MNI ASIA OPEN: Inflation End In Sight? Key CPI Read Wednesday

EXECUTIVE SUMMARY

• MNI: Goolsbee Cautious On Rate Hikes, Rejects Pre-Emptive Cut
• MNI INTERVIEW: Inflation Could End 2023 Circa 5%-Fed's Gascon
• MNI: Central Banks Won't Win Inflation Fight Until 2025: IMF

US

FED: Chicago Fed President Austan Goolsbee said Tuesday he's inclined to keep raising interest rates cautiously to restrain inflation, and rejected the idea of pre-emptively cutting to appease investors worried about tensions in the banking system.

• Modest tightening of credit markets after the collapse of Silicon Valley Bank could help the inflation fight and require less action from policymakers, Goolsbee said. Recent economic data has still been stronger than expected, services prices more stubborn, and the banking system is in better shape than the 2008 global crisis, he said.
• "Given how uncertainty abounds about where these financial headwinds are going, I think we need to be cautious," he said in prepared remarks. "We should gather further data and be careful about raising rates too aggressively until we see how much work the headwinds are doing for us in getting down inflation."
• Cutting interest rates in anticipation of a bigger slump in the banking system would be "financial dominance" of monetary policy, Goolsbee said. For more see MNI Policy main wire at 1332ET.

FED: U.S. inflation could end this year above 5% as labor costs continue to expand quickly and short-run price expectations of consumers and firms remain elevated, St. Louis Fed senior economist Charles Gascon told MNI.

• “My surveys are suggesting we’re still going to be somewhere around 5% price increases,” he said in an interview. “The numbers are higher than what professional forecasters have priced in. If there’s a risk it’s to the upside than the path that’s currently priced in by forecasters.”
• The latest employment report showed another 236,000 new jobs were added last month while average hourly earnings rose 4.2% in the year to March – both figures moderating to still-robust levels.
• “Broadly speaking, labor costs are still the big driver in many cases, so (firms) are trying to figure out how to pass on some of those labor costs,” he said. There’s a stickiness that’s going to persist here for some time.” (See MNI INTERVIEW: Fed Not Done Hiking Despite Bank Pain-Cecchetti)
  
• Gascon conducts a quarterly survey of firms based in the St. Louis Fed’s eight district and its February edition contains a special question on inflation pressures and cost expectations. For more see MNI Policy main wire at 1013ET.

IMF: Inflation will remain above target for most central banks until 2025 as the Ukraine war and financial-market turmoil make a global soft landing almost impossible, the IMF said Tuesday, calling for tighter policy unless there's a bigger market meltdown.

• Medium-term growth prospects are the weakest in decades and in advanced economies the pace of GDP is seen slowing by half this year to 1.3%, according to the Washington-based fund's World Economic Outlook.
• In a scenario with a moderate further credit squeeze, global growth would fade to 2.5% this year instead of the base case of 2.8%, which would be the worst slowdown since 2001 outside of the start of Covid and the 2009 global financial crisis.
• "Risks to the outlook are heavily skewed to the downside, with the chances of a hard landing having risen sharply," the IMF said, adding that financial sector stress could force central banks "to reconsider their policy paths." For more see MNI Policy main wire at 0900ET.

Tsys Off Midday Lows, Squaring Up Ahead Wednesday CPI, FOMC Minutes

• Tsys remain moderately weaker, short end underperforming with curves unwinding early steeper profiles to flatter (2s10s -.562 at -60.481). Overall volumes still rather modest (TYM3 >930k), are an improvement compared to the last couple sessions with London back on-line.
• Midday selling partly related to IMF rhetoric over central banks (in)ability to tackle inflation until 2025 - more so than the measured comments by NY Fed Williams during Yahoo Finance interview this morning:
• "ONE MORE RATE HIKE IS A REASONABLE STARTING PLACE BUT WE WILL BE DRIVEN BY THE DATA" followed by "IF INFLATION COMES DOWN, WE WILL HAVE TO LOWER RATES" Bbg.
• Treasury futures gradually recovered after the Treasury $40B 3Y note auction (91282CGV7) awarded 3.810% high yield, steady to the WI; 2.59x bid-to-cover vs. 2.33x prior month.
• Futures continued pare losses in the second half as accounts squared positions ahead Wednesday's CPI and March FOMC minutes release.
• Fed funds implied hike for May'23 back to 17.9bp, Jun'23 at +19.9bp cumulative at 5.025%, while projected rate cuts later in the year continues to cool: Sep'23 at -7.9bp, November cumulative -24.9bp to 4.577%, Dec'23 42.7bp at 4.417.

OVERNIGHT DATA

US REDBOOK: APR STORE SALES +1.5% V YR AGO MO
US REDBOOK: STORE SALES +1.5% WK ENDED APR 08 V YR AGO WK

MARKETS SNAPSHOT

Key late session market levels:

• DJIA up 178.69 points (0.53%) at 33765.13
• S&P E-Mini Future up 13 points (0.31%) at 4149
• Nasdaq down 9.2 points (-0.1%) at 12075.51
• US 10-Yr yield is up 1.3 bps at 3.4299%
• US Jun 10-Yr futures are down 3.5/32 at 115-13
• EURUSD up 0.0056 (0.52%) at 1.0915
• USDJPY up 0.08 (0.06%) at 133.68
• WTI Crude Oil (front-month) up $1.69 (2.12%) at $81.44
• Gold is up $14.37 (0.72%) at $2005.89

US TREASURY FUTURES CLOSE

• 3M10Y +1.676, -158.813 (L: -181.316 / H: -157.93)
• 2Y10Y -0.792, -60.711 (L: -63.201 / H: -57.457)
• 2Y30Y -2.447, -41.395 (L: -44.542 / H: -35.504)
• 5Y30Y -2.235, 8.302 (L: 6.315 / H: 12.442)
• Current futures levels:
• Jun 2-Yr futures down 1.625/32 at 103-8.875 (L: 103-05.75 / H: 103-13.5)
• Jun 5-Yr futures down 3.75/32 at 109-26.25 (L: 109-21 / H: 110-04)
• Jun 10-Yr futures down 3.5/32 at 115-13 (L: 115-06.5 / H: 115-25)
• Jun 30-Yr futures down 6/32 at 132-12 (L: 132-01 / H: 133-00)
• Jun Ultra futures down 2/32 at 142-19 (L: 142-05 / H: 143-15)

Key Resistance Remains Exposed

• RES 4: 117-14+ High Aug 29 / 30 2022 (cont)
• RES 3: 117-01+ High Mar 24 and bull trigger
• RES 2: 116-30 High Apr 5 / 6
• RES 1: 115-31+ High Apr 10
• PRICE: 115-12 @ 1500ET Apr 11
• SUP 1: 115-02 20-day EMA
• SUP 2: 114-18 Low Apr 3
• SUP 3: 114-10+ 50-day EMA
• SUP 4: 114-07 Low Mar 29 and 30 and key support

Treasury futures traded higher last week, touching a peak of 116-30, before retracing. A bullish theme remains intact and moving average studies are in a bull-mode position, highlighting an uptrend. Resistance at 117-01+, the Mar 24 high and a key short-term resistance, remains exposed. A break of this hurdle would strengthen bullish conditions and open 117-14+, the Aug 29/30 2022 high (cont). Key support is at 114-07, the Mar 29/30 low.

EURODOLLAR FUTURES CLOSE

• Jun 23 steady at 94.690
• Sep 23 +0.015 at 95.060
• Dec 23 steady at 95.415
• Mar 24 -0.020 at 95.860
• Red Pack (Jun 24-Mar 25) -0.065 to -0.05
• Green Pack (Jun 25-Mar 26) -0.055 to -0.03
• Blue Pack (Jun 26-Mar 27) -0.015 to -0.01
• Gold Pack (Jun 27-Mar 28) steady to +0.010

SHORT TERM RATES

US DOLLAR LIBOR: Latest settlements:

• O/N +0.00658 to 4.81629% (+0.00885 total last wk)
• 1M +0.03700 to 4.93729% (+0.04258 total last wk)
• 3M +0.04371 to 5.24157% (+0.00515 total last wk)*/**
• 6M +0.11414 to 5.35157% (-0.07557 total last wk)
• 12M +0.19743 to 5.32314% (-0.17958 total last wk)
• * Record Low 0.11413% on 9/12/21; ** New 16Y high: 5.24157% on 4/11/23

• Daily Effective Fed Funds Rate: 4.83% volume: $106B
• Daily Overnight Bank Funding Rate: 4.82% volume: $284B

• Secured Overnight Financing Rate (SOFR): 4.81%, $1.366T
• Broad General Collateral Rate (BGCR): 4.78%, $540B
• Tri-Party General Collateral Rate (TGCR): 4.78%, $531B
• (rate, volume levels reflect prior session)

FED Reverse Repo Operation

NY Fed reverse repo usage climbs to $2,297.208B w/ 109 counterparties, compares to prior $2,239.655B. All-time record high of $2,553.716B reached December 30, 2022; high usage for 2023: $2,375.171B on Friday March 31, 2023

PIPELINE: $2.5B MUFG 4Pt Launched

• Date $MM Issuer (Priced *, Launch #)
• 04/11 $2.5B #MUFG $500M 3NC2 +150, $300M 3NC2 SOFR+144, $700M 6NC5 +170, $1B 11NC10 +197
• 04/11 $500M #Macquarie AirFinance 5NC2 8.375%
• 04/11 Banco de Brasil 7Y 6.625%a

EGBs-GILTS CASH CLOSE: Catching Up To U.S. Selloff

European yields rose sharply Tuesday in the return to trading following a four-day weekend, with Bunds underperforming Gilts. There were few specific catalysts in the European session, with EGBs/Gilts mainly following the bearish lead of Treasuries after a solid jobs US jobs report Friday.

• The German curve bear flattened sharply, as the short end caught up with weakness in its US counterpart, including a sharp upward repricing in ECB terminal rate expectations (ECB terminal Depo rate pricing +15.9bp to 3.67%).
• The UK's curve saw more of a parallel shift, but like Germany's, the yield rise was in double-digits for the most part.
• Periphery EGB spreads were mixed, with Greece tightening and BTPs widening.
• With another light European data slate Wednesday, most global market attention Wednesday will be on US inflation.
• ECB's Villeroy speaks after the cash close, with appearances Wednesday by multiple speakers including Guindos, de Cos, and BoE's Bailey.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is up 15.2bps at 2.706%, 5-Yr is up 14.2bps at 2.322%, 10-Yr is up 12.8bps at 2.311%, and 30-Yr is up 10.7bps at 2.389%.
• UK: The 2-Yr yield is up 11.4bps at 3.486%, 5-Yr is up 11.3bps at 3.384%, 10-Yr is up 11bps at 3.542%, and 30-Yr is up 9bps at 3.861%.
• Italian BTP spread up 1.2bps at 186.1bps / Greek down 2.8bps at 188.2bps

FOREX: USD Index Retraces Monday Climb, NOK Weakness Stands Out In G10

• The USD index weakened on Tuesday, erasing the majority of the post-NFP strength in the lead up to another important CPI report tomorrow. The USD Index is close to 0.6% off the Monday high, with 101.987 marking the immediate support to watch. Moves come as markets see relatively little read through from the jobs report to Fed monetary policy, with a 25bps step in early May likely marking the peak of this tightening cycle.
• The Norwegian Krone was the weakest in G10 on Tuesday, a notable move given the stronger than expected CPI figures for March and firmer oil prices. The data is seen as doing little more to bolster the Norges hiking backdrop and the sell-off is being tied more closely to thin liquidity across Scandi currency markets, exacerbated by EURNOK (+0.85%) breaching the prior 2023 highs above 11.4829. Desks also reported real money demand for EURNOK assisting the move higher.
• European yields rose substantially Tuesday in the return to trading following a four-day weekend. The German curve bear flattened sharply, as the short end caught up with weakness in its US counterpart, including a sharp upward repricing in ECB terminal rate expectations which bolstered the Euro. EURUSD rose 0.42% to regain the 1.09 handle, maintaining the underlying bullish technical outlook for the pair.
• Early USDJPY weakness, however, was shrugged off with higher core yields continuing to weigh on the Japanese yen, which has been under renewed pressure since the release of the US employment data on Friday.
  • Despite most recent gains for USDJPY being considered technically corrective overall, attention is on resistance at 133.87, Monday’s high. A break of this level would strengthen a short-term bullish theme and highlight a clear breach of the 50-day exponential moving average. This would open 134.75, a Fibonacci retracement.
• As well as US CPI on Wednesday, the Bank of Canada rate announcement & press conference as well as the FOMC minutes make for a packed schedule.

Tuesday Data Calendar

Date	GMT/Local	Impact	Flag	Country	Event
11/04/2023	2330/1930			US	Minneapolis Fed's Neel Kashkari
12/04/2023	0600/0800	**		NO	Norway GDP
12/04/2023	0900/1000	*		UK	Index Linked Gilt Outright Auction Result
12/04/2023	1100/0700	**		US	MBA Weekly Applications Index
12/04/2023	-			EU	ECB Lagarde and Panetta in IMF/World Bank, G20 Finance Ministers' Meetings
12/04/2023	1230/0830	***		US	CPI
12/04/2023	1230/1430			EU	ECB de Guindos at Asociacion para el Progreso de Direccion Event
12/04/2023	1300/1400			UK	BOE Bailey Remarks at Institute of International Finance
12/04/2023	1300/0900			US	Richmond Fed's Tom Barkin
12/04/2023	1400/1000	***		CA	Bank of Canada Policy Decision
12/04/2023	1400/1000			CA	Bank of Canada Monetary Policy Report
12/04/2023	1430/1030	**		US	DOE Weekly Crude Oil Stocks
12/04/2023	1500/1100			CA	Bank of Canada Governor press conference
12/04/2023	1600/1200			US	San Francisco Fed's Mary Daly
12/04/2023	1700/1300	**		US	US Note 10 Year Treasury Auction Result
12/04/2023	1800/1400	**		US	Treasury Budget
12/04/2023	1800/1400	*		US	FOMC Statement
12/04/2023	1915/2015			UK	BOE Bailey Speaks at IMF Governor Talks