MNI ASIA OPEN: Balanced Fed Talk, Debt Negotiations To Resume

US TSYS: Yields Inch Higher, Markets Skittish As Debt Default Nears

• Aside the potential default risk, markets are eager for the release of May FOMC minutes this Wed at 1400ET. Early Fed speak proved balanced to mildly hawkish.
• SOFR futures are trading weaker in the very short end after MN Fed President Kashkari commented on CNBC that the June rate decision is a “close call” for him, broadly reiterating his comments to WSJ published Sunday. While Kashkari told WSJ he is "open to the idea that we can move a little bit more slowly from here", the focus is on "I would object to any kind of declaration that we're done."
• Federal Reserve Bank of Atlanta President Raphael Bostic said Monday he's comfortable waiting to see how the economy is reacting to past interest rates increases before entertaining any further hikes.
• Early knee-jerk risk-off moves, rates gapped back to pre-open levels at midmorning, stocks ticked lower following social media posts that a "large explosion" near the Pentagon complex had occurred. Markets snapped back just as quickly as the rumors proved false.
• Decent volumes (TYM3 1.6m) driven by a pick-up in Jun/Sep Treasury futures rolling ahead first notice date of May 31.

SHORT TERM RATES

SOFR Benchmark Settlements:

• 1M +0.00418 to 5.09791 (+.03682 total last wk)
• 3M -0.01262 to 5.15085 (+.09367 total last wk)
• 6M -0.00735 to 5.13918 (+.16106 total last wk)
• 12M +0.00969 to 4.88735 (+.27652 total last wk)

US DOLLAR LIBOR: Latest settlements:

• O/N -0.00315 to 5.06214%
• 1M -0.00872 to 5.12686%
• 3M -0.01800 to 5.37471% */**
• 6M -0.01171 to 5.45486%
• 12M -0.01357 to 5.43100%
• * Record Low 0.11413% on 9/12/21; ** New 16Y high: 5.39271% on 5/19/23

• Daily Effective Fed Funds Rate: 5.08% volume: $132B
• Daily Overnight Bank Funding Rate: 5.07% volume: $287B

• Secured Overnight Financing Rate (SOFR): 5.05%, $1.363T
• Broad General Collateral Rate (BGCR): 5.02%, $578B
• Tri-Party General Collateral Rate (TGCR): 5.02%, $572B
• (rate, volume levels reflect prior session)

FED Reverse Repo Operation

NY Fed reverse repo usage slips to $2,275.311B w/ 105 counterparties, compares to prior $2,276.720B. Compares to high usage for 2023: $2,375.171B on Friday March 31, 2023; all-time record high of $2,553.716B reached December 30, 2022.

SOFR/TREASURY OPTION SUMMARY

• SOFR Options:
  • 2,000 SFRM3 94.87/95.00 put spds ref 94.825
  • 4,000 SFRM3 94.93/95.06 call spds ref 94.835
  • Block/screen, 13,000 SFRM3 94.93/95.06 call spds
  • 8,000 SFRM3 94.75/94.81/94.87/94.93 put condors, ref 94.855 to -.835
• Treasury Options:
  • 3,250 FVQ3 110.5/112.75 call spds ref 109-06.25
  • 5,000 TYM3 114.5 calls, 8 ref 113-17
  • 9,000 FVM 108.5/109 put spds ref 108-21.25 to -21.5
  • 4,400 TYN3/TYU3 113 put spds, 48
  • Block, 11,000 TYN3 114/TYU3 112 put calendar diagonal , 4 net July over
  • 2,500 TYN3 116/117 call spds, 12 ref 114-08.5
  • 5,000 TYU3 119.5/121.5 call spds ref 114-18.5
  • 3,500 TYM3 113/115 call spds, ref 113-25
  • 3,000 FVU3 108 puts ref 109-16.25
  • 2,500 TYM3 113.5 puts, 18 ref 113-25
  • 1,250 TYM3 112/114 call spds ref 113-23.5
  • 3,000 TYN3 116 calls, 36 ref 114-14

EGBs-GILTS CASH CLOSE: Greece Steals The Show

The German and UK curves bear flattened Monday, with GIlts underperforming. But Greece stole the show, with GGB yields collapsing after a market-friendly legislative election result over the weekend.

• Greek 10Y BTP yields fell 14bp, dropping to the lowest spread vs Bunds since January 2022, and reaching the highest premium vs BTPs in the euro era.
• Otherwise, most European instruments sold off steadily following a constructive start, with most weakness between 1000-1400UK time.
  
• The largest single move of the day came on false reports on social media of an explosion outside the US Pentagon which were quickly debunked. Bund and Gilt yields dropped 3bp but quickly reversed to set fresh session highs.
• There were few macro catalysts besides. ECB's Villeroy noted a likely peak in rates by September, but this was no surprise and markets were unmoved.
• Tuesday sees several central bank appearances, including ECB's de Guindos, Muller, Villeroy and Nagel, as well as BoE's Bailey and Haskel. Additionally, after a quiet day on the data front, the flow picks up Tuesday with May flash PMIs.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is up 5.2bps at 2.809%, 5-Yr is up 4.2bps at 2.448%, 10-Yr is up 3.1bps at 2.459%, and 30-Yr is up 3.1bps at 2.634%.
• UK: The 2-Yr yield is up 9.3bps at 4.053%, 5-Yr is up 8.1bps at 3.903%, 10-Yr is up 6.8bps at 4.064%, and 30-Yr is up 3.8bps at 4.452%.
• Italian BTP spread up 1.1bps at 185.5bps / Greek down 17.3bps at 141.8bps

EGB Options: Quieter Session After Massive Upside Plays Last Week

Monday's Europe rates / bond options flow included:

• ERU3 96.25/96.625 cs vs 95.875 puts bought for 3.25 in 2.5k

FOREX: USD Treads Water Amid Debt-Ceiling Negotiations, JPY Under Pressure

• The Dollar index trades at unchanged levels from Friday’s close as markets continue to await concrete progress over the US debt-ceiling negotiations. Hawkish Fed speak weighed on front-end rates in the US, having more of an effect on the Japanese Yen, with USDJPY rising back to 138.50.
• USDJPY has recovered the entirety of Friday’s sharp decline and the pair has spent the majority of late session consolidating around 138.50. Price action reaffirms that bullish conditions remain intact following last weeks’ strong gains. A key resistance zone between 137.77-91, the May 2 and Mar 8 high respectively, has been cleared. The break strengthens bullish conditions and confirms a resumption of the uptrend that started on Jan 16. The focus is on 139.00 and 139.59, a Fibonacci retracement. Initial firm support is seen at 135.78, the 20-day EMA.
• In similar vein, there was some pressure on the Chinese Yuan. USDCNH crept higher to the best levels of the session through the London close, however Friday's highs still sit well above at 7.0750.
• Today's uptick has put the pair back into overbought territory, with the 14d RSI just north of 70 and inline with levels seen late last week. This is the highest level for the technical measure since September last year - which was followed by a ~3% pullback in the pair over the subsequent two weeks. The moves come after the Chinese authorities issued their first warning over the pace of CNY depreciation last week - stating that they will curb speculation "when necessary" and maintain FX stability.
• After a slow session, void of any tier-one data releases, the economic calendar hots up on Tuesday with a host of global flash manufacturing and services PMIs. US new home sales and Richmond manufacturing will also cross. Focus will then quickly turn to Wednesday’s RBNZ decision.

FX: Expiries for May23 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0865-80(E607mln), $1.0900-05(E534mln)
• USD/JPY: Y136.50-65($820mln), Y138.00($759mln)
• USD/CAD: C$1.3520-25(C$590mln), $1.3600($1.1bln)

LATE EQUITIES ROUNDUP: Narrow Range, Stocks Still Near 4-Month Highs

Stocks mixed in afternoon trade, Dow Industrials weaker vs. modest gains in SPX and Nasdaq stock, inside narrow ranges as market await another round of debt ceiling negotiations between House Speaker McCarthy and President Biden (pushed back to 1730ET vs. 1630ET).

• At current levels, Eminis are trading near the middle of last Friday's range after tapping the best levels since early February. S&P E-Mini futures are currently up 7 points (0.17%) at 4212; Nasdaq up 72.4 points (0.6%) at 12731.54; DJIA down 102.07 points (-0.31%) at 33323.52.
• Leading gainers: Communication Services, Real Estate and Energy sectors currently outperforming weaker Consumer Staples and Consumer Discretionary sectors.
• For a technical point of view, S&P E-minis traded higher last week and the contract breached key short-term resistance and the bull trigger at 4206.25, the May 1 high.
• Clearance of this level confirms an extension of the bull trend from Mar 13. This opens 4244.00, the Feb 2 high and the next important resistance.
• Key support is at 4062.25, the May 4 low. A move through this level would highlight a bearish threat.

E-MINI S&P TECHS: (M3) Key Resistance Remains Exposed

• RES 4: 4288.00 High Aug 19 2022
• RES 3: 4244.00 High Feb 2 and a medium-term bull trigger
• RES 2: 4231.00 High Feb 3
• RES 1: 4227.25 High May 19
• PRICE: 4211.50 @ 13445ET May 22
• SUP 1: 4119.78/4062.25 50-day EMA / Low May 4 and key support
• SUP 2: 4052.50 Low Mar 30
• SUP 3: 4022.75 50.0% retracement of the Mar 13 - May 1 bull leg
• SUP 4: 4006.00 Low Mar 29

S&P E-minis traded higher last week and the contract breached key short-term resistance and the bull trigger at 4206.25, the May 1 high. Clearance of this level confirms an extension of the bull trend from Mar 13. This opens 4244.00, the Feb 2 high and the next important resistance. Key support is at 4062.25, the May 4 low. A move through this level would highlight a bearish threat.

COMMODITIES: Oil Edges Higher Amidst Debt Talks, $80/bbl Calls Leads The Day For CLN3

• Crude oil has reversed an overnight slide to edge higher along with Treasury yields on some renewed optimism of a debt deal after initially little sound of progress over the weekend.
• Standard Chartered analysts see OPEC nations as likely to act during their next meeting on 3-4 June amid current speculative trading. “The build-up of speculative shorts means positioning is now as bearish as at the start of the pandemic,” … “Saudi Arabia in particular has often expressed its determination not to give speculators free rein to force an extreme price downside.”
• WTI is +0.6% at $72.10 (CLN3) but it doesn’t trouble key short-term resistance at $73.81 (May 10 high). In options space, the day’s most active strikes have been at $80/bbl calls.
• Brent is +0.6% at $76.05, remaining off resistance at $77.60 (May 10 high) and a more notable $78.74 for the 50-day EMA.
• Gold is -0.25% at $1972.8 in a narrow range as the USD index just above claws to gains for the day after opening lower. The yellow metal is stuck between resistance at $1999.0 (20-day EMA) and support at $1952.0 (May 18 low).

Tuesday Data Calendar

Date	GMT/Local	Impact	Flag	Country	Event
23/05/2023	2300/0900	***		AU	Judo Bank Flash Australia PMI
23/05/2023	0030/0930	**		JP	Jibun Bank Flash Japan PMI
23/05/2023	0600/0700	***		UK	Public Sector Finances
23/05/2023	0715/0915	**		FR	S&P Global Services PMI (p)
23/05/2023	0715/0915	**		FR	S&P Global Manufacturing PMI (p)
23/05/2023	0715/0915			EU	ECB de Guindos Address at European Financial Integration Conf
23/05/2023	0730/0930	**		DE	S&P Global Services PMI (p)
23/05/2023	0730/0930	**		DE	S&P Global Manufacturing PMI (p)
23/05/2023	0800/1000	**		EU	EZ Current Account
23/05/2023	0800/1000	**		EU	S&P Global Services PMI (p)
23/05/2023	0800/1000	**		EU	S&P Global Manufacturing PMI (p)
23/05/2023	0800/1000	**		EU	S&P Global Composite PMI (p)
23/05/2023	0830/0930	***		UK	S&P Global Manufacturing PMI flash
23/05/2023	0830/0930	***		UK	S&P Global Services PMI flash
23/05/2023	0830/0930	***		UK	S&P Global Composite PMI flash
23/05/2023	0900/1000	*		UK	Index Linked Gilt Outright Auction Result
23/05/2023	0915/1015			UK	BOE Bailey, Pill, Tenreyro, Mann at MPR Hearing
23/05/2023	1230/0830	*		CA	Industrial Product and Raw Material Price Index
23/05/2023	1230/0830	**		US	Philadelphia Fed Nonmanufacturing Index
23/05/2023	1255/0855	**		US	Redbook Retail Sales Index
23/05/2023	1300/0900			US	Dallas Fed's Lorie Logan
23/05/2023	1345/0945	***		US	IHS Markit Manufacturing Index (flash)
23/05/2023	1345/0945	***		US	S&P Global Services Index (flash)
23/05/2023	1400/1000	***		US	New Home Sales
23/05/2023	1400/1000	**		US	Richmond Fed Survey
23/05/2023	1445/1545			UK	BOE Haskel Panellist at Richmond Fed Conference
23/05/2023	1530/1130	*		US	US Treasury Auction Result for Cash Management Bill
23/05/2023	1700/1300	*		US	US Treasury Auction Result for 2 Year Note