MNI ASIA OPEN: MN Fed Pushback Market's Rate Cut Pricing
US
FED BRIEF (MNI): MN FED Kashkari-Fed Likely On Hold For 'Extended Period': The Federal Reserve's most likely scenario is to keep interest rates on hold for a while, Minneapolis President Neel Kashkari said Tuesday, adding he could switch his dot plot forecast from two rate cuts this year to one or none.
- The most likely policy stance now is "we sit here for an extended period of time" he said during a Milken Institute event, saying the U.S. economy also seems poised to “go sideways for a while.” It would take "multiple" reports showing progress on inflation to justify easing monetary policy, he said.
- Kashkari said the two rate cuts called for this year in the March set of dot plots may not stick in the next round. “It’s possible I would stay at two, it’s possible I would go to one or even zero,” he said. “I know it wouldn’t be more than the two I jotted down in March.”
MN Fed (MNI): Kashkari Wary Of Reduced Mon Pol Passthrough From Housing: Minneapolis Fed's Kashkari (non-voter) says in a fireside chat at a Milken Institute conference that he would at most mark down two cuts for 2024 in the June SEP whilst he's watching average mortgage rates after weaker than expected passthrough:
- In March, I jotted down two cuts for this year. I’m not sure where I’m going to end up in June, still more data to come in. It’s possible I stay at two or even look at one or zero cuts. Not more than two.
- [What’s the bar for cutting rates] We saw rapid disinflation in 2H23. Inflation went up in Jan and kind of moved sideways in Feb and Mar. We’ve had three bad inflation readings in a row, we shouldn’t get faked out by one good inflation reading. I’d need to see multiple positive inflation readings suggesting that the disinflationary process is on track. [When pushed whether multiple means three] It'll be the constellation of data. It’ll be one than one… two, three inflation prints looking at the labor market and housing as well.
NEWS
BOE POLICY (MNI): BOE's New Dove Ramsden Often Leading Indicator: Bank of England Deputy Governor for Markets and Banking Dave Ramsden has shown a knack for anticipating moves by a majority on the Monetary Policy Committee and his tilt towards easing in an April speech could be a harbinger of a cut ahead if other Bank insiders follow his lead.
US (REUTERS): Goldman Sachs names former Fed Dallas chief Kaplan as vice chairman: Goldman Sachs said on Tuesday it had appointed Robert Kaplan, the former president of the Federal Reserve of Dallas, as its vice chairman, bringing an influential banker on to its management committee.
US (MNI): Spkr Johnson To Meet w/Taylor Greene Again In Effort To Avoid Ouster Vote: House Speaker Mike Johnson (R-LA) is set to meet with GOP hardliner, Representative Marjorie Taylor Greene (R-GA) for the second time in two days as the seniormost Republican in Congress seeks to avoid a motion-to-vacate the chair being brought against him.
RUSSIA (MNI): No US Rep at Putin Inauguration As Nuke Deployment Drills Raise Tensions: State-run RIA reporting comments from Russian Deputy Foreign Minister Sergei Ryabkov, claiming that the Russian and US gov't are still in infrequent contact with one another despite relations entering the deep-freeze after Russia's invasion of Ukraine. Ryabkov confirms that the two countries "occasionally exchange views on strategic stability."
ISRAEL (MNI): Cairo Talks Set To Resume As IDF Siezes Palestine Side Of Rafah Crossing: Indirect ceasefire negotations between Israel and Hamas are set to resume today following the Netanyahu gov'ts rejection of the Egyptian and Qatari-brokered deal that had the backing of Hamas on 6 May.
IRAN (MNI): Head Of Iranian Nuclear Org: Talks w/IAEA's Grossi 'Have Been Positive': In a joint presser alongside International Atomic Energy Agency (IAEA) Director General Rafael Grossi, head of Iran's Atomic Energy Organization Mohammed Eslami claims that the talks between the two that took place today in Tehran 'have been positive', and that the two sides will continue to interact over 'unresolved issues'.
US TSYS Off Midday Highs, Year-End Rate Cut Pricing Cools
- Treasuries scaled back from midday highs by the close, curves flatter with bonds outperforming. Intermediates nearly breach technical resistance, Jun'24 10Y futures tapped 109-09 vs. Friday's post employment high of 109-09.5.
- Heavy (over $20B) corporate issuance coupled with the $58B 3Y note auction weighed on the short end, 2s10s -2.210 at -36.940 after the close. Treasury held gains briefly, however, after the $58B 3Y note auction (91282CKR1) traded through: 4.605% high yield vs. 4.607% WI; 2.63x bid-to-cover (Jan high) vs. 2.50x prior month.
- Projected rate cut pricing scaled back from midmorning levels: June 2024 at -10.0% w/ cumulative rate cut -2.5bp at 5.302%, July'24 at -24% w/ cumulative at -8.5bp at 5.243%, Sep'24 cumulative -20.1bp, Nov'24 cumulative -30.3bp, Dec'24 cumulative currently -43.9bp.
- Focus turns to Wednesday's calendar with MBA Mortgage Applications, Wholesale Trade/Inventories, and more Fed Speak. US Treasury auctions $42B 10Y notes as well.
OVERNIGHT DATA
(MNI) Manheim Used Vehicle Prices Keep Downward Pressure On CPI: Manheim used vehicle prices fell -2.3% M/M in April on a mix, mileage and seasonally adjusted for a slightly larger decline than the -1.9% indicated in the mid-month estimate.
- It follows -0.3% M/M in March and should keep downward pressure on CPI used cars prices after the mostly expected -1.1% M/M in March, although the latest decline in Manheim prices could take another month to feed through. April CPI is released May 15.
MARKETS SNAPSHOT
- Key market levels of markets in late NY trade:
- DJIA up 43.14 points (0.11%) at 38892.82
- S&P E-Mini Future up 6.5 points (0.12%) at 5212.75
- Nasdaq down 18.6 points (-0.1%) at 16329.47
- US 10-Yr yield is down 2.8 bps at 4.459%
- US Jun 10-Yr futures are up 4/32 at 109-0.5
- EURUSD down 0.0014 (-0.13%) at 1.0755
- USDJPY up 0.74 (0.48%) at 154.66
- WTI Crude Oil (front-month) up $0.01 (0.01%) at $78.49
- Gold is down $10.47 (-0.45%) at $2313.38
- European bourses closing levels:
- EuroStoxx 50 up 59.14 points (1.19%) at 5016.1
- FTSE 100 up 100.18 points (1.22%) at 8313.67
- German DAX up 254.84 points (1.4%) at 18430.05
- French CAC 40 up 79.04 points (0.99%) at 8075.68
US TREASURY FUTURES CLOSE
- 3M10Y -3.841, -95.631 (L: -99.088 / H: -93.207)
- 2Y10Y -2.617, -37.347 (L: -38.503 / H: -33.894)
- 2Y30Y -3.224, -23.207 (L: -23.933 / H: -18.74)
- 5Y30Y -2.027, 12.592 (L: 12.592 / H: 15.39)
- Current futures levels:
- Jun 2-Yr futures down 0.5/32 at 101-22.75 (L: 101-22.25 / H: 101-24.5)
- Jun 5-Yr futures up 1/32 at 105-24.5 (L: 105-21.5 / H: 105-29.25)
- Jun 10-Yr futures up 4/32 at 109-0.5 (L: 108-26 / H: 109-09)
- Jun 30-Yr futures up 17/32 at 116-24 (L: 116-04 / H: 117-07)
- Jun Ultra futures up 28/32 at 123-13 (L: 122-16 / H: 124-02)
US 10Y FUTURE TECHS (M4) Approaching Channel Resistance
- RES 4: 110-06 High Apr 4
- RES 3: 109-22+ 38.2% retracement of the Feb 1 - Apr 25 bear leg
- RES 2: 109-09+ High May 3
- RES 1: 109-08+ 50-day EMA and channel resistance
- PRICE: 108-31+ @ 11:32 BST May 7
- SUP 1: 108-13+ 20-day EMA
- SUP 2: 107-04 Low Apr 25
- SUP 3: 106-27 2.764 proj of Dec 27 - Jan 19 - Feb 1 price swing
- SUP 4: 106-09 Base of a bear channel drawn from the Feb 1 low
Treasuries rallied Friday and the contract is holding on to the bulk of its recent gains. The move higher strengthens a bullish short-term theme. The contract is through the 20-day EMA and has tested resistance at 109-08+, the 50-day EMA. Price is also approaching a channel top drawn from the Feb 1 high, at 109-08+ too. Clearance of this level would strengthen a bullish condition. Initial support lies at 108-13+, the 20-day EMA.
SOFR FUTURES CLOSE
- Jun 24 -0.010 at 94.705
- Sep 24 -0.015 at 94.890
- Dec 24 -0.010 at 95.125
- Mar 25 -0.010 at 95.375
- Red Pack (Jun 25-Mar 26) -0.01 to -0.005
- Green Pack (Jun 26-Mar 27) +0.005 to +0.015
- Blue Pack (Jun 27-Mar 28) +0.020 to +0.030
- Gold Pack (Jun 28-Mar 29) +0.035 to +0.045
SOFR FIXES AND PRIOR SESSION REFERENCE RATES
SOFR Benchmark Settlements:
- 1M -0.00143 to 5.31987 (-0.00254/wk)
- 3M +0.00202 to 5.32322 (-0.00433/wk)
- 6M +0.00490 to 5.28738 (-0.01955/wk)
- 12M +0.00802 to 5.14518 (-0.06354/wk)
- Secured Overnight Financing Rate (SOFR): 5.31% (+0.00), volume: $1.855T
- Broad General Collateral Rate (BGCR): 5.30% (+0.00), volume: $712B
- Tri-Party General Collateral Rate (TGCR): 5.30% (+0.00), volume: $700B
- (rate, volume levels reflect prior session)
- Daily Effective Fed Funds Rate: 5.33% (+0.00), volume: $75B
- Daily Overnight Bank Funding Rate: 5.32% (+0.00), volume: $259B
FED Reverse Repo Operation
NY Federal Reserve/MNI
- RRP usage rises to $475.325B vs. $468.970B Monday. Compares to $327.066B on Monday, April 15 -- the lowest level since mid-May 2021.
- Meanwhile, the latest number of counterparties rises to 73 from 67 prior.
PIPELINE Over $20B Corporate Bonds Issued Tuesday
- Date $MM Issuer (Priced *, Launch #)
- 5/7 $5B #CVS $1B 5Y +95, $1B 7Y +110, $1.25B 10Y +125, $750M 20Y +135, $1B 30Y +150
- 5/7 $3.3B #Ingersoll Rand $700M 3Y +55, $750M 5Y +70, $500M 7Y +85, $750M 10Y +100, $600M 30Y +113
- 5/7 $3B #Standard Chartered $1B 4NC3 +105, $500M 4NC3 SOFR+117, $1.5B 11NC10 +145
- 5/7 $2B #Philippines $1B 10Y +80, $1B 25Y 5.6%
- 5/7 $1.25B #Caterpillar $850M 3Y +40, $400M 3Y SOFR+52
- 5/7 $1B #Mastercard 10Y +55
- 5/7 $1B #Deutsche Bank 5Y +95
- 5/7 $1B #NatWest PerpNC10 8.125%
- 5/7 $800M #Entergy Arkansas $400M 10Y +100, $400M 30Y +118
- 5/7 $800M #National Rural Utilities $450M 3Y +48, $350M 5Y +73
- 5/7 $500M *Korea Expressway 3Y +90a
- 5/7 $500M *BOC Aviation +5Y +87.5
- 5/7 $Benchmark Host Hotels 10Y +150
- 5/7 $Benchmark Las Vegas Sands 3Y, 5Y, 10Y
- 5/7 $Benchmark Islamic Development Bank 5Y Sukuk SOFR+55a
- 5/7 $1B Organon & Co $500M 10NC5 8%a, $500M 10NC5 Sr 6.75%a
EGBs-GILTS CASH CLOSE: Broad Bull Flattening Rally
Core EGBs and Gilts started Tuesday on the front foot and continued higher from there, with the German and UK curves bull flattening.
- After opening with a resumption of bullish follow-through from Friday's soft US jobs data and a less hawkish-than-expected RBA meeting overnight, gains continued after weak German factory orders data. A pullback in oil prices also provided a tailwind.
- 2024 BoE implied rate cut pricing caught up to global counterparts after Monday's UK holiday, increasing by 4bp to around 57bp (the ECB equivalent was basically unchanged at 75bp).
- There's 6-8% implied probability of a rate cut at this week's BoE meeting (MNI preview to be published later Tuesday), with the first 25bp reduction fully priced only two meetings later in August.
- Periphery EGB spreads closed marginally wider, having retraced from session wides seen in the early afternoon as equities gained.
- While the focus this week is on the BoE, in the meantime Wednesday's data docket is highlighted by German and Spanish industrial production, and Italian retail sales.
Closing Yields / 10-Yr Periphery EGB Spreads To Germany
- Germany: The 2-Yr yield is down 1.2bps at 2.9%, 5-Yr is down 3.5bps at 2.457%, 10-Yr is down 4.8bps at 2.42%, and 30-Yr is down 5.5bps at 2.54%.
- UK: The 2-Yr yield is down 4.6bps at 4.31%, 5-Yr is down 8.2bps at 4.021%, 10-Yr is down 9.7bps at 4.125%, and 30-Yr is down 9.8bps at 4.602%.
- Italian BTP spread up 0.5bps at 134.1bps / Spanish unchanged at 78.3bps
FOREX USDJPY Extends Bounce From Post-NFP Lows
- The USD Index remains modestly in the green Tuesday, however, G10 ranges remain narrow and markets are awaiting the next macro cue to build momentum in either direction. Bank of Japan chief Ueda met with the Japanese PM earlier today to discuss the economy, markets and inflation - another signal that these issues are still top-of-mind for the most senior policymakers in the country, resulting in a reaffirmation of the commitment to intervene in currency markets if required.
- Despite this, USDJPY is 0.38% higher on the session at 154.50, which extends the bounce from noted support at the 50-dma support, and the key 151.95 pivot, which helps underpin from the tail-end of last week.
- A resilient single currency has helped EUR/JPY build further above its 50-dma support that contained the pullback last week (crossing today at 164.10) - and puts spot within range of the more sizeable expiries rolling off this week at 166.45 (E409mln) and 166.80 (E703mln) on Thursday.
- The RBA left rates unchanged as widely expected, but the statement didn't contain any hawkish shift in terms of the rates bias, while the RBA inflation outlook still has prices returning towards target unchanged from the prior meeting. This comes despite the Q1 upside inflation surprise and has moderately weighed on AUDUSD (-0.26%), one of the weaker major currencies throughout today’s session.
- In similar vein, GBPUSD trades 0.2% lower on Tuesday as markets gear up for this week’s Bank of England decision. Overall, GBPUSD trading higher last Friday resulted in a break of the 50-day EMA, at 1.2571 and a clear breach of the average would strengthen a short-term bullish set-up and signal scope for a stronger correction near-term. Scope is seen for a climb towards 1.2667, a Fibonacci retracement. Firm support has been defined at 1.2466, the May 1 low.
- German industrial production and Italian retail sales highlight a relatively quiet Wednesday calendar.
WEDNESDAY DATA CALENDAR
Date | GMT/Local | Impact | Flag | Country | Event |
08/05/2024 | 0600/0800 | ** | DE | Industrial Production | |
08/05/2024 | 0700/0900 | ** | ES | Industrial Production | |
08/05/2024 | 0730/0930 | *** | SE | Riksbank Interest Rate Decison | |
08/05/2024 | 0800/1000 | * | IT | Retail Sales | |
08/05/2024 | 1100/0700 | ** | US | MBA Weekly Applications Index | |
08/05/2024 | 1400/1000 | ** | US | Wholesale Trade | |
08/05/2024 | 1430/1030 | ** | US | DOE Weekly Crude Oil Stocks | |
08/05/2024 | 1500/1100 | US | Fed Vice Chair Philip Jefferson | ||
08/05/2024 | 1545/1145 | US | Boston Fed's Susan Collins | ||
08/05/2024 | 1700/1300 | ** | US | US Note 10 Year Treasury Auction Result | |
08/05/2024 | 1730/1330 | US | Fed Governor Lisa Cook | ||
08/05/2024 | 1935/1535 | US | New York Fed's Roberto Perli |