MNI ASIA OPEN: Geopol Risk Tempers Powell's Hawkish Tone
US TSYS Middle East Tension Softens Chair Powell's Hawkish Note on Inflation
- Treasuries are trading near late session lows, 10Y yield tapping 4.6943% high (mid-Nov'23 level) following Fed Chairman Powell's "lack of further progress on inflation" comment as he participated in a moderated chat with BoC head Macklem in the afternoon.
- Jun'24 10Y futures extended session low to 107-13.5, nearing technical support of 107-07+ (76.4% of the Oct - Dec ‘23 bull leg (cont)) -- before bouncing back to 107-24, trade desks citing Middle East tensions as Israel news reports War Cabinet has decided to strike back at Iran after the weekend drone attacks.
- Risk-off support in rate did not explain a brief bounce in S&P Eminis to 5123.25 session high, some posited a relief rally as Powell/Macklem talk ended in addition to a couple buy programs. Stocks remain skittish near the close, trading at 5093.00.
- Rates bounced slightly off weaker levels following lower than expected Building Permits (1.458M vs. 1.510M est), MoM (-4.3% vs. -0.9% est) and Housing Starts (1.321M vs. 1.485M est), MoM (-14.7% vs. -2.4% est).
- Little reaction to in-line Industrial Production MoM (0.4% vs. 0.4% est, prior up-revised to 0.4% from 0.1%), Capacity Utilization (78.4% vs. 78.5% est, prior up-revised to 1.2% from 0.8%).
- Look ahead: Beige Book, TIC Flows and more Fed speakers later in the evening: Cleveland Fed Mester on a Federal Reserve update (Q&A) at 1730ET, Fed Gov Bowman IIF Global Outlook Forum (no text, Q&A) at 1915ET.
US
EM INTERVIEW (MNI): IMF's Adrian Warns Of Inflation Risk To Markets: Bumps along the last mile of the Federal Reserve's inflation fight could undermine optimism over rate cuts and painless disinflation and lead to an abrupt tightening of financial conditions that pressures weaker banks, Tobias Adrian, head of the International Monetary Fund's monetary and capital markets department, told MNI.
- Oil price spikes from an intensification of geopolitical tensions are yet another imaginable catalyst for financial tightening, he said. Even as stability risks have receded in recent months and the bank turmoil of last spring looks contained, valuations for bonds, stocks and some commodities are stretched and any sudden adjustment in their prices could test the financial system, Adrian said in an interview as the IMF released its latest Global Financial Stability Report.
- "There’s a risk-off mood in markets at the moment. There could be a tightening of financial conditions," Adrian said in an interview. "If we did see significant adverse shocks, intensifications of political tensions and war, that could put upward pressures on oil markets. It could trigger repricing in stocks and bonds and that could put institutions under pressure.
US FED (MNI): Jefferson Sees Holding Rates Steady: Vice Chair Jefferson (voter) says in prepared remarks his baseline is for the policy rate to be held steady at its current level:
- “My baseline outlook continues to be that inflation will decline further, with the policy rate held steady at its current level, and that the labor market will remain strong, with labor demand and supply continuing to rebalance.”
- “If incoming data suggest that inflation is more persistent than I currently expect it to be, it will be appropriate to hold in place the current restrictive stance of policy for longer.”
- The comments helped 2Y Tsy yields push to new session highs of 4.957% in a reversal of spillover from soft Canadian CPI, but it remains below yesterday’s fresh YTD high of 4.993%.
NEWS
FED BRIEF (MNI): Recent Data Have Not Given Fed Confidence - Powell: Federal Reserve Chair Jerome Powell Tuesday dialed back expectations on rate cuts, noting that firm inflation last quarter has introduced new uncertainty over when the Fed will be able to lower interest rates this year. "The recent [inflation] data have clearly not given us greater confidence and instead indicate that it is likely to take longer than expected to achieve that confidence" that inflation will return to 2%, Powell said at a Wilson Center event.
US (MNI): House Vote On Israel/Ukraine Aid Likely On Friday: House Speaker Mike Johnson (R-LA) outlined his plan to pass supplemental foreign aid. A package comprised of four bills: One each for Israel, Ukraine, and Taiwan and fourth of GOP policy; the REPO Act; the House-passed TikTok bill; a Lend-Lease Act for military aid; and a bill to convert some Ukraine grants into loans.
CHINA/GERMANY (MNI): Scholz: 'We Don't Want To Decouple From China': Wires carrying comments from the meeting between German Chancellor Olaf Scholz and Chinese Premier Li Qiang in Beijing. Scholz's multi-day visit to China has garnered significant focus given Germany's position as China's largest EU trading partner.
OVERNIGHT DATA
US DATA (MNI): Solid Upward Revisions For Production Measures: Industrial production was in line in March as it increased 0.39% M/M (cons 0.4), although it did follow an upward revised 0.44% (initial 0.1%) in Feb.
- Further, manufacturing production beat eat 0.48% M/M (cons 0.2) after an upward revised 1.19% (initial 0.8%) in Feb.
- The last two monthly increases have steadied some of the weakness in the measures, with overall IP growth at -1.8% ar on a 3M/3M basis and manufacturing production essentially flat at -0.1% ar.
- Capacity utilization on the other hand was a little lower than expected at 78.4% (cons 78.5%) after a downward revised 78.2% (initial 78.3%).
US MAR HOUSING STARTS 1.321M; PERMITS 1.458M
US FEB STARTS REVISED TO 1.549M; PERMITS 1.523M
US MAR HOUSING COMPLETIONS 1.469M; FEB 1.698M (REV)
US REDBOOK: APR STORE SALES +4.9% V YR AGO MO
US REDBOOK: STORE SALES +4.9% WK ENDED APR 13 V YR AGO WK
CANADA (MNI): Another Month With The BoC Seeing What It Needs To See: The BoC said last week that “We are seeing what we need to see, but we need to see it for longer”, and it certainly saw that again in today’s latest CPI data for March.
- The average of the trim and median at 2.95% Y/Y (cons 3.1) marked the first Y/Y dip into the 1-3% target band since Oct’21.
- As above, the three-month rate slowed from 2.3% to 1.3% ar (cons would have been closer to 1.5) and the six-month rate took another step to 2.3% ar (-0.2pps). The latter ended last year at 3.6%.
- Other metrics of note: CPIxFE at 1.9% over 3-mths and 2.7% over 6-mths, CPIX at just 0.8% over 3-mths and 1.6% over 6-mths.
- Macklem and the Budget are still to come today, but should they pass without too many surprises this release could continue to pave the way for greater cut confidence. However, we still have another CPI report for April due before the June 5 meeting.
- The volatility in the series continues, with starts pulling back having surged 12.7% M/M in Feb.
- The driver of this noise is urban multi-units, which fell -7.8% after +19.6%.
- Urban single starts have however shown a notably weaker trend recently, -3.2% in Mar after -3.5% in Feb and have now fallen 15% since October.
- The overall level of housing starts will need to be ramped up strongly to keep up with population demands.
- It’s still above the 28% averaged pre-pandemic but is down from 55% at the end of last year and a peak of 80% in Sep’22.
- Breaking down by sector, services are still showing more persistence than goods in terms of outright levels, which will remain of concern for the BoC, but both saw improvements in March.
- Goods fell 5pps to 32% (2010-19 av 26%) and services fell 4pps to 50% (2010-19av 31%).
MARKETS SNAPSHOT
- Key market levels of markets in late NY trade:
- DJIA up 63.86 points (0.17%) at 37798.97
- S&P E-Mini Future down 13.25 points (-0.26%) at 5090.75
- Nasdaq down 19.8 points (-0.1%) at 15865.25
- US 10-Yr yield is up 5.8 bps at 4.6591%
- US Jun 10-Yr futures are down 8.5/32 at 107-20
- EURUSD down 0.0003 (-0.03%) at 1.0621
- USDJPY up 0.38 (0.25%) at 154.66
- WTI Crude Oil (front-month) down $0.13 (-0.15%) at $85.28
- Gold is up $5.34 (0.22%) at $2388.67
- European bourses closing levels:
- EuroStoxx 50 down 67.49 points (-1.35%) at 4916.99
- FTSE 100 down 145.17 points (-1.82%) at 7820.36
- German DAX down 260.35 points (-1.44%) at 17766.23
- French CAC 40 down 112.5 points (-1.4%) at 7932.61
US TREASURY FUTURES CLOSE
- 3M10Y +7.123, -72.745 (L: -85.268 / H: -67.927)
- 2Y10Y -0.037, -32.157 (L: -32.759 / H: -28.178)
- 2Y30Y -1.745, -22.335 (L: -23.209 / H: -16.948)
- 5Y30Y -3.011, 6.49 (L: 5.515 / H: 11.167)
- Current futures levels:
- Jun 2-Yr futures down 2.625/32 at 101-16.125 (L: 101-14.25 / H: 101-20.25)
- Jun 5-Yr futures down 6.75/32 at 104-29.75 (L: 104-25.25 / H: 105-08.75)
- Jun 10-Yr futures down 8.5/32 at 107-20 (L: 107-13.5 / H: 108-04)
- Jun 30-Yr futures down 10/32 at 113-31 (L: 113-10 / H: 114-24)
- Jun Ultra futures down 11/32 at 120-4 (L: 119-05 / H: 121-05)
US 10Y FUTURE TECHS: (M4) Heading South
- RES 4: 110-09+ 50-day EMA
- RES 3: 110-06 High Apr 4
- RES 2: 109-02/26+ Low Apr 8 / High Apr 10
- RES 1: 108.25+ High Apr 12
- PRICE: 107-23+ @ 11:02 BST Apr 16
- SUP 1: 107-16+ 2.50 proj of Dec 27 - Jan 19 - Feb 1 price swing
- SUP 2: 107-07+ 76.4% of the Oct - Dec ‘23 bull leg (cont)
- SUP 3: 106-27 2.764 proj of Dec 27 - Jan 19 - Feb 1 price swing
- SUP 4: 106-08 3.00 proj of Dec 27 - Jan 19 - Feb 1 price swing
The sharp sell-off in Treasuries last week and Monday’s extension, reinforces the current bearish cycle. The move down has confirmed a resumption of this year’s downtrend and in the process a number of short-term support points have been breached. Scope is seen for an extension towards 107-16+ next, a Fibonacci projection. Initial resistance has been defined at 109-25+, the Apr 12 high. Key short-term resistance is 110-06, the Apr 4 high.
SOFR FUTURES CLOSE
- Jun 24 -0.020 at 94.730
- Sep 24 -0.020 at 94.885
- Dec 24 -0.020 at 95.070
- Mar 25 -0.030 at 95.250
- Red Pack (Jun 25-Mar 26) -0.075 to -0.05
- Green Pack (Jun 26-Mar 27) -0.065 to -0.05
- Blue Pack (Jun 27-Mar 28) -0.05 to -0.045
- Gold Pack (Jun 28-Mar 29) -0.04 to -0.035
SOFR FIXES AND PRIOR SESSION REFERENCE RATES
SOFR Benchmark Settlements:
- 1M +0.00265 to 5.31889 (-0.00040/wk)
- 3M +0.00986 to 5.32693 (-0.00063/wk)
- 6M +0.02298 to 5.30482 (+0.00145/wk)
- 12M +0.04800 to 5.22001 (+0.01097/wk)
- Secured Overnight Financing Rate (SOFR): 5.32% (+0.01), volume: $1.938T
- Broad General Collateral Rate (BGCR): 5.31% (+0.01), volume: $705B
- Tri-Party General Collateral Rate (TGCR): 5.31% (+0.01), volume: $695B
- (rate, volume levels reflect prior session)
- Daily Effective Fed Funds Rate: 5.33% (+0.00), volume: $83B
- Daily Overnight Bank Funding Rate: 5.32% (+0.00), volume: $244B
FED Reverse Repo Operation:
NY Federal Reserve/MNI
- RRP usage rebounds but remains well below $400B at $371.554B vs. $327.066B last Monday -- lowest level since mid-May 2021 as desks cited Federal tax deadline for the drop.
- Meanwhile, the latest number of counterparties bounces to 68 vs. 62 Friday.
PIPELINE: US$ Debt Issuance, Still Waiting on Ontario 10Y SOFR
At least $14.05B US$ debt to price Tuesday, still waiting on Ontario 10Y SOFR
- Date $MM Issuer (Priced *, Launch #)
- 4/15 $5B *EIB 5Y SOFR+36
- 4/16 $2.25B #Goldman Sachs perpNC5 7.5%
- 4/16 $1.5B *ZF North America $800M 6Y 6.75%, $700M 8Y 6.875%
- 4/16 $1.5B #JFM 5Y SOFR+65
- 4/16 $1.5B Sunoco $750M 5NC2, $750M 8NC3
- 4/16 $1B *MuniFin 3Y SOFR+33
- 4/16 $700M #Johnson Controls 5Y +87.5
- 4/16 $600M *KEB Hana Bank $300M 3Y +70, $300M 5Y +78
- 4/16 $Benchmark Province of Ontario 10Y SOFR+78
EGBs-GILTS CASH CLOSE: Gilts Underperform On Strong UK Wage Data
Bunds and Gilts fell for the 2nd day this week as UK data and Fed speakers continued to apply pressure to the global rates space.
- MNI saw today's upside surprise in UK wage data (e.g. private sector 6.0%Y/Y in the 3 months to February vs consensus 5.8%) as pushing back on the idea of early BOE cuts, with May's MPC looking unlikely for the first cut - though June and particularly August very much in play.
- Fed Vice Chair Jefferson's warning that rates may have to remain higher for longer exacerbated the global FI selloff in the European afternoon.
- Eurozone data was less eventful, though a strong ZEW figure maintained downside pressure on Bunds. ECB speakers (including Lagarde) continued to point to a first rate cut in June.
- The divergence in UK/Euro policy rate expectations on the day (ECB implied 2024 cuts pared by 4bp, but BoE by 9bp) helps explain why the German curve bear steepened, while the UK's bear flattened. Periphery EGB spreads finished slightly wider.
- BoE's Bailey speaks after the cash close, while UK March inflation data is the early highlight on Wednesday - see MNI's preview here.
Closing Yields / 10-Yr Periphery EGB Spreads To Germany:
- Germany: The 2-Yr yield is up 2.4bps at 2.936%, 5-Yr is up 4.4bps at 2.485%, 10-Yr is up 4.6bps at 2.486%, and 30-Yr is up 3.9bps at 2.627%.
- UK: The 2-Yr yield is up 6.6bps at 4.476%, 5-Yr is up 6.7bps at 4.202%, 10-Yr is up 5.8bps at 4.299%, and 30-Yr is up 2.9bps at 4.749%.
- Italian BTP spread up 2.1bps at 145.9bps / Spanish up 0.7bps at 84.4bps
FOREX AUDUSD Falls To Fresh 5-Month Low, USDMXN Rises Above 17.00
- The greenback operates in positive territory once more, firmer against most others in G10, with the USD Index hovering just below cycle highs at 106.44, printed earlier in the session.
- With major equities consolidating at the most recent lows amid geopolitical tensions, risk sensitive currencies have suffered on Tuesday with AUD underperforming in G10 and the Mexican peso a notable laggard in emerging markets.
- Key AUDUSD support at 0.6443, the Feb 13 low, has been cleared and this confirms a resumption of the downtrend that started late December last year. Scope is seen for an extension towards 0.6339, the Nov 10 ‘23 low. Firm resistance is now seen at 0.6552, the 50-day EMA.
- For USDMXN, the unfavourable backdrop for EM FX and positioning dynamics are exacerbating the move higher in today’s session. The pair has risen back above 17.00 and is up 1.75% as we approach the APAC crossover.
- GBPUSD was a subject of focus following mixed jobs market data. There's been no let-up for GBP vols following this morning's data, however, with overnights now capturing the Wednesday CPI release. Overnight implied has cleared 13 points, to double the YTD average background vol of 6.5 points. This blows out the break-even on an overnight GBP/USD straddle to ~65 pips, thereby capturing the cycle low and key support at 1.2409.
- Elsewhere, a further moderation in the Bank of Canada's preferred core metrics helped USDCAD rise to levels just shy of 1.3850, not seen since November.
- There was also brief but sharp volatility for USDJPY when after rising to a new cycle high of 154.77, saw rapid selling take the pair to 154.04 session lows before quickly stabilising. Worth recalling we have had sharp intraday corrections in USD/JPY in recent months, that turned out *not* to be official intervention.
WEDNESDAY DATA CALENDAR
Date | GMT/Local | Impact | Flag | Country | Event |
17/04/2024 | 2350/0850 | ** | JP | Trade | |
17/04/2024 | 0600/0700 | *** | UK | Consumer inflation report | |
17/04/2024 | 0600/0700 | *** | UK | Producer Prices | |
17/04/2024 | 0900/1100 | *** | EU | HICP (f) | |
17/04/2024 | 0900/1000 | ** | UK | Gilt Outright Auction Result | |
17/04/2024 | 0900/1100 | EU | ECB's Cipollone in Italian Banking Meeting | ||
17/04/2024 | 1100/0700 | ** | US | MBA Weekly Applications Index | |
17/04/2024 | 1205/1305 | UK | BoE's Greene on IIF Panel | ||
17/04/2024 | 1230/0830 | * | CA | International Canadian Transaction in Securities | |
17/04/2024 | 1300/1500 | EU | ECB's Cipollone at IIF Global Outlook Forum | ||
17/04/2024 | 1430/1030 | ** | US | DOE Weekly Crude Oil Stocks | |
17/04/2024 | 1545/1745 | EU | ECB's Schnabel Speaks At IRFMP | ||
17/04/2024 | 1600/1700 | UK | BoE's Bailey In IIF Fireside Chat | ||
17/04/2024 | 1700/1300 | ** | US | US Treasury Auction Result for 20 Year Bond | |
17/04/2024 | 1800/1400 | US | Fed Beige Book | ||
17/04/2024 | 1800/1900 | UK | BoE's Haskel At Kings College London Panel | ||
17/04/2024 | 2000/1600 | ** | US | TICS | |
17/04/2024 | 2130/1730 | US | Cleveland Fed's Loretta Mester |