MNI EUROPEAN OPEN: Crude/US Bank Jitters Dominate Post FOMC

US TSYS: Pares Early Gains, Cash Closed In Asia Today

TYM3 deals at 116-11, +0-14, a touch off the base of the 0-15 range on volume of ~120k.

• Cash tsys were closed in Asia today due to the observance of a national holiday in Japan. They will reopen in the London session.
• Tsy futures gapped higher in early dealing, concerns about regional US banks escalated as PacWest fell as much as 60% in post market trade following a report that it's said to weigh strategic options including a sale. Oil fell ~7%, and e-minis were pressured.
• There was no follow through on the early move higher, tsys ticked away from session highs as WTI and e-minis erased losses to trade marginally firmer.
• Further PacWest headlines have crossed this afternoon, with the bank stating it has not experienced out of the ordinary deposit flows and that its planned sale remains on track.
• President Joe Biden has picked Federal Reserve Governor Philip Jefferson for a promotion to vice chair and will nominate economist Adriana Kugler to an open board slot, reports suggested.
• In Europe today the latest monetary policy decision from the ECB provides the highlight. Further out we have Initial Jobless Claims and Trade Balance.

AUSSIE BONDS: Richer, Curve Steeper, Awaits RBA SoMP Tomorrow

ACGBs are stronger (YM +12.0 & XM +7.0) with the 3-year futures contract close to session bests. The 10-year contract tracked US tsy futures which pared early post-NY session gains in Asia-Pac trade. Cash tsys are closed until the London session due to the observance of a national holiday in Japan. Cash ACGBs are 7-12bp richer with the 3/10 curve 5bp steeper.

• Swap rates are 7-13bp lower with 3-year EFP slightly tighter.
• The bills strip bull flattened with pricing +3 to +16.
• RBA dated OIS is 6-17bp softer across meetings beyond August with early '24 leading. A 7% chance of a 25bp rate hike at the June meeting is priced with a cumulative tightening of 8bp priced by August. Terminal rate expectations sit at 3.90% with year-end easing at 24bp.
• The local calendar will release March Housing Finance data tomorrow. The highlight however will be the Statement on Monetary Policy. After the RBA’s surprise rate hike, the market will pour over the forecast update for clues about the policy outlook. Attention will also be paid to the discussion on services inflation given its emphasis in yesterday's decision statement.
• The US calendar sees the release of the March Trade balance and initial jobless claims data.

NZGBS: Curve Bull Steepens, Solid Auction Demand

NZGBs closed with the 2/10 cash curve 5bp steeper with 2-year and 10-year benchmarks respectively 7bp and 1bp richer. The 2-year closed at session bests. The 10-year shifted weaker through the session in sympathy with US tsy futures in Asia-Pac trade.

• Today’s supply saw overall good demand (cover ratios 2.64x to 3.46x) consistent with last week’s auction. The May-26 bid, however, fell well short of the robust demand (cover ratio of 6.25x) displayed at the April 6^th auction. Demand for short-end bonds was particularly strong, which could be attributed to concerns over potential over-tightening by the RBNZ, which had unexpectedly raised interest rates by 50bp the day before. The 2/10 cash curve nonetheless steepened around 2bp post-auction.
• Swap rates closed 4-10bp lower with implied swap spreads around 2bp tighter.
• RBNZ dated OIS closed 3-11bp softer with Apr’24 leading. 24bp of tightening is priced for the May 24 meeting with terminal OCR expectations at 5.57%.
• Building approvals rose 7% m/m in March as the impact of cyclone Gabrielle was partially unwound. ANZ commodity export prices fell 1.7% m/m in April.
• The local calendar is light tomorrow with the RBA Statement on Monetary Policy as the Antipodean highlight.
• The US calendar sees the release of the March Trade balance and initial jobless claims data.

OIL: Crude Jitters Ease During APAC Session

After declining over 4% on Wednesday to be down around 13% on the week on the back of deteriorating risk appetite and recession fears, oil prices slumped early in the APAC session with WTI reaching a low of $63.64. But with risk appetite stabilising oil prices are now off these lows with WTI up 0.5% to $68.98/bbl and Brent +0.7% to $72.85. The USD index is down 0.3% today.

• Oil prices are off of their intraday highs of $73.32 for Brent and $69.32 for WTI. Brent broke through $72.34, the March 24 low, on Wednesday which has opened up key support at $70.10, the March 20 low.
• It is unclear why WTI oil prices plunged at today’s open and there is speculation that it was due to the unwinding of speculators’ bullish positions, human error, algorithmic selling or panic selling, according to Bloomberg. Trade at that time is usually thin and Bloomberg is reporting that over 3000 June futures contracts changed hands in the fifth minute of the session. Brent didn’t follow the move when it opened a couple of hours later.
• Later the ECB meets (see MNI ECB Preview - May 2023) and is expected to hike rates 25bp. In the US, there are Q1 unit labour costs, March trade and April Challenger job cuts data.

Source: MNI - Market News/Bloomberg

GOLD: Bullion Moving Closer To $2075.47 Record High

After declining over 4% on Wednesday to be down around 13% on the week on the back of deteriorating risk appetite and recession fears, oil prices slumped early in the APAC session with WTI reaching a low of $63.64. But with risk appetite stabilising oil prices are now off these lows with WTI up 0.5% to $68.95/bbl and Brent +0.7% to $72.85. The USD index is down a further 0.3%.

• Oil prices are off of their intraday highs of $73.32 for Brent and $69.32 for WTI. Brent broke through $72.34, the March 24 low, on Wednesday which has opened up key support at $70.10, the March 20 low.
• It is unclear why WTI oil prices plunged at today’s open and there is speculation that it was due to the unwinding of speculators’ bullish positions, human error, algorithmic selling or panic selling, according to Bloomberg. Trade at that time is usually thin and Bloomberg is reporting that over 3000 June futures contracts changed hands in the fifth minute of the session. Brent didn’t follow the move when it opened a couple of hours later.
• Later the ECB meets (see MNI ECB Preview - May 2023) and is expected to hike rates 25bp. In the US, there are Q1 unit labour costs, March trade and April Challenger job cuts data.

FOREX: BBDXY Through Post Fed Lows

The greenback has been pressured in Asia, BBDXY has ticked through Wednesday's post FOMC lows printing its lowest level since Apr 14. Escalating concerns about regional banks, as PacWest fell as much as 60% in post market trade following a report that it's said to weigh strategic options including a sale, saw risk assets pressured however losses were pared through the session.

• AUD/USD is ~0.2% firmer, the pair firmed off session lows with US Equity futures. We last print at $0.6685/90 after rising ~0.7% from trough to peak. March Trade Balance printed a stronger than forecast surplus of $15.269bn.
• Kiwi is also ~0.2% firmer, NZD/USD found support at $0.62 rising ~0.6% from session lows to print $0.6240/45. March Building Permits rose 7.0% M/M, and April ANZ Commodity Prices fell 1.7%.
• Yen firmed through the session, post Fed lows were breached and JPY held its gains through the session. Support was seen at the 20-Day EMA (¥134.40).
• Elsewhere in G-10 NOK and SEK are ~0.3% firmer however Asia-Pac liquidity is generally poor. EUR and GBP are both ~0.2% firmer following the broader USD trend.
• Cross asset wise; WTI futures are ~0.5% firmer after being down 7% in early dealing. E-minis are marginally firmer erasing an early 0.5% loss. BBDXY is down ~0.3%.
• The ECBs monetary policy decision provides the highlight today, the bank is expected to raise its key policy rates 25bps. The MNI preview of the event is here.