MNI ASIA OPEN: Inflation Remains Sticky

US

FED: Federal Reserve officials will likely retain a tightening bias in their forward guidance even if next week's rate increase is their last, in a signal they're committed to holding interest rates high for some time barring a major financial crisis, former Fed officials told MNI.

• A 25-basis-point rate increase at the May 2-3 FOMC meeting is widely expected and will take the fed funds rate target above 5% for the first time since 2007. But where futures traders are pricing in 50bp in cuts by December, the FOMC is unlikely to pivot even if a recession takes hold this year, the former officials said.
• The FOMC will either keep its language that "some additional policy firming may be appropriate" or revise the rate guidance to be open-ended but hawkish, former Dallas Fed President Robert Kaplan said in an interview. "It's going to be very challenging to get inflation below 4%, due to structural factors not highly susceptible to monetary policy. As a result the Fed needs to be prepared to leave the fed funds rate at current levels for a much more extended period of time than currently reflected in the financial markets." For more see MNI Policy main wire at 1125ET.

US: The core PCE Q1 advance of 4.94% annualized for the core PCE deflator (cons 4.7%) implies a March reading bouncing back to 0.50% M/M (current consensus 0.3), from 0.30% in Feb after 0.52% in Jan. That is of course assuming no monthly revisions altering the latest trajectory. Either way though, it's the strongest quarter since the 5.64% in 1Q22.

US: GDP came in at 1.1% annualized in the Q1 advance, below consensus of 1.9% but exactly in line with the latest Atlanta Fed GDPNow of 1.1%.

• However, despite the recent downward revisions to retail sales that was unlikely fully captured by the Bloomberg consensus, personal consumption, whilst slightly below consensus, was stronger than GDPNow at 3.7% vs 2.7% tracking. Inventories instead provided a heavy drag, flipping from +1.47pps to -2.26pps annualized contribution on the quarter.
  
• The relative strength in consumption, bouncing back from 1.0% to 3.7% and with implications of stronger service strength not captured by retail sales, was further supported by surprisingly strong core PCE inflation at 4.9% (cons 4.7%) after 4.4% in Q4.

US: Along with the surprise implied re-acceleration in core PCE inflation, initial jobless claims also came in on the stronger (i.e. lower) side at 230k (cons 248k) in the week to Apr 22 after 246k. It continues a relatively noisy recent run. Instead, the four-week average dipped from 240k to 236k for the lowest in six weeks after its newfound upward trend through Feb/Mar post revised seasonal factors.

• However, at 226k in non-seasonally adjusted terms, there still appears to be a mild favorable adjustment seeing as claims are at the top end of pre-pandemic ‘normal’ weeks – see second chart - although at least aren't seeing a discernible move higher. Continuing claims meanwhile broadly consolidated last week’s surprise increase rather than pushing on further, dipping to 1858k (cons 1870k) from slightly downward revised 1861k.

US TSYS: Near Late Lows Ahead Friday's PCE, ECI Data

• The initial impetus for Thursday's jump in yields (10s top 3.5357%) was the uptick in inflation as core PCE Q1 advance of 4.94% annualized for the core PCE deflator (cons 4.7%) implies a March reading bouncing back to 0.50% M/M (current consensus 0.3), from 0.30% in Feb after 0.52% in Jan.
• Jun'23 10Y futures dipped below 20-day EMA of 115-00.5 to 114-21 session low as focus turned to 114-18.5 50-day EMA. Key support has been defined at 113-30+, the Apr 19 low. A break of this support would reinstate the recent bearish theme.
• Heavy short end selling saw curves bear flattening (2s10s hit -57.777 low). As a result of re-acceleration of March inflation, implied rate hikes in the near term have firmed, May at 22.6 while Jun cumulative climbs to 28.7 at 5.116.
• Tighter policy projections for year end are well off Tuesday highs: November cumulative currently -8.8bp (-31.1bp Tue) at 4.741, Dec'23 cumulative -29.5bp (-52.1bp Tue) at 4.534. Meanwhile, Jan'24 cumulative sits at -51.9bp vs. a full three 25bp cuts late Tuesday.

OVERNIGHT DATA

• US Q1 GDP +1.1%

• US JOBLESS CLAIMS -16K TO 230K IN APR 22 WK
• US PREV JOBLESS CLAIMS REVISED TO 246K IN APR 15 WK
• US CONTINUING CLAIMS -0.003M to 1.858M IN APR 15 WK

• US NAR MAR PENDING HOME SALES INDEX 78.9 V 83.2 IN FEB
• US NAR MAR PENDING HOME SALES -5.2% MOM; -23.2% YOY

• US APRIL KANSAS CITY FED MANUFACTURING INDEX -10; EST. -2

MARKETS SNAPSHOT

Key late session market levels:

• DJIA up 543.37 points (1.63%) at 33846.56
• S&P E-Mini Future up 79.75 points (1.96%) at 4156
• Nasdaq up 290.8 points (2.5%) at 12145.17
• US 10-Yr yield is up 7.4 bps at 3.5223%
• US Jun 10-Yr futures are down 25.5/32 at 114-24
• EURUSD down 0.0013 (-0.12%) at 1.1028
• USDJPY up 0.28 (0.21%) at 133.95
• WTI Crude Oil (front-month) up $0.51 (0.69%) at $74.80
• Gold is up $0.12 (0.01%) at $1989.16

• EuroStoxx 50 up 10.34 points (0.24%) at 4358.05
• FTSE 100 down 21.06 points (-0.27%) at 7831.58
• German DAX up 4.72 points (0.03%) at 15800.45
• French CAC 40 up 17.18 points (0.23%) at 7483.84

US TREASURY FUTURES CLOSE

• 3M10Y +5.049, -164.316 (L: -173.994 / H: -163.416)
• 2Y10Y -6.423, -56.871 (L: -57.522 / H: -49.286)
• 2Y30Y -8.872, -33.948 (L: -34.623 / H: -22.933)
• 5Y30Y -5.107, 15.188 (L: 14.932 / H: 23.877)
• Current futures levels:
• Jun 2-Yr futures down 10.375/32 at 103-1.125 (L: 103-00.75 / H: 103-11.625)
• Jun 5-Yr futures down 19.75/32 at 109-15.5 (L: 109-14.25 / H: 110-03.75)
• Jun 10-Yr futures down 26/32 at 114-23.5 (L: 114-22.5 / H: 115-17.5)
• Jun 30-Yr futures down 42/32 at 130-13 (L: 130-07 / H: 131-20)
• Jun Ultra futures down 55/32 at 139-16 (L: 139-07 / H: 141-02)

US 10YR FUTURE TECHS: (M3) Bullish, Despite Thursday Pullback

• RES 4: 117-01+ High Mar 24 and bull trigger
• RES 3: 116-30 High Apr 5 / 6
• RES 2: 116-08 High Apr 12
• RES 1: 115-30+ High Apr 26
• PRICE: 114-25 @ 1415ET Apr 27
• SUP 1: 114-18+ 50-day EMA
• SUP 2: 113-30+ Low Apr 19 and key short-term support
• SUP 3: 113-23 50.0% retracement of the Mar 3 - 24 bull run
• SUP 4: 113-08+ Low Mar 15

Treasury futures maintain a bullish tone despite the intraday pullback Thursday. The recovery on Tuesday undermines the recent bearish theme and price is still above the 50-day EMA. Any return higher would open 116-08, the Apr 12 high and expose the key resistance at 117-01+, the Mar 24 high. Key support has been defined at 113-30+, the Apr 19 low. A break of this support would reinstate the recent bearish theme.

SOFR FUTURES SETTLE

• Jun 23 -0.085 at 94.90
• Sep 23 -0.155 at 95.145
• Dec 23 -0.190 at 95.545
• Mar 24 -0.20 at 96.035
• Red Pack (Jun 24-Mar 25) -0.19 to -0.145
• Green Pack (Jun 25-Mar 26) -0.135 to -0.115
• Blue Pack (Jun 26-Mar 27) -0.11 to -0.095
• Gold Pack (Jun 27-Mar 28) -0.09 to -0.075

SHORT TERM RATES

SOFR Benchmark Settlements:

• 1M +0.01100 to 4.99321 (+.09323/wk)
• 3M -0.00197 to 5.04345 (+.06029/wk)
• 6M -0.00604 to 5.02131 (+.07826/wk)
• 12M -0.01855 to 4.72626 (+.04718/wk)

US DOLLAR LIBOR: Latest settlements:

• O/N +0.01443 to 4.81014%
• 1M +0.00957 to 5.03414%
• 3M +0.02643 to 5.29914% */**
• 6M +0.01500 to 5.38686%
• 12M +0.03286 to 5.32143%
• * Record Low 0.11413% on 9/12/21; ** New 16Y high: 5.29914% on 4/27/23

• Daily Effective Fed Funds Rate: 4.83% volume: $115B
• Daily Overnight Bank Funding Rate: 4.82% volume: $285B

• Secured Overnight Financing Rate (SOFR): 4.80%, $1.345T
• Broad General Collateral Rate (BGCR): 4.77%, $547B
• Tri-Party General Collateral Rate (TGCR): 4.77%, $535B
• (rate, volume levels reflect prior session)

FED Reverse Repo Operation

NY Fed reverse repo usage recedes to $2,273.926B w/ 101 counterparties, compares to prior $2,279.561B. 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.

PIPELINE: $2.45B Philip Morris 4Pt Tap Launched, Updated Priors

• Date $MM Issuer (Priced *, Launch #)
• 04/27 $2.45B #Philip Morris** $450M Tap 4.875% 2/13/26 +90, $550M Tap 4.8755 2/15/28 +115, $700M Tap 5.125% 2/15/30 +145, $750M Tap 5.375% 2/15/33 +165.
• 04/27 $1.25B *Eximbank -5Y +280
• 04/27 $1B #CDP (Cassa Depositi Prestiti) 3Y +200
• 04/27 $900M #Anglo American 10Y +205
• 04/27 $750M *State Bank of India 5Y +145
• 04/27 $750M #Constellation Brands 10Y +147
• **CORRECTS: The last time Philip Morris issued was $5.25B on Feb 13, 2023: $1.25B 3Y +80, $1B 5Y +110, $1.5B 7Y +145, $1.5B 10Y +170. The prior auction was $6B on Nov 15, 2022: $1B 2Y +85, $750M 3Y +95, $1.5B 5Y +135, $1.25B 7Y +180, $1.5B 10Y +200.

EGBs-GILTS CASH CLOSE: Bearish Movement Ahead Of CPI

Bunds and Gilts weakened Thursday with modest bear steepening in the curves, as US data renewed concerns about price pressures going into Friday's inflation data.

• Thursday's stronger-than-expected US Core PCE prices reading for Q1 provided a hawkish clue for Friday's March PCE figure, which comes on the same day as several Euro area countries (incl France and Germany) post flash April CPI.
• After drifting in a slightly negative direction in morning trade, Bund and Gilt losses accelerated in the afternoon on the PCE data and as equities bounced from Wednesday's lows.
• Central bank hike expectations pared an early drop to finish flat in the case of the ECB, though BoE terminal pricing ticked up a few basis points.
• Data isn't the only risk Friday, with a closely-watched BoJ decision as well as potential month-end market dynamics.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is up 5.4bps at 2.826%, 5-Yr is up 6.2bps at 2.462%, 10-Yr is up 6.3bps at 2.46%, and 30-Yr is up 4.2bps at 2.534%.
• UK: The 2-Yr yield is up 6.8bps at 3.819%, 5-Yr is up 7.3bps at 3.665%, 10-Yr is up 6.5bps at 3.794%, and 30-Yr is up 7.1bps at 4.154%.
• Italian BTP spread up 1.8bps at 189.3bps / Spanish up 0.1bps at 104.9bps

FOREX: Post-Data Greenback Surge Moderates As Equities March Higher

• After treading water throughout the European session, the greenback caught a substantial bid following the slew of US economic data. Both the GDP Price index and quarterly Core PCE registered above their surveyed median estimates, prompting around a 40-pip surge for the USD index.
• USDJPY had the most notable rally, rising from session lows around 133.25 all the way to 134.20 highs. In similar vein, EURUSD slipped briefly back below the 1.10 handle.
• Overall, a disconnect between fixed income and equities left currency markets a little directionless throughout the rest of the US session. Significant pressure on front-end US yields (2-year +15bps) was unable to halt the strong 1.85% rally for the S&P 500 which diminished any upside momentum for the greenback.
• The improved risk backdrop weighed on Euro crosses with the likes of EURAUD and EURNZD moderating some of their impressive strength seen throughout the week.
• In emerging markets, it is worth noting the substantial selloff for the Colombian peso (USDCOP +2.54%) following the president’s cabinet reshuffle and the announcement of a new finance minister. This was in stark comparison to the Brazilian real which advanced 1.35% as a result of the improved global mood and domestic fiscal headwinds easing.
• The Bank of Japan meeting will take focus overnight before a host of European growth data in the European session. In the US, attention will be on the March core PCE data, particularly of interest after today’s surprisingly strong Q1 advance release. Equally important will be the employment cost index release, followed by the MNI Chicago PMI.

Friday Data Calendar

Date	GMT/Local	Impact	Flag	Country	Event
28/04/2023	2330/0830	**		JP	Tokyo CPI
28/04/2023	2350/0850	*		JP	Retail sales (p)
28/04/2023	2350/0850	**		JP	Industrial production
28/04/2023	2350/0850	*		JP	labor forcer survey
28/04/2023	0300/1200	***		JP	BOJ policy announcement
28/04/2023	0530/0730	***		FR	GDP (p)
28/04/2023	0530/0730	**		FR	Consumer Spending
28/04/2023	0530/0730	***		DE	North Rhine Westphalia CPI
28/04/2023	0600/0800	**		SE	Retail Sales
28/04/2023	0630/0830	**		CH	retail sales
28/04/2023	0645/0845	***		FR	HICP (p)
28/04/2023	0645/0845	**		FR	PPI
28/04/2023	0700/0900	*		CH	KOF Economic Barometer
28/04/2023	0700/0900	***		ES	GDP (p)
28/04/2023	0700/0900	***		ES	HICP (p)
28/04/2023	0755/0955	**		DE	Unemployment
28/04/2023	0800/1000	***		IT	GDP (p)
28/04/2023	0800/1000	***		DE	GDP (p)
28/04/2023	0800/1000	***		DE	Bavaria CPI
28/04/2023	0900/1100	***		EU	EMU Preliminary Flash GDP Q/Q
28/04/2023	0900/1100	***		EU	EMU Preliminary Flash GDP Y/Y
28/04/2023	0900/1100	***		DE	Saxony CPI
28/04/2023	1200/1400	***		DE	HICP (p)
28/04/2023	-			EU	ECB Lagarde at Post-Eurogroup Meeting Press Conference
28/04/2023	-			EU	ECB Lagarde, Panetta, de Guindos at Eurogroup / ECOFIN Meeting
28/04/2023	1230/0830	**		US	Personal Income and Consumption
28/04/2023	1230/0830	**		US	Employment Cost Index
28/04/2023	1230/0830	***		CA	Gross Domestic Product by Industry
28/04/2023	1342/0942	**		US	MNI Chicago PMI
28/04/2023	1400/1000	***		US	Final Michigan Sentiment Index
28/04/2023	1500/1100			CA	Finance Dept monthly Fiscal Monitor (expected)