MNI US MARKETS ANALYSIS - Fed Pricing Holds Pre-UMich, Waller
Highlights:
- 2y10y at flattest level in six weeks
- Fed rate pricing holds bulk of PMI climb ahead of UMich, Waller remarks
- UK retail sales a washout, but GBP unbuffed
![](https://media.marketnews.com/image_3c04fcf659.png)
- Treasuries have pared earlier losses, initially helped by stronger than expected German PMIs before some softer service readings elsewhere, most notably the UK. Treasuries outperform EGBs but underperform Gilts against that backdrop.
- Cash yields range from 0.5bp lower (2-3Y) to 0.2bp higher (20-30Y), pivoting beyond 10s.
- 2s10s is near unchanged at -44.3bps, consolidating the flattening over the past two days to its lowest since Apr 10/11 and last sustained for any period of time in mid-March.
- TYM4 at 109-03+ has reversed an earlier decline to 108-29+ but has remained within yesterday’s range throughout, on high volumes approaching 400k.
- Yesterday’s low of 108-28+ tested support at 108-29+ (20-day EMA) after which lies the key 108-15 (May 14 low), but this pullback appears corrective with resistance seen at the bull trigger of 109-31+ (May 16 high).
- Data: Weekly jobless claims (0830ET), Chicago Fed national activity Apr (0830ET), S&P Global US prelim PMIs May (0945ET), New home sales Apr (1000ET), KC Fed mfg May (1100ET)
- Fedspeak: Bostic in moderated Q&A (1500ET)
- Note/bonds issuance: US Tsy $16B 10Y TIPS auction re-open (1300ET)
- Bill issuance: US Tsy $80B each 4W, 8W bill auctions (1130ET)
2s10sSource: Bloomberg
STIR: Fed Rates Hold Most of PMI Climb, Waller On R* Ahead
- Fed Funds implied rates have pulled back modestly overnight but hold the bulk of the US PMI beat-driven increases, with a first cut in November still not quite fully priced.
- Cumulative cuts from 5.33% effective: 0.5bp Jun, 3bp Jul, 16bp Sep, 22bp Nov and 36bp Dec.
- Today sees Gov Waller (voter) as sole scheduled Fedspeak in a text-only keynote address on R*.
- This should naturally draw focus on the recent drift higher in Fed expectations for longer run rates, especially ahead of next month’s fresh SEP. The median dot for 2026 lifted from 2.9% (Dec SEP) to 3.1% (Mar SEP) and the longer run dot from 2.5% (Dec) to 2.6% (Mar).
- There should be fewer surprises on the nearer-term rate outlook after Waller spoke Tuesday noting that he needs to see “several more” months of good inflation to cut [in the absence of a significant weakening in the labor market] after April CPI showed progress towards 2% inflation has likely resumed, whilst further rate hikes are unlikely to be needed.
- He followed this up in a CNBC appearance with: “If the data were to continue softening throughout the next three to five months, you can even think about doing it at the end of this year […] If we get enough data going the right way, then we can think about cutting rates later this year, beginning of next year.”
STIR: OI Points To Mix Of Short Setting & Long Cover In SOFR Futures Following PMI Data
The combination of yesterday’s move lower in most SOFR futures and preliminary OI data points to net short setting as the dominant positioning factor in the whites, while long cover seemed to dominate in the reds, greens and blues (in net pack OI terms).
- S&P Global PMI data was much firmer than expected in headline terms, while the snippets on inflation provided the latest round of survey-based worry on that front.
- FOMC-dated OIS moved to price ~35bp of ’24 cuts vs. ~39bp at Wednesday’s close in the wake of the data, with the full discounting of the first 25bp cut pushed back to December.
- Year-end pricing has not tested April's hawkish extremes.
23-May-24 | 22-May-24 | Daily OI Change | Daily OI Change In Packs | ||
SFRH4 | 936,599 | 937,472 | -873 | Whites | +21,805 |
SFRM4 | 1,232,995 | 1,225,810 | +7,185 | Reds | -28,899 |
SFRU4 | 1,127,108 | 1,123,754 | +3,354 | Greens | -13,364 |
SFRZ4 | 1,248,588 | 1,236,449 | +12,139 | Blues | -5,516 |
SFRH5 | 807,040 | 804,073 | +2,967 | ||
SFRM5 | 795,609 | 795,860 | -251 | ||
SFRU5 | 707,975 | 706,693 | +1,282 | ||
SFRZ5 | 784,884 | 817,781 | -32,897 | ||
SFRH6 | 561,677 | 551,702 | +9,975 | ||
SFRM6 | 522,304 | 535,962 | -13,658 | ||
SFRU6 | 435,279 | 431,516 | +3,763 | ||
SFRZ6 | 353,868 | 367,312 | -13,444 | ||
SFRH7 | 260,599 | 253,607 | +6,992 | ||
SFRM7 | 184,705 | 189,681 | -4,976 | ||
SFRU7 | 170,732 | 173,935 | -3,203 | ||
SFRZ7 | 156,849 | 161,178 | -4,329 |
First Post-Election Call Polling Shows Labour Retaining Wide Lead
In the first two opinion polls carried out either on the day PM Rishi Sunak announced a 4 July general election or afterwards, the main opposition centre-left Labour party has retained its sizeable lead that continues to indicate that it will win a majority in the House of Commons.
- Techne - Fieldwork 22-23 May - Labour 45% (+1), Conservative 19% (-2), Reform UK 14% (+2), Liberal Democrat 12% (=), Greens 5% (-1), 1,643 respondents.
- More in Common - Fieldwork 22-23 May - Labour 44% (+1), Conservatives 27% (=), Reform UK 10% (-1), Liberal Democrat 9% (=), Greens 5% (-1), 2,008 respondents
- Were these polls reflected in the final vote share, elections prediction site Electoral Calculus shows Labour winning huge majorities of between 240 (More in Common) and 388 (Techne) seats. To date the largest non-coalition majority in the House of Commons came in the 1832 election, when the Whigs recorded a 225-seat majority against the Tories (resuling the the party disbanding and re-forming as the Conservative Party).
- Data from Polymarket shows that among bettors the most favoured seat total 'window' for Labour is +450 seats, with a 30% implied probability. Joint second with at 15% implied probability is the 350-374 and 425-449 windows. The joint lowest with 10% implied probabilities are <325 and 325-349 seats. Labour's highest-ever seat total was 418 in 1997 under Tony Blair. At present Labour holds 205 seats.
Chart 1. General Election Opinion Polling, % and 6-Poll Moving Avg.
![](https://media.marketnews.com/2024_05_24_08_54_24_Global_Opinion_Poll_Database_version_1_version_1_xlsb_Excel_92c45af25b.png)
Source: Techne, More in Common, YouGov, Survation, Deltapoll, Redfield and Wilton, Savanta, We Think, Opinium, People Polling, Whitestone Insight,
Ipsos, Lord Ashcroft, JL Partners, BMG, MNI
Greenback Off Highs, But Little Relief for USD/JPY
- The greenback trades poorer against all others early Friday, keeping the USD Index pinned to the 50-dma and holding just below weekly highs. This has provided little relief for USD/JPY, however, which remains tilted higher and within reach of the post-intervention highs printed this week at 157.20. Clearance here keeps markets on watch, as the trade-weighted JPY index within just 1.5% of the pre-intervention lows.
- GBP shrugged off the particularly poor retail sales release. April data showed sales fell 2.7% Y/Y and fell 2.3% on the month after a particularly poor bout of weather kept consumption subdued. The ONS noted "Sales volumes fell across most sectors, with clothing retailers, sports equipment, games and toys stores, and furniture stores doing badly as poor weather reduced footfall." This limited read-through for monetary policy, protecting GBP from any broad sell-off, although EUR/GBP sits again in minor positive territory.
- Preliminary US durable goods orders are the data highlight Friday, although the final release of UMich sentiment for April will also be watched for any revisions to the sharp bump higher in inflation expectations as part of the preliminary release. Fed's Waller also is set to speak later today on rates, and with a text release, however his recent TV appearances and prepared statements should mean we hear little new on current policy.
OPTIONS: Expiries for May24 NY cut 1000ET (Source DTCC)
- EUR/USD: $1.0700-20(E3.6bln), $1.0770-80(E557mln), $1.0820-40(E1.6bln), $1.0845-50(E1.1bln), $1.0865-77(E3.2bln), $1.0890-00(E1.7bln), $1.0940-50(E1.2bln)
- USD/JPY: Y155.50($1.1bln), Y156.00($1.1bln), Y157.00($2.8bln), Y157.25-33($1.1bln)
- AUD/USD: $0.6600-05(A$836mln)
- USD/CAD: C$1.3700-20($850mln)
- USD/CNY: Cny7.2500($955mln)
Eurostoxx Pullback Appears Corrective For Now
The uptrend in S&P E-Minis remains intact and the pullback Thursday appears to be a correction. The contract also traded to a fresh cycle high yesterday, reinforcing a bullish theme. Recent gains have resulted in a break of a key resistance at 5333.50, the Apr 1 high. A bullish theme in Eurostoxx 50 futures remains intact and the recent pullback appears to be a correction - for now. The contract has recently cleared key resistance at 5079.00, the Apr 2 high, to confirm a resumption of the uptrend.
Gold traded lower yesterday, extending the pullback from its recent high. The trend structure remains bullish and the move lower appears to be a correction - for now. Moving average studies are in a bull-mode position and the move lower is allowing an overbought condition to unwind. WTI futures have pulled back from their most recent highs. A bearish theme remains intact. Price has recently traded below the 50-day EMA, strengthening a bearish set-up that highlights potential for a deeper correction.
Date | GMT/Local | Impact | Country | Event |
24/05/2024 | 1230/0830 | * | ![]() | Quarterly financial statistics for enterprises |
24/05/2024 | 1230/0830 | ** | ![]() | Retail Trade |
24/05/2024 | 1230/0830 | ** | ![]() | Durable Goods New Orders |
24/05/2024 | 1335/0935 | ![]() | Fed Governor Christopher Waller | |
24/05/2024 | 1400/1000 | ** | ![]() | U. Mich. Survey of Consumers |
24/05/2024 | 1700/1300 | ** | ![]() | Baker Hughes Rig Count Overview - Weekly |