• Red Pack (Jun 23-Mar 24) +0.035 to +0.085
• Green Pack (Jun 24-Mar 25) +0.060 to +0.085
• Blue Pack (Jun 25-Mar 26) +0.030 to +0.050
• Gold Pack (Jun 26-Mar 27) +0.035 to +0.040

SHORT TERM RATES

US DOLLAR LIBOR: Latest settlements

• O/N -0.00029 to 0.82000% (-0.00571/wk)
• 1M +0.03342 to 0.96071% (+0.07400/wk)
• 3M +0.02686 to 1.50486% (+0.06115/wk) * / **
• 6M -0.00757 to 2.02557% (+0.03057/wk)
• 12M -0.03500 to 2.70600% (+0.05386wk)
• * Record Low 0.11413% on 9/12/21; ** New 2Y high: 1.50486% on 5/19/22

STIR: FRBNY EFFR for prior session:

• Daily Effective Fed Funds Rate: 0.83% volume: $75B
• Daily Overnight Bank Funding Rate: 0.82% volume: $252B

US TSYS: Repo Reference Rates

• Secured Overnight Financing Rate (SOFR): 0.79%, $939B
• Broad General Collateral Rate (BGCR): 0.80%, $355B
• Tri-Party General Collateral Rate (TGCR): 0.80%, $341B
• (rate, volume levels reflect prior session)

FED Reverse Repo Operation

NY Fed reverse repo usage climbs to new all-time high of 1,981.005B w/ 92 counterparties vs. Wednesday's prior record $1,973.373B.

PIPELINE: Total Issuance $40.8B/Wk

• Date $MM Issuer (Priced *, Launch #)
• 05/19 No new $Benchmark issuance Thursday; $40.8B total on week
• $12.2B Priced Wednesday
• 05/18 $2.25B *Westpac $700M 3.25Y +90, $550M 3.25Y SOFR, $1B 5.25Y +115
• 05/18 $1.75B *Romania $1B 5.5Y +240, $750M 12Y +310
• 05/18 $1.25B *Munich 20NC10 Green 5.875%
• 05/18 $1.25B *Southern California Edison 3Y +140, 5Y +185, 30Y +240
• 05/18 $1.05B *Citizens Bank $650M 3NC2 +145, 00M $15NC10 +275
• 05/18 $1B *Nucor $500M 3Y +115, $00M 5Y +145
• 05/18 $1B *OKB 3Y SOFR+25
• 05/18 $900M *Japan Int Cooperation Agcy (JICA) 5Y SOFR+63
• 05/18 $750M *American Express 11NC10 fix/FRN +210
• 05/18 $500M *Church and Dwight WNG 30Y +190
• 05/18 $500M *Essential Utilities 30Y +225

EGBs-GILTS CASH CLOSE: Gilts Underperform Amid Safe Haven Move

Gilts reversed early gains but Bunds held up Thursday as equities came off afternoon lows. Curves ended the session flatter, with periphery spreads a little wider.

• Most of the price action in the session was safe-haven driven. 10Y Bund yields fell by 8+bp (and 13bp at one point), the most in a week.
• There was little market reaction to the ECB April meeting account release, as nothing to dissuade market consensus for a July rate hike.
• Indeed, neither BoE nor ECB rate pricing changed much on the session.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany:

• Germany: The 2-Yr yield is down 2bps at 0.372%, 5-Yr is down 4.5bps at 0.692%, 10-Yr is down 8.1bps at 0.949%, and 30-Yr is down 7.8bps at 1.07%.
• UK: The 2-Yr yield is up 3.2bps at 1.491%, 5-Yr is up 0.3bps at 1.586%, 10-Yr is unchanged at 1.865%, and 30-Yr is up 0.1bps at 2.094%.
• Italian BTP spread up 2.3bps at 195.5bps / Greek up 3.9bps at 259.9bps

FOREX: Lower Treasury Yields Sees USD Index Slide Over 1%

• Lower yields and consolidating equity indices weighed on the greenback on Thursday. The USD index fell by roughly 1%, which represents a fourth losing session within the last five trading days.
• Gains against the greenback were broad based, however, the oil bounce especially bolstered the Norwegian Krone which gained 2.3% against the dollar.
• The Swiss Franc was another notable beneficiary, with USDCHF retreating 1.8%. Markets still reacting to yesterday’s SNB comments, saying it is ready to act if inflation pressures continue.
• US dollar weakness has filtered through to the likes of AUD and NZD, both rising over 1.5% as well as EURUSD trading back above 1.06 to trade at a two-week high.
• EURUSD found resistance on Wednesday at 1.0564, just ahead of the 20-day EMA, however the path of least resistance saw the pair grind through this moving average today, intersecting at 1.0569. The broader trend direction remains down with moving average studies remaining in a bear mode condition. Key resistance is unchanged at 1.0642, May 5 high.
• New Zealand Trade Balance data overnight before UK retail Sales for April headlines a very quiet Friday docket. Worth noting parliamentary elections are due this weekend in Australia.

Friday Data Calendar

Date	GMT/Local	Impact	Flag	Country	Event
20/05/2022	2301/0001	**		UK	Gfk Monthly Consumer Confidence
20/05/2022	0600/0800	**		DE	PPI
20/05/2022	0600/0700	***		UK	Retail Sales
20/05/2022	0730/0830			UK	BOE Chief Economist Huw Pill speech
20/05/2022	-			EU	ECB Lagarde & Panetta in G7 Meeting
20/05/2022	1200/1400			EU	ECB Lane in Discussion at Stockholm Uni
20/05/2022	1400/1600	**		EU	Consumer Confidence Indicator (p)
20/05/2022	1400/1000	*		US	Services Revenues