Highlights:
- 3yr Treasury supply and Kashkari appearance still to come
- USD Index firmer, but recent ranges respected
- Currency options markets play catch-up after Monday holidays, with AUD/NZD upside in focus
US TSYS: Modestly Richer, 3Y Supply And Kashkari Headline A Thin Docket
- Treasuries trade modestly richer after yesterday’s late open for May holidays, underperforming a larger rally in European space on little by way of headline drivers.
- Cash yields trade 2-3bp lower, with most tenors holding within Friday’s post-payrolls snap lower except for 30Y yields which have broken lower.
- TYM4 at 109-01 (+ 04+) is off an earlier high of 109-03 on above average volumes of 320k. It’s close to channel resistance at 109-08+ (50-day EMA) and the post-payrolls 109-09+, whilst support is seen at 108-13 (20-day EMA).
- Today’s focus is on commentary from Kashkari either side of 3Y supply after April’s circa 2bp tail and the highest primary dealer take since Dec.
- Data: Consumer credit Mar (1500ET)
- Fedspeak: Kashkari fireside chat at Milken Institute conference (1130ET), Kashkari Bbg TV (1320ET)
- Note/bond issuance: US Tsy $58B 3Y Note auction - 91282CKR1 (1300ET)
- Bill issuance: 1130 US Tsy $75B 42D CMB bill auction (1130ET)
STIR: Fed Rates Close To Where They Ended Lasted Week, Kashkari Ahead
- Fed Funds implied rates have pulled back from yesterday’s increase to leave them little changed from Friday’s close at levels after payrolls and ISM services had been digested.
- Cumulative cuts from 5.33% effective: 3bp Jun, 9bp Jul, 22bp Sep, 32bp Nov, 46bp Dec.
- Kashkari (non-voter) is the sole speaker scheduled today in his first post-FOMC appearance. He said Apr 18 that the Fed can cut rates once inflation is heading back to 2% and it could wait until 2025 to do so. We expect his fireside chat at the Milken conference (1130ET) to cover most bases but he also appears on Bloomberg TV (1320ET).
- Yesterday, Williams (voter) said we’ll eventually have rate cuts but the decision will be based on the totality of the data. Barkin (’24 voter) believes the full impact of higher rates is yet to come but the strong labor market gives the Fed time to gain confidence before cutting – policy is restrictive but time will tell if it’s sufficiently so with it expected to take a while for services inflation to cool.
EUROPE ISSUANCE UPDATE:
Austrian RAGB auction results
E1.035bln (E900mln allotted) of the 2.90% Feb-34 RAGB. Avg yield 2.905% (bid-to-cover 2.16x; bid-to-issue 1.87x).
E978mln (E850mln allotted) of the 0.70% Apr-71 RAGB. Avg yield 2.782% (bid-to-cover 1.64x; bid-to-issue 1.42x).
Italian BTP Valore Day 2 Books Above E1.5bln
• Day 2 books on the retail-only BTP Valore transaction with a 6-year maturity (ISIN: IT0005594491) now exceed E1.5bln.
• After day 1’s disappointing E3.701bln take-up, total books now sit around E5.234bln.
• The previous 6-year Mar-30 BTP Valore (issued in Feb/Mar this year) saw E11.051bln of take-up over the first two days.
• The previous 6-year Mar-30 BTP Valore saw E6.44bln sold on day 1, E4.611bln sold on day 2, E3.603bln on day 3 and E2.29bln sold on day 4 and E1.37bln on day 5.
FOREX: USD Index Firmer, But Recent Ranges Respected
- The greenback is furtively the firmest currency in G10 early Tuesday, but ranges are narrow and markets are awaiting the next macro cue to turn markets with conviction. 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.
- USD/JPY remains higher on the week, with the 50-dma support helping underpin from the tail-end of last week. Today that level crosses at 152.07.
- The RBA kept policy rates unchanged - as expected - overnight. AUD/USD was little changed, but the pair remains tilted higher following the breach of resistance on the way to a new multi-month high on Friday of last week. This leaves 0.6647 and 0.6668 as the next upside levels of note.
- Focus for the duration of the Tuesday session turns to Canada's Ivey PMI release for April and appearances from ECB's de Cos & Nagel and Fed's Kashkari.
OPTIONS: AUD/NZD Upside, USD/JPY Calls in Focus
- Currency options markets playing catch up after a decidedly muted session on Monday given the Japanese and UK market holidays. Activity looking much more healthy so far this morning, with JPY, CNY and AUD/NZD hedges leading so far.
- Demand for medium-dated AUD/NZD upside has defined trade in the cross so far, with late Asia-Pac seeing trades consistent with a sizeable 1.0920/1.1140 call spread rolling off end-August, thereby capturing the August RBNZ decision (currently priced at a 50% chance of a 25bps rate cut).
- Elsewhere, USD/JPY upside protection has traded in size, with over $3 in calls trading for every $2 in puts so far Tuesday. Close to $1.3bln notional has been wagered against Y155.00 calls, but it’s calls at higher strikes that have possibly garnered more focus: just under $2bln in calls have traded between strikes at Y156.00-20, the bulk of which traded late-Asia Pac session and target an end-May expiry.
COMMODITIES: WTI Futures Trading Just Above Recent Lows
WTI futures traded lower last week and the contract is currently trading just above its recent lows. Price has breached key support at the 50-day EMA, at $81.05. The clear breach of this average strengthens a short-term bearish theme and highlights scope for a deeper correction. This has opened $76.07, the Mar 11 low. Key resistance and the bull trigger has been defined at $86.97, the Apr 12 high. Initial firm resistance is at $84.46, the Apr 26 high. Gold is in consolidation mode. A bearish condition remains intact. The precious metal has recently traded through the 20-day EMA and this highlights a corrective cycle. A continuation lower would signal scope for an extension towards $2250.3, the 50-day EMA. Note that a short-term bear cycle is allowing a significant overbought condition to unwind. Key resistance and the bull trigger is at $2431.5, the recent Apr 12 high.
EQUITIES: E-Mini S&P Extends Current Bull Cycle
Eurostoxx 50 futures continue to trade above 4762.00, the Apr 19 low. The contract recently traded through the 20-day EMA and resistance at 4990.00, the Apr 15 high. This highlights a potentially stronger reversal. An extension higher would expose the bull trigger at 5079.00, the Apr 2 high. Initial resistance is at 5006.00, the Apr 30 high. Key support lies at 4762.00, a break would be bearish. Initial support to watch is 4880.90, the 50-day EMA. S&P E-Minis traded higher Monday, extending the current bull cycle. The contract has traded through resistance at the 20-day EMA and is trading at its recent highs. This highlights a stronger short-term bullish condition and a continuation higher would expose the key resistance and bull trigger at 5333.50, the Apr 1 high. Initial resistance is 5246.18, a Fibonacci retracement. Firm support lies at 5036.25, the May 2 low.
| Date | GMT/Local | Impact | Country | Event | |||||
| 07/05/2024 | 2301/0001 | * |  GB | BRC-KPMG Shop Sales Monitor | |||||
| 07/05/2024 | 0030/1030 | *** |  AU | Retail trade quarterly | |||||
| 07/05/2024 | 0430/1430 | *** | AU | RBA Rate Decision | |||||
| 07/05/2024 | 0545/0745 | ** |  CH | Unemployment | |||||
| 07/05/2024 | 0600/0800 | ** |  DE | Manufacturing Orders | |||||
| 07/05/2024 | 0600/0800 | ** | DE | Trade Balance | |||||
| 07/05/2024 | 0645/0845 | * |  FR | Foreign Trade | |||||
| 07/05/2024 | 0730/0930 | ** |  EU | S&P Global Final Eurozone Construction PMI | |||||
| 07/05/2024 | 0830/0930 | ** | GB | S&P Global/CIPS Construction PMI | |||||
| 07/05/2024 | 0900/1100 | ** | EU | Retail Sales | |||||
| 07/05/2024 | 1255/0855 | ** |  US | Redbook Retail Sales Index | |||||
| 07/05/2024 | 1400/1000 | * |  CA | Ivey PMI | |||||
| 07/05/2024 | 1530/1130 | US | Minneapolis Fed's Neel Kashkari | ||||||
| 07/05/2024 | 1530/1130 | * | US | US Treasury Auction Result for Cash Management Bill | |||||
| 07/05/2024 | 1700/1300 | *** | US | US Note 03 Year Treasury Auction Result | |||||
| 07/05/2024 | 1900/1500 | * | US | Consumer Credit | |||||
| 07/05/2024 | 1930/1530 | CA | BOC Sr Deputy Rogers at House Public Accounts committee (no text) | ||||||
| 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 | ||||||