MNI ASIA OPEN: Front-Ended Hikes, Neutral Nears

EXECUTIVE SUMMARY

• MNI INTERVIEW: Fed Should Slow Hikes As Neutral Nears-Wright
• MNI INTERVIEW2: Fed Tightening Already Having Effect-Wright

US

FED: Federal Reserve policymakers may consider slowing the pace of interest rate hikes as they approach a neutral rate of interest, although officials have divergent views as to where that key juncture lies, Minneapolis Fed Research Director Mark Wright told MNI.

• “The real calculation that a lot of people will be making is do we need to go above the neutral rate, and what do you think the neutral rate is,” Wright said in an interview. His comments came just after Fed minutes released Wednesday showed the FOMC believes policy may have to become restrictive in order to rein in inflation, meaning the fed funds rates would be above the level considered neutral.
• “It would make sense to slow down as we approach that number. But people’s ideas of where that number is will vary and they might disagree in their assessment as to just how far above that number they have to go.” For more see MNI Policy main wire at 0742ET.

• The speech is introduced by former Australian Prime Minister Kevin Rudd. Rudd: 'The future policy of the US towards China is of fundamental consequence... to all countries of the Indo-Pacific region and the future of the global order.'
• Rudd says that China under Xi Jinping has changed, become more powerful, and now seeks to exert that power. 'Xi now seeks to change the status quo in a manner that advance his definition of China's national interests.' Rudd continues: 'The US is now responding to that challenge.'
• Rudd: 'The Russian invasion of Ukraine represents a signal challenge for all democracies around the world.'
• Blinken: 'We put diplomacy back at the center of US foreign policy.' 'We must defend and reform the rules based order.' 'We want to modernise the international order.'
• Blinken says the foundations of the international order is under threat.
• Blinken: '[Despite the war in Ukraine] We remain focused on the most serious long-term threat to the rules-based international order: China.'
• Blinken: 'We are not looking for conflict or a new cold-war. To the contrary we are determined to avoid both. We don't seek to block China from its role as a major power.'

US TSYS: Risk Appetite Continues to Improve

Tsys hold mixed levels after the bell, inside range across the board, curves steeper with bonds underperforming most of the session. Decent volumes are off Tue-Wed pace as June/Sep roll climbs near 90% complete ahead next Tue's First Notice date when Sep takes lead quarterly.

• Early carry-over risk-on tone after May minutes showed no discussion of larger rate hikes. MNI interview MN Fed research Dir Mark Wright said policymakers may consider slowing the pace of interest rate hikes as they approach a neutral rate of interest, although officials have divergent views as to where that key juncture lies.
• Bonds receded after mixed data: Q1 GDP weaker than exp at -1.5% vsd -1.3% exp, GDP Price Index little stronger than expected at +8.1% vs. +8.0%, Personal Consumption stronger +3.1% vs +2.8% exp, weekly claims lower ay 210k while continuing claims rise 1.346M vs. 1.310M est.
• Bonds bounced off lows after strong $42B 7Y note auction (91282CES6) stops through: 2.777% high yield vs. 2.802% WI; 2.69x bid-to-cover vs. 2.41x last month.
• Indirect take-up: climbs to 77.86% vs. 64.95% in April; Primary dealer take-up: 15.76% vs. 15.22% prior; Direct take-up: falls to new low of 6.38% vs. 19.82%.
• Friday data calendar includes: Personal Income/Spending, Advance Goods Trade Balance and U-Mich Sentiment.

OVERNIGHT DATA

• US Q1 GDP -1.5%

• US JOBLESS CLAIMS -8K TO 210K IN MAY 21 WK
• US PREV JOBLESS CLAIMS REVISED TO 218K IN MAY 14 WK
• US CONTINUING CLAIMS +0.031M to 1.346M IN MAY 14 WK

• US NAR APR PENDING HOME SALES INDEX 99.3 V 103.3 IN MAR
• US NAR APR PENDING HOME SALES -3.9% MOM; -9.1% YOY

• CANADIAN MAR RETAIL SALES +0.0%; SALES EX-AUTOS/PARTS +2.4%
• CANADA MAR RETAIL SALES EX-AUTOS/PARTS-GASOLINE +1.5%

MARKETS SNAPSHOT

Key late session market levels:

• DJIA up 565.3 points (1.76%) at 32686.79
• S&P E-Mini Future up 82.25 points (2.07%) at 4058.75
• Nasdaq up 315.2 points (2.8%) at 11750.53
• US 10-Yr yield is up 0.9 bps at 2.7541%
• US Jun 10Y are steady at at 120-19 at 120-19
• EURUSD up 0.0038 (0.36%) at 1.0718
• USDJPY down 0.1 (-0.08%) at 127.18
• WTI Crude Oil (front-month) up $3.82 (3.46%) at $114.16
• Gold is down $0.71 (-0.04%) at $1852.69

• EuroStoxx 50 up 63.21 points (1.72%) at 3740.31
• FTSE 100 up 42.17 points (0.56%) at 7564.92
• German DAX up 223.36 points (1.59%) at 14231.29
• French CAC 40 up 111.94 points (1.78%) at 6410.58

US TSY FUTURES CLOSE

• 3M10Y +2.169, 168.672 (L: 162.137 / H: 171.53)
• 2Y10Y +1.698, 26.418 (L: 23.556 / H: 30.923)
• 2Y30Y +2.732, 49.842 (L: 45.7 / H: 54.886)
• 5Y30Y +2.426, 27.086 (L: 23.821 / H: 30.316)
• Current futures levels:
• Jun 2Y up 1/32 at 106-1.625 (L: 105-31.125 / H: 106-05.125)
• Jun 5Y up 0.75/32 at 113-26.5 (L: 113-21.25 / H: 114-01.75)
• Jun 10Y steady at at 120-19 (L: 120-10 / H: 120-31)
• Jun 30Y down 6/32 at 141-21 (L: 140-31 / H: 142-18)
• Jun Ultra 30Y down 1-10/32 at 158-6 (L: 157-11 / H: 160-18)

US TSY FUTURES: Jun Futures Roll Update, Nearly Complete

Roll winding down quickly, over 80% complete ahead May 31 First Notice date. Reminder Monday, May 30 is Memorial Day holiday, mkts closed. Current markets:

• TUM/TUU 153,100 from 12.25 to 13.75, 13.25 last, 80% complete
  
• FVM/FVU 164,500 from 12.75 to 13.75, 13.0 last, 81% complete
  
• TYM/TYU 240,200 from 11.75 to 12.50, 12.25 last, 82% complete
  
• UXYM/UXYU 84,500 from 1-04 to 1-05.75, 1-05.75 last, 84% complete
  
• USM/USU 28,800 from 30.5 to 31.25, 31.0 last, 83% complete
  
• WNM/WNU 27,300 from 8.5 to 17.0, +11.75 last, 83% complete
  
• Reminder, Jun futures won't expire until next month: 10s, 30s and Ultras on June 21, June 30 for 2s and 5s.

‌‌US 10Y FUTURES TECH: (M2)‌‌ Challenging Resistance The 50-Day EMA

• RES 4: 123-04 High Mar 31
• RES 3: 122-12+ High Apr 4
• RES 2: 121-25+ 38.2% retracement of the Mar 7 - May 9 bear leg
• RES 1: 120-28/31 50-day EMA / Intraday high
• PRICE: 120-19+ @ 1500ET May 26
• 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: 117-11+ 2.0% 10-dma envelope
• SUP 4: 116-28 0.764 proj of the Mar 7 - 28 - 31 price swing

Treasuries continue to trade higher and the contract has tested above the 50-day EMA, currently at 120-28. A clear break of this average would reinforce bullish conditions and signal scope for a climb towards 121-25+, a Fibonacci retracement. Gains are still considered corrective though and the primary trend remains bearish. Key support and the bear trigger is 117-08+, May 9 low. Initial firm support has been defined at 118-16

US EURODOLLAR FUTURES CLOSE

• Jun 22 +0.013 at 98.230
• Sep 22 +0.010 at 97.495
• Dec 22 +0.010 at 970
• Mar 23 steady at 96.860
• Red Pack (Jun 23-Mar 24) -0.03 to -0.015
• Green Pack (Jun 24-Mar 25) -0.03 to -0.025
• Blue Pack (Jun 25-Mar 26) -0.025 to -0.02
• Gold Pack (Jun 26-Mar 27) -0.025 to -0.02

SHORT TERM RATES

US DOLLAR LIBOR: Latest settlements

• O/N -0.00214 to 0.81729% (-0.00742/wk)
• 1M +0.03657 to 1.05957% (+0.08600/wk)
• 3M +0.02200 to 1.57486% (+0.06843/wk) * / **
• 6M +0.02142 to 2.07571% (-0.00100/wk)
• 12M -0.00243 to 2.68157% (-0.04843/wk)
• * Record Low 0.11413% on 9/12/21; ** New 2Y high: 1.57486% on 5/26/22

STIR: FRBNY EFFR for prior session:

• Daily Effective Fed Funds Rate: 0.83% volume: $85B
• Daily Overnight Bank Funding Rate: 0.82% volume: $260B

US TSYS: Repo Reference Rates

• Secured Overnight Financing Rate (SOFR): 0.78%, $942B
• Broad General Collateral Rate (BGCR): 0.79%, $362B
• Tri-Party General Collateral Rate (TGCR): 0.79%, $346B
• (rate, volume levels reflect prior session)

FED Reverse Repo Operation

NY Fed reverse repo usage climbs back over $2T to 2,007.702B w/ 95 counterparties vs. 1,995.750B prior session, compares to Monday's record high $2,044.658B.

$1.5B Bank of Nova Scotia 3Y Launched

• Date $MM Issuer (Priced *, Launch #)
• 05/26 $1.5B #Bank of Nova Scotia 3Y SOFR+65

EGBs-GILTS CASH CLOSE: BTPs Shine; Gilts Underperform On Fiscal Boost

BTP yields dropped sharply Thursday, with 10Y spreads falling well below the 200bp to Bund mark amid a broad global risk rally.

• The UK and German curves bear steepened, with Gilts underperforming out to 10Y.
• The main (unscheduled) event of the day was the UK government's announcement of financial assistance to households to mitigate higher energy costs.
• BoE hiking bets inched higher (end-2022 to up 5bp to 2.20%) given the fiscal boost to GDP / household incomes.

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

• Germany: The 2-Yr yield is up 1.6bps at 0.356%, 5-Yr is up 2.7bps at 0.682%, 10-Yr is up 4.6bps at 0.998%, and 30-Yr is up 8.4bps at 1.281%.
• UK: The 2-Yr yield is up 2.3bps at 1.453%, 5-Yr is up 3.9bps at 1.599%, 10-Yr is up 5.8bps at 1.968%, and 30-Yr is up 6.9bps at 2.229%.
• Italian BTP spread down 10.3bps at 189.8bps / Greek down 7.5bps at 254.4bps

FOREX: Major Currency Pairs Hold Narrow Ranges, CNH Underperforms

• Major currencies traded in subdued fashion on Thursday, taking a back seat amid the ongoing risk rally evident across the equity/commodity space. Ascension Day holidays throughout Europe may have played a part in the muted reaction across currency markets.
• The USD index remains close to unchanged with EURUSD gradually edging back above the 1.0700 mark to trade within close proximity of recent highs at 1.0749.
• Price action indicates a positive short-term technical theme remains intact. The latest recovery started from the base of a bear channel, drawn from the Feb 10 high. The channel top intersects at 1.0831 which continues to represent a potential target for the move.
• The Chinese yuan retreated despite Shanghai's reported progress on clearing ports and re-opening schools. The overhang of Premier Li's suggestion that the local economy is in some aspects faring worse than in 2020 loomed large. USDCNH gained 0.82%, comfortably the biggest move seen on Thursday.
• In line with single currency strength, EURGBP (0.31%) slightly outperformed potentially highlighting that the break higher this week reinstates a S/T bullish theme. Attention is on 0.8619, May 12 high which represents the next hurdle for bulls. Clearance of this level would resume a 3.5 month uptrend. Initial support lies at 0.8476, the 20-day EMA.
• Australian retail sales will be the focus for the APAC session. Focus will then turn to US Core PCE Price index data before Uni Michigan Sentiment data rounds off the week.

Friday Data Calendar

Date	GMT/Local	Impact	Flag	Country	Event
27/05/2022	2330/0830	**		JP	Tokyo CPI
27/05/2022	0130/1130	**		AU	Retail Trade
27/05/2022	0600/0800	**		SE	Retail Sales
27/05/2022	0800/1000	**		EU	M3
27/05/2022	1135/1335			EU	ECB Lane Panelist at BOJ-IMES Conference
27/05/2022	1230/0830	**		US	Personal Income and Consumption
27/05/2022	1230/0830	**		US	Advance Trade, Advance Business Inventories
27/05/2022	1400/1000	***		US	Final Michigan Sentiment Index
27/05/2022	1500/1100			CA	Finance Dept monthly Fiscal Monitor (expected)