MNI US MARKETS ANALYSIS - Debt Ceiling Drama Remains Front and Centre

US TSYS: Small Bull Flattening With Housing Data and 20Y Supply Eyed

• Cash Tsys have seen mixed trade overnight but in relatively narrow ranges, leaving a very small bull flattening after yesterday’s more significant bear flattening. There was little clear impact from Biden and McCarthy showing signs of optimism but remaining far apart on a debt deal, with telephone talks and future meetings still in the pipeline.
• The combination leaves 2s10s at -55bps off a low of -56.8bps for lows since May 3 barring initial volatility with May 10 CPI.
• 2YY +0.2bp at 4.084%, 5YY -0.3bp at 3.522%, 10YY -0.4bp at 3.530% and 30YY -0.6bp at 3.847%
• TYM3 trades just 1 tick higher at 114-30+ on subdued but in-line with recent average volumes of 220k. Having pieced the 50-day EMA, support is seen at 114-23 (May 16 low) followed by 114-01 (May 1 low) whilst resistance is eyed at 115-18+ (May 16 high).
• Data: MBA mortgage apps weekly (0700ET), Housing starts/building permits Apr plus historical revisions (0830ET)
• Fedspeak: Senate Banking hearing on Fed accountability (1430ET)
• Note/bond issuance: US Tsy $15B 20Y Bond auction (91282CGK1) – 1300ET
• Bill issuance: US Tsy $39B 17W bill auction – 1130ET

STIR FUTURES: Consolidating Post Retail Sales Climb

• Fed Funds implied hikes have stalled to consolidate yesterday’s climb for meetings later in the year, with little clear impact from Biden and McCarthy showing signs of optimism but remaining far apart on a debt deal.
• Cumulative moves from 5.08% effective: +3.5bp Jun, -3bp Jul, -16bp Sep, -36bp Nov, -60bp Dec, -82bp Jan. All are within +/-0.5bps of yesterday’s close.
• Bostic (’24) late yesterday: “We haven’t gotten to the hard part yet,” describing the enormous pressure central bankers would face if they were unable to bring down inflation without causing significant harm to employment. “We are going to have to be super strong and detached.”
• A dearth of Fedspeak today after two solid days, with housing data including revisions headlining.

Source: Bloomberg

EUROPE ISSUANCE UPDATE

France auction results

• The French auction was decent with bid-to-covers in line with previous auctions and the stop price ahead of the prevailing market prices for all three MT OATs sold this morning.
• We are now trading a little lower than the pre-auction mid-price across all the MT OATs sold.
• E5.216bln of the 2.50% Sep-26 OAT. Avg yield 2.69% (bid-to-cover 2.34x).
• E2.72bln of the 1.00% May-27 OAT. Avg yield 2.63% (bid-to-cover 2.98x).
• E3.06bln of the 2.75% Feb-29 OAT. Avg yield 2.68% (bid-to-cover 3x).

• E250mln of the 4.25% Jun-33 GGB. Avg yield 3.97% (bid-to-cover 5.28x).
• E150mln of the 4.00% Jan-37 GGB. Avg yield 4.14% (bid-to-cover 5.77x).

• That was a strong 10-year auction - recording the highest cover ratio for the 2.30% Feb-33 Bund since its launch. The volume of bids was the second highest (but today's auction of E4bln was smaller than the E5bln seen at some earlier auctions).
• In addition, the 2.30% Feb-33 Bund is now trading above the average price achieved at auction.
• E4bln (E3.31bln allotted) of the 2.30% Feb-33 Bund. Avg yield 2.31% (bid-to-cover 1.88x).

• E1.105bln of the 0.10% Mar-29 OATei. Avg yield 0.28% (bid-to-cover 2.38x).
• E421mln of the 0.10% Jul-36 OATei. Avg yield 0.6% (bid-to-cover 3.09x).
• E470mln of the 0.10% Jul-53 OATei. Avg yield 0.6% (bid-to-cover 2.23x).

Gilt auction results

• That was a strong gilt auction with the highest bid-to-cover in the history of the 4.125% Jan-27 gilt at 2.60x and with a relatively tight tail of 0.4bp.
• The LAP of 100.549 hadn't been surpassed in the secondary market in the half hour before the auction closed and we have moved to the highest level for 90 minutes on the publication of the results.
• GBP3.75bln of the 4.125% Jan-27 Gilt. Avg yield 3.958% (bid-to-cover 2.6x, tail 0.4bp).

FOREX: Greenback Extends Tuesday's Modest Run Higher

• The greenback is extending the modest run higher posted into the Tuesday close, putting the USD Index within range of 103.00 as markets read positive tones into the meetings held between POTUS and Republican leaders. Resultingly, the USD is higher against most others in G10 - outperformed by only the NZD, led higher by a revision higher for RBNZ rate expectations at ANZ, who now see the OCR hitting 5.75% at its peak.
• Focus ahead remains on the nearing X-date and the debt ceiling debacle in the US. The meeting held yesterday between POTUS Biden and Congressional leader McCarthy resulting in some greenshoots of optimism, as Biden curtailed the second half of his Asia trip to focus in on a debt ceiling resolution.
• The risk backdrop is mixed, with US equity futures seen higher, while European indices are putting in a more modest performance. JPY is the poorest performer in G10 - helping tip USD/JPY briefly above the 200-dma at 137.07 for the first time since May 1st. Clearance and progress above here opens 137.77 and 137.91 for direction.
• US housing starts and building permits data take focus going forward, with the central bank speaker slate similarly busy: ECBs Elderson, Centeno, de Guindos & Rehn are on the docket, as well as BoE's Bailey.

FX OPTIONS: Expiries for May17 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0795-10(E751mln), $1.0825-35(E556mln), $1.0915-20(E619mln)
• USD/JPY: Y134.50($2.1bln), Y135.50($1.3bln), Y136.00-10($1.3bln), Y136.80($806mln), Y137.00($503mln)
• EUR/JPY: Y141.00(E1.0bln)
• USD/CAD: C$1.3400($1.2bln), C$1.3450($1.3bln)
• USD/CNY: Cny6.9740($595mln)

MNI Commodity Analysis - Russian Crude Flows Defy Sanctions but Products Unwinding

MNI Commodity Analysis: Russian Crude Flows Defy Sanctions but Products Unwinding

Executive Summary:

• Russian crude exports are leaving at a record pace in May countering Kremlin claims of 500,000 bpd crude cuts – with almost all volumes heading to India and China.
• Russian oil product flows are struggling to maintain pace this month, though diesel exports have found strength heading towards Brazil and Africa with discounted barrels displacing regular suppliers.
• Higher domestic refinery maintenance in Russia is pushing greater crude volumes onto the market, while it should also shore up oil product exports further in May.
• G7 and EU leaders have been in discussions to tighten restrictions on Russian oil flows by targeting third countries re-exporting them but their outreach and motivation looks limited.

MNI Commodity Analysis - Russian Crude Flows Defy Sanctions but Products Unwinding.pdf

EQUITIES: European, US Equity Futures Recover From Intraday Lows

• Eurostoxx 50 futures continue to consolidate. Price is trading above support at 4244.60, the 50-day EMA. The recent move down is considered corrective and the broader uptrend is intact. A resumption of gains would signal scope for a test of 4363.00, the Apr 21 high and a bull trigger. Clearance of this level would confirm a resumption of the uptrend. A clear break of the 50-day EMA is required to signal a top.
• S&P E-minis are unchanged and 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: Gold Remains in Midst of Corrective Pullback

• WTI futures remain below recent highs and the short-term outlook is bearish. The recovery from the May 4 low appears to have been a correction and this allowed an oversold trend condition to unwind. Initial resistance is at $73.93, the Apr 28 low ahead of $76.92, the Apr 28 high. On the downside, the recent print below $64.58, the Mar 20 low and a key support, reinforces a bearish theme. A clear break of it would resume the medium-term downtrend.
• Gold trend conditions are bullish, however, the yellow metal remains in bearish cycle and the recent move lower is considered corrective. Moving average studies are in a bull-mode set-up and this highlights an uptrend. Support to watch is $1976.8, the 50-day EMA and $1969.3, the Apr 19 low. A clear break of this support zone is required to highlight a stronger bearish threat. Key resistance and the bull trigger is at $2063.0, the May 4 high.