MNI ASIA OPEN: Yld Curves Bull Steepen, Heavy Roll Volume

EXECUTIVE SUMMARY

• MNI: Some Fed Hiking Caution Is Needed For Soft Landing-Bostic
• MNI US: Richmond Fed Points To Broader Activity Slowdown
• ECB'S HOLZMANN: HALF-POINT HIKE IN JULY WOULD BE APPROPRIATE, Bbg
• ECB SHOULDN’T RULE OUT HALF-POINT RATE INCREASES, KAZAKS SAYS, Bbg

US

FED: The Federal Reserve needs a little caution on rate hikes aimed at bringing inflation back to target, so as to avoid generating a recession, Atlanta President Raphael Bostic said Tuesday.

• "Given the very high level of inflation, some might be surprised by my injecting some caution here. But remember this: even firetrucks with sirens blaring slow down at intersections lest they cause further preventable trouble," Bostic wrote in an essay for the Atlanta Fed's website.
• "As we expeditiously return monetary policy to a more neutral stance to get inflation closer to our 2 percent target, I plan to proceed with intention and without recklessness," he wrote. For more see MNI Policy main wire at 1200ET.

US TSYS: Post-Data Rally, Volume Spike on Roll Surge

• Volume surged amid outright buying, stop triggers and re-positioning of cooling rate hike pricing for late 2022 (* Sep 50bp hike chances closer to 35-40% from appr 50% prior) and heavy roll volumes (FVM/FVU and TYM/TYU each over 1.7M) has pushed total TYM2 volume over 3.3M, and FVM over 2.8M.
• Bull steepening yield curves took a leg higher late: 2s10s climbed to 28.719 high; 5s10s just off inversion to +1.429 high.
• Decent 2Y sale, Tsy futures holding firmer (curves steeper) after $47B 2Y note auction (91282CER8) stops through: 2.519% high yield vs. 2.526% WI; 2.61x bid-to-cover vs. last moth's 2.74x.
• Similar to late last Friday, stocks staged decent late session rebound, SPX still weaker after the FI close but extending highs for the session -- while Dow components trade in the black. Latest levels: DJIA up 93.76 points (0.29%) at 31969.96; S&P E-Mini Future down 23.25 points (-0.59%) at 3947.75; Nasdaq down 239 points (-2.1%) at 11294.03

OVERNIGHT DATA

• US MAY PHILADELPHIA FED NONMFG INDEX 23.4

• US APRIL BUILDING PERMITS REVISED TO -3.0 PCT FROM -3.2 PCT, ANNUAL RATE TO 1.823 MLN UNITS FROM 1.819 MLN UNITS

• US REDBOOK: MAY STORE SALES +12.4% V YR AGO MO
• US REDBOOK: STORE SALES +11.4% WK ENDED MAY 21 V YR AGO WK

• US S&P GLOBAL MAY COMPOSITE PMI AT 53.8 VS 56 PRIOR
• US S&P GLOBAL MAY MANUFACTURING PMI AT 57.5 VS 59.2 PRIOR
• US S&P GLOBAL MAY SERVICES PMI AT 53.5 VS 55.6 LAST MONTH

• The press release makes clear the impact higher price pressures are having: "[the data] indicated a slower expansion in business activity across the US private sector during May. Manufacturers and service providers signaled softer upturns in output amid elevated inflationary pressures, a further deterioration in supplier delivery times and weaker demand growth."
  
• The input price component touched a new series high (from Oct-2009) with the manufacturing-specific series also accelerating and among the fastest in the longer standing series history. This feeds through to selling prices, which although eased from a record April but are the second highest reading on record.
  
• That said there was some optimism further ahead, with firms "buoyed by ongoing sales growth and investment in local supply chains which it is hoped will ease bottlenecks".

US: Richmond Fed Points To Broader Activity Slowdown. As if today's PMI and home sales weren't bad enough, some attention being paid to the weak May Richmond Fed index: -9 was the worst reading since May 2020 and a significant miss vs +10 expected (and +14 prior).

• Very roughly speaking, the -9 reading has historically been equivalent to about 50.0 on the ISM.

MARKETS SNAPSHOT

Key late session market levels:

• DJIA down 78.78 points (-0.25%) at 31790.05
• S&P E-Mini Future down 49.75 points (-1.25%) at 3920.5
• Nasdaq down 334 points (-2.9%) at 11202
• US 10-Yr yield is down 9.7 bps at 2.7542%
• US Jun 10Y are up 26/32 at 120-12.5
• EURUSD up 0.0042 (0.39%) at 1.0727
• USDJPY down 1.12 (-0.88%) at 126.81
• WTI Crude Oil (front-month) down $0.11 (-0.1%) at $110.14
• Gold is up $11.47 (0.62%) at $1864.74

• EuroStoxx 50 down 60.83 points (-1.64%) at 3647.56
• FTSE 100 down 29.09 points (-0.39%) at 7484.35
• German DAX down 255.65 points (-1.8%) at 13919.75
• French CAC 40 down 105.6 points (-1.66%) at 6253.14

US TSY FUTURES CLOSE

• 3M10Y -12.44, 168.267 (L: 164.179 / H: 180.231)
• 2Y10Y +5.013, 27.491 (L: 20.931 / H: 28.082)
• 2Y30Y +6.286, 48.783 (L: 40.868 / H: 51.203)
• 5Y30Y +3.442, 21.491 (L: 17.081 / H: 24.518)
• Current futures levels:
• Jun 2Y up 8.5/32 at 105-31 (L: 105-22.25 / H: 106-00.75)
• Jun 5Y up 19.25/32 at 113-18.75 (L: 112-30.75 / H: 113-23.75)
• Jun 10Y up 25/32 at 120-11.5 (L: 119-18 / H: 120-22)
• Jun 30Y up 1-20/32 at 141-30 (L: 140-07 / H: 142-16)
• Jun Ultra 30Y up 2-14/32 at 158-9 (L: 155-19 / H: 159-11)

‌‌US 10Y FUTURES TECH: (M2)‌‌ Clears Resistance

• RES 4: 123-04 High Mar 31
• RES 3: 122-12+ High Apr 4
• RES 2: 121-09 High Apr 14
• RES 1: 120-29 50-day EMA
• PRICE: 120-18+ @ 17:39 BST May 24
• SUP 1: 119-15+ Low May 23
• SUP 2: 118-16/117-08+ Low May 18 / Low May 9 and a bear trigger
• SUP 3: 117-02 2.0% 10-dma envelope
• SUP 4: 116-28 0.764 proj of the Mar 7 - 28 - 31 price swing

Treasuries traded higher today and the contract breached resistance at 120-10, May 19 high. This improves the current short-term bullish condition and signals scope for a continuation higher. The focus is on 120-29, the 50-day EMA and a key near-term resistance. Short-term gains are still considered corrective. Key support and the bear trigger is 117-08+, May 9 low. Initial firm support has been defined at 118-16, May 18 low.

US EURODOLLAR FUTURES CLOSE

• Jun 22 +0.020 at 98.208
• Sep 22 +0.095 at 97.460
• Dec 22 +0.130 at 96.975
• Mar 23 +0.150 at 96.835
• Red Pack (Jun 23-Mar 24) +0.120 to +0.165
• Green Pack (Jun 24-Mar 25) +0.120 to +0.120
• Blue Pack (Jun 25-Mar 26) +0.110 to +0.120
• Gold Pack (Jun 26-Mar 27) +0.070 to +0.105

SHORT TERM RATES

US DOLLAR LIBOR: Latest settlements

• O/N +0.00072 to 0.82386% (-0.00085/wk)
• 1M +0.01086 to 1.01657% (+0.04300/wk)
• 3M +0.00714 to 1.53100% (+0.02457/wk) * / **
• 6M +0.00928 to 2.07114% (-0.00557/wk)
• 12M -0.02914 to 2.68886% (-0.04114/wk)
• * Record Low 0.11413% on 9/12/21; ** New 2Y high: 1.53100% on 5/24/22

STIR: FRBNY EFFR for prior session:

• Daily Effective Fed Funds Rate: 0.83% volume: $82B
• Daily Overnight Bank Funding Rate: 0.82% volume: $254B

US TSYS: Repo Reference Rates

• Secured Overnight Financing Rate (SOFR): 0.78%, $984B
• Broad General Collateral Rate (BGCR): 0.79%, $364B
• Tri-Party General Collateral Rate (TGCR): 0.79%, $346B
• (rate, volume levels reflect prior session)

FED Reverse Repo Operation

After climbing to five consecutive new highs by Monday, NY Fed reverse repo usage recedes to 1,987.865B w/ 92 counterparties vs. yesterday's record $2,044.658B.

PIPELINE: $3.25B Indonesia 2Pt Launched

• Date $MM Issuer (Priced *, Launch #)
• 05/24 $3.25B #Indonesia $1.75B 5Y 4.4%, $1.5B 10Y 4.7%
• 05/24 $Benchmark Santander UK 4Y SOFR+72

EGBs-GILTS CASH CLOSE: UK Curve Bull Steepens On PMI Miss

UK yields easily outperformed Tuesday with bull steepening in the curve, as May Services PMI data fell sharply below expectations.

• Eurozone data was more mixed, and ECB hawk Holzmann put a 50bp July hike on the table.
• But the overall market tone was risk-off with equities sharply lower, and soft US data helped keep downside pressure on yields in the afternoon.
• Periphery spreads reversed earlier widening, with BTPs ending the session basically flat to Bunds.

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

• Germany: The 2-Yr yield is down 4bps at 0.381%, 5-Yr is down 5.2bps at 0.686%, 10-Yr is down 5bps at 0.967%, and 30-Yr is down 3bps at 1.168%.
• UK: The 2-Yr yield is down 11.9bps at 1.453%, 5-Yr is down 10.3bps at 1.566%, 10-Yr is down 8.3bps at 1.887%, and 30-Yr is down 5.4bps at 2.131%.
• Italian BTP spread down 0.4bps at 201.3bps / Spanish down 0.1bps at 112bps

FOREX: Cross/JPY Retreats Amid Risk Aversion, USD Extends Pullback

• Risk-off flows swept across G10 currencies on a negative lead from the equity space and lower core yields on Tuesday. Risk aversion was exacerbated by weak US data, including PMIs, Richmond Fed Mfg index and new home sales all missing surveyed estimates.
• The weak US data points continued to weigh on the US Dollar, sending the DXY to a four-week low. The Japanese Yen was the best performer, closely followed by the Swiss Franc in the G10 space. Cross/JPY bore the brunt of the pessimistic sentiment, with the likes of CADJPY and GBPJPY falling over 1.5%.
• The euro remains well bid and shows similarly strong relative against higher beta G10 counterparts. This is largely in part to early comments from ECB President Lagarde in a Bloomberg interview in Davos where she noted that the ECB were attentive to the EUR level. Additional commentary from ECB officials surrounding the potential for larger than 25bp hikes have kept EURUSD back above 1.0700.
• As noted, the current bull cycle started at 1.0350, May 13 low and from the base of a bear channel, drawn from the Feb 10 high. The channel top intersects at 1.0857 and is a potential short-term objective. Initial support remains at 1.0533, May 20 low.
• The second main story throughout the European session on Tuesday was the big UK Services and Composite PMI miss, which saw the Pound plummet around 100 pips from 1.2580 to a 1.2472 low.
• The RBNZ meeting/decision will be the most notable event for the upcoming APAC session. Latest CPI and jobs market data reinforce the case for continued monetary policy tightening, with headline inflation hitting three-decade highs and the unemployment rate holding at a record low.
• US Durable goods data will precede the latest release of the FOMC minutes from the Fed’s May 4 meeting.

Wednesday Data Calendar

Date	GMT/Local	Impact	Flag	Country	Event
25/05/2022	2301/0001	*		UK	XpertHR pay deals for whole economy
25/05/2022	0130/1130	***		AU	Quarterly construction work done
25/05/2022	0200/1400	***		NZ	RBNZ official cash rate decision
25/05/2022	0600/0800	*		DE	GFK Consumer Climate
25/05/2022	0600/0800	***		DE	GDP (f)
25/05/2022	0600/0800	**		SE	PPI
25/05/2022	0600/0800	**		SE	Unemployment
25/05/2022	0600/1400	**		CN	MNI China Liquidity Suvey
25/05/2022	0645/0845	**		FR	Consumer Sentiment
25/05/2022	0700/0900	**		ES	PPI
25/05/2022	0700/0900			EU	ECB Panetta Speaks at Goethe University
25/05/2022	0700/0900	**		SE	Economic Tendency Indicator
25/05/2022	0730/0930			SE	Riksbank Financial Stability Report
25/05/2022	0800/1000			EU	ECB Lagarde in Stakeholder Dialogue
25/05/2022	0945/1145			EU	ECB Lane Speaks at German Bernacer Prize
25/05/2022	1100/0700	**		US	MBA Weekly Applications Index
25/05/2022	1230/0830	*		CA	Quarterly financial statistics for enterprises
25/05/2022	1230/0830	**		US	durable goods new orders
25/05/2022	1430/1030	**		US	DOE weekly crude oil stocks
25/05/2022	1515/1615			UK	BOE Tenreyro Panels Discussion
25/05/2022	1530/1130	**		US	US Treasury Auction Result for 2 Year Floating Rate Note
25/05/2022	1530/1130	*		US	US Treasury Auction Result for Cash Management Bill
25/05/2022	1615/1215			US	Fed Vice Chair Lael Brainard
25/05/2022	1700/1300	*		US	US Treasury Auction Result for 5 Year Note