MNI ASIA OPEN: Stocks Gain on Debt Ceiling Optimism

US TSYS: Markets Roundup: Rates Ignore Debt Ceiling Optimism

• Markets remained sensitive to debt ceiling headlines, though the phenomena was not as apparent in rates as it was in equities as stocks rallied on hopes over a "doable" debt ceiling plan by Sunday. Treasury futures uncoupled from the improved risk appetite and instead traded weaker/curves flatter as projected rate cuts by year end softened (Fed fund futures now only pricing in 55.1bp in cumulative cuts by December to 4.524% vs. over a full point a week ago).
• Rates showed little initial reaction to latest housing starts (1.401M) building permits (1.416M) data, and inching off lows briefly after the $15B 20Y bond auction (912810TS7) trades through: 3.954% high yield vs. 3.962% WI; 2.56x bid-to-cover vs. prior month's 2.66x.
• CNN has reported that Treasury Secretary Janet Yellen will meet with bank CEOs, including JPMorgan Chase's Jamie Dimon and Citigroup's Jane Fraser on Thursday. The meeting has been previously reported but unconfirmed.
• Note, Fed Chairman Powell and former Fed Chairman Bernanke will have live discussion on policy this Friday at 1100ET.

SHORT TERM RATES

SOFR Benchmark Settlements:

• 1M +0.00561 to 5.07326 (+.01635/wk)
• 3M +0.01441 to 5.11233 (+.04253/wk)
• 6M +0.02671 to 5.06888 (+.08341/wk)
• 12M +0.05057 to 4.75436 (+.15322/wk)

US DOLLAR LIBOR: Latest settlements:

• O/N -0.00143 to 5.06043%
• 1M +0.02114 to 5.13243%
• 3M +0.02386 to 5.36900% */**
• 6M +0.01972 to 5.39886%
• 12M +0.06757 to 5.34571%
• * Record Low 0.11413% on 9/12/21; ** New 16Y high: 5.36900% on 5/17/23

• Daily Effective Fed Funds Rate: 5.08% volume: $124B
• Daily Overnight Bank Funding Rate: 5.07% volume: $290B

• Secured Overnight Financing Rate (SOFR): 5.05%, $1.466T
• Broad General Collateral Rate (BGCR): 5.02%, $588B
• Tri-Party General Collateral Rate (TGCR): 5.02%, $578B
• (rate, volume levels reflect prior session)

FED Reverse Repo Operation

NY Fed reverse repo usage bounces back to $2,213.676B w/ 103 counterparties, compares to prior $2,203.214B. 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:
  • 10,000 SFRM 94.68/94.75/94.81/94.87 put condors
  • Block, 20,000 SFRM3 94.75/94.81/94.87/94.93 put condors, 1.0 ref 94.8625
  • Block, 17,000 SFRM3 94.62/94.68/94.78/94.81 put condors, 1.25 net ref 94.86
  • +5,000 SFRZ3 94.50 puts, 6.0 vs. 95.54/0.08%
  • Block, 5,000 SFRM3 94.75/94.81/94.87 put flys, 0.75 net ref 94.855
  • 8,000 SFRM3 94.81/94.87/94.93 put flys, ref 94.855
  • Block, 5,000 SFRZ3 95.50 puts, 44.0 ref 95.565
  • Block, 30,000 SFRM3/SFRU3 94.75/94.87 put spd spd, 0.5 net Sep over
  • 4,000 SFRU3 94.93/95.06 put spds ref 95.155
  • 3,000 OQM3 96.18/96.43 2x1 put spds ref 96.565
  • 1,500 SFRN3 94.75/95.00/95.12/95.25 broken put condors ref 95.155
  • 1,500 SFRN3 95.06/95.12 put spds vs. SFRQ3 95.12/95.50/95.81 call flys ref 95.14
  • 3,500 SFRM3 94.56/94.62/94.75 put trees rev 94.89
• Treasury Options:
  • over 7,500 FVM3 109.25/109.75 put spds, 17 ref 109-13.25
  • 10,000 FVN3 112/113 call spds
  • 2,000 TYN3 109/110/111/112 put condors ref 115-24.5
  • 1,800 FVM3 111.25 calls, 3.5 ref 109-23.5
  • 3,800 FVN3 109.5 puts, 26-26.5 ref 110-13.5 to -13.25
  • 4,300 FVN3 109.25 puts, 21.5 ref 110-13

EGBs-GILTS CASH CLOSE: Peripheries Outperform

Gilt yields pushed to one-week highs Wednesday, underperforming Bunds, with curve bear flattening in the afternoon contrasting with earlier bull/twist flattening.

• The morning saw strong auctions for the UK, Germany and France, which along with mixed risk appetite (markets focused on US debt default potential) helping core instruments hit session's best levels by midday.
• An optimistic statement on debt limit negotiations by US Pres Biden pushed European yields to session highs in late afternoon, but the move faded.
• Periphery EGB spread narrowing, led by Greece, progressed steadily as risk appetite picked up with equities edging into positive territory.
• The main European data of the session - Eurozone final CPI - was mostly in line (M/M revised down 0.1pp), and had no market impact. Likewise, commentary by ECB's de Cos and de Guindos, and by BoE's Bailey, brought little new.
• Note that Thursday's Ascension Day holiday will likely see lighter trade volumes in a thin European calendar outside of central bank speakers (including ECB's Muller, and BoE's Pill and Bailey) and Spanish bond supply.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany:

• Germany: The 2-Yr yield is up 4.4bps at 2.701%, 5-Yr is up 2.1bps at 2.327%, 10-Yr is down 1.7bps at 2.336%, and 30-Yr is down 3.8bps at 2.512%.
• UK: The 2-Yr yield is up 5.5bps at 3.867%, 5-Yr is up 6bps at 3.688%, 10-Yr is up 2.1bps at 3.837%, and 30-Yr is up 1.2bps at 4.269%.
• Italian BTP spread down 2.1bps at 184.7bps / Greek down 4.6bps at 166.3bps

EGB Options: Bullish Rate Plays Continue

Wednesday's Europe rates / bond options flow included:

• OEM3 117/116ps, bought for 5 in 4k
• RXQ3 140c, bought for 54/55/56 in 12k (ref 134.76 in Sep).
  
• SFIU3 95.25/95.50cs 1x1.25 vs 95.00/94.80ps, bought the cs for 1.5 in 5k. Also bought for 1 in 8k on Tuesday
• 2RU3 98.00/98.50/99.00c fly, bought for 3.25 in 5k

FOREX: NZDJPY Rises To 5-Month High, USD Index Extends Gains

• The USD index traded on the front foot on Wednesday, eclipsing last week’s highs during early European trade and then consolidating these gains in US hours just below the 103.00 mark. Major equity benchmarks have rallied, underpinned by post-Biden-Congressional leadership meeting rhetoric pointing to some limited positive developments. Firmer stocks have been unable to dent the optimism for the greenback, but this has in turn left the Japanese Yen as the poorest performer in G10.
• USDJPY currently trades +0.88% approaching the APAC crossover and looks set to extend its winning streak to five trading sessions. More buoyant price action for major indices and higher front-end US yields appear to be underpinning the bid for cross/JPY, most notably seen by the 1.30% climb for NZDJPY.
• Resistance for USDJPY at 136.63, the May 3 high, has been cleared and this signals scope for a continuation towards 137.77, the May 2 high and the 2023 highs of 137.91. A break of this resistance zone would strengthen bullish conditions and would open the potential for a move to 139.59/140.00. On the downside, initial firm support is seen at 134.96, the 20-day EMA.
• The NZD outperformance comes off the back of a revision higher for RBNZ rate expectations at ANZ, who now see the OCR hitting 5.75% at its peak.
• USD/CNH reached as high as 7.0229 on Wednesday, the best level for the pair dating back to early December last year. When it comes to USD/CNY flows Citi noted that “exporter activity remains muted as high U.S. rates give them less incentive to sell the USD. There might be a bumpy road ahead as profit taking activities and expectations of potential intervention may self-fulfil around CNY7.00 level.”
• Australian unemployment headlines the overnight docket on Thursday, along with the New Zealand annual budget release. US Philly Fed Manufacturing and existing home sales are notable US releases.

FX: Expiries for May18 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0800-20(E2.3bln), $1.0860(E928mln), $1.0900-10(E1.3bln), $1.0935-45(E1.9bln)
• USD/JPY: Y133.40-60($1.4bln)
• USD/CAD: C$1.3700($880mln)
• USD/CNY: Cny7.00($1.2bln)

LATE EQUITIES: SPX Back to Early May Levels on Debt Ceiling Hopes

Stocks remain well bid but are off midday highs after the bell, SPX Eminis have rallied back to the highest levels since May 2 in what remains a tentative risk-on move after House Speaker McCarthy told reporters earlier that he believes negotiating a debt ceiling plan by Sunday is "doable".

• S&P E-Mini Future are currently up 49 points (1.19%) at 4172; DJIA up 399.16 points (1.21%) at 33411.4; Nasdaq up 159.3 points (1.3%) at 12502.06.
• Leading gainers: Energy sector outperforming with a decent rebound in Crude (WTI +1.95 at 72.81), followed by Financial and Consumer Discretionary sectors, banks leading the former with Comerica +10.65%, Zion +9.05% and KeyCorp +7.20%. Laggers: Utilities and Consumer Staples sectors trading weaker.
• From a technical point of view S&P E-minis remain in consolidation mode. Price is trading above the 50-day EMA, which intersects at 4109.81. A resumption of gains would open key resistance and the bull trigger at 4206.25, the May 1 high.
• Clearance of this level would confirm an extension of the bull trend that started Mar 13. Key support has been defined at 4062.25, the May 4 low. A move through this level would instead highlight a bearish threat.

E-MINI S&P TECHS: (M3) Watching Resistance

• RES 4: 4288.00 High Aug 19 2022
• RES 3: 4244.00 High Feb 2 and a medium-term bull trigger
• RES 2: 4223.00 High Feb 14
• RES 1: 4173.25/4206.25 High May 10 / 1
• PRICE: 4143.50 @ 14:30 BST May 17
• SUP 1: 4062.25 Low May 4 and key near-term 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 remain in consolidation mode. Price is trading above the 50-day EMA, which intersects at 4109.81. A resumption of gains would open key resistance and the bull trigger at 4206.25, the May 1 high. Clearance of this level would confirm an extension of the bull trend that started Mar 13. Key support has been defined at 4062.25, the May 4 low. A move through this level would instead highlight a bearish threat.

COMMODITIES: US Debt Talk Optimism Lifts Oil To May 11 Highs

• Crude oil has gained strongly today on debt ceiling optimism with equities up strongly and despite some net strength in the USD on the day.
• Earlier in the session , crude briefly eased back from prior gains after the EIA inventory data shows a build similar to the API data yesterday but compared to expectation of a small draw. Gasoline cracks remained stronger with another draw in stocks but a fall in demand weighed on diesel spreads.
• WTI is +2.8% at $72.83 as it quickly shifts towards resistance at $73.93 (Apr 28 low) in a notable change from the trend needle previously pointing south.
• Most active strikes in the CLM3 see $70/bbl puts just about edge out $73/bbl and $72/bbl calls.
• Brent is +2.7% at $76.92, off a high of $77.31 that pushed through resistance at the 20-day EMA of $77.15 and opens $77.60 (May 10 high).
• Gold is -0.25% at $1984.14 and does well not to fall more with higher Tsy yields and a stronger USD index. It briefly spiked to a lowof $1975.09 to punch through support at the 50-day EMA of $1976.8 but likely needs to see a more prolonged break to open the key support at $1969.3 (Apr 19 low).

Thursday Data Calendar

Date	GMT/Local	Impact	Flag	Country	Event
18/05/2023	2350/0850	**		JP	Trade
18/05/2023	0130/1130	***		AU	Labor force survey
18/05/2023	0630/0830			EU	ECB de Guindos Remarks at PwC Seminar
18/05/2023	0745/0845			UK	BOE Pill Opens CCBS Macro-finance Workshop
18/05/2023	0915/1015			UK	BOE Bailey Broadbent, Ramsden give TSC evidence on QE, QT at Bank, Threadneedle St
18/05/2023	1230/0830	**		US	Jobless Claims
18/05/2023	1230/0830	**		US	WASDE Weekly Import/Export
18/05/2023	1230/0830	**		US	Philadelphia Fed Manufacturing Index
18/05/2023	1305/0905			US	Fed Governor Philip Jefferson
18/05/2023	1330/0930			US	Fed Vice for Supervision Michael Barr
18/05/2023	1400/1000	***		US	NAR existing home sales
18/05/2023	1400/1000			US	Dallas Fed's Lorie Logan
18/05/2023	1400/1000			CA	BOC publishes Financial System Review
18/05/2023	1430/1030	**		US	Natural Gas Stocks
18/05/2023	1500/1100			CA	BOC Governor press conference to discuss Financial System Review
18/05/2023	1530/1130	**		US	US Bill 04 Week Treasury Auction Result
18/05/2023	1530/1130	*		US	US Bill 08 Week Treasury Auction Result
18/05/2023	1700/1300	**		US	US Treasury Auction Result for TIPS 10 Year Note
18/05/2023	1700/1300	*		US	US Treasury Auction Result for Cash Management Bill
18/05/2023	1900/1500	***		MX	Mexico Interest Rate