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MNI US MARKETS ANALYSIS - Gold Crests at New Highs Despite Overriding USD Strength

Highlights:

  • Gold surges to new record high, despite surging greenback
  • Prelim UMich sentiment eyed for any uptick in inflation expectations
  • Earnings season begins, with mixed results from JPMorgan, Wells Fargo and BlackRock

US TSYS: Underperforming EGBs Rally, U.Mich And Earnings In Focus

  • Cash Tsy yields sit 4-5bps lower on the day, with Treasuries following EGBs richer where dovish ECB speak added weight to soft Chinese trade data and ongoing geopolitical tensions.
  • TYM4 at 108-11 (+ 07+) sits within yesterday’s range after another overnight session of above average volumes with more than 430k traded.
  • The bearish trend condition remains in place with support seen at yesterday’s low 107-27+, having taken out the previous support at the round 108-00, after which lies 107-26+ (Fibo projection).
  • Today’s lighter docket sees firm focus on the preliminary U.Mich survey and its inflation expectations components in particular. The start of earning season adds interest with Wells Fargo (Q1 rev $20.86bn vs $20.21bn est.) and JPM (Q1 rev $42.55bn vs $41.64bn est.) releasing results as we type with Citi still to come ahead of the open.
  • Data: International trade prices Mar (0830ET), U.Mich consumer survey Apr prelim (1000ET)
  • Fedspeak: Collins (0900ET), Schmid (1300ET), Bostic (1430ET) and Daly (1530ET) – see STIR bullet.

STIR: Fed Rates A Little Further Off CPI Highs, Fedspeak Sees Rare Schmid Comments

  • Fed Funds implied rates have dipped a little overnight, in part after a softer-than-expected round of monthly Chinese trade data, but remain keep to less than two cuts fully priced for 2024.
  • Cumulative cuts from 5.33% effective: 1.5bp May, 7bp Jun, 15bp Jul, 26bp Sep and 45bp Dec.
  • Boston Fed’s Collins (non-voter) gave a reasonable change in tone yesterday: it may take more time than thought to get confidence to cut after recent data have eased concerns about the imminent need to cut. She believes the policy rate may be less restrictive than expected and that less easing this year may be warranted than previously thought.
  • Ahead, we focus on Kansas Fed’s Schmid, who we’ve heard very little from recently, and also Bostic later in the session who is already one of the more hawkish FOMC members.
  • 0900ET – Collins again, this time on Bloomberg TV
  • 1300ET – Schmid (’25 voter) speaks on the economic out and mon pol outlook (incl text)
  • 1430ET – Bostic (’24) speaks on housing (incl text). He said pre-CPI that he was a dot for two cuts (along with Kashkari who has since floated no cuts again).
  • 1530ET – Daly (‘24) in fireside chat on fintech. She said Apr 2 that three cuts in 2024 is a reasonable baseline and with two-sided guidance including may want to cut less if inflation is stickier.

US TSYS: OI Points To Mix Of Positioning Swings, Long Cover Dominated In Curve Terms On Thurs

The combination of yesterday’s twist steepening in Tsy futures and preliminary OI data points to the following net positioning swings on Thursday.

  • Net long setting: TU futures
  • Net long cover: FV, TY, UXY & US futures
  • Net short setting: WN futures
  • The apparent net long cover seen in FV through US futures dominated in net OI DV01 equivalent terms.
  • Positioning remains net short across all futures contracts (although some of that will be attributable to basis trades).
  • Softer-than-expected PPI data failed to have a lasting impact, with little in the way of notable adjustments to PCE projections post-data.
11-Apr-2410-Apr-24Daily OI ChangeOI DV01 Equivalent Change ($)
TU3,940,8133,928,836+11,977+441,415
FV6,092,2746,095,367-3,093-128,129
TY4,417,3364,447,072-29,736-1,895,140
UXY2,053,9392,071,120-17,181-1,475,773
US1,536,2311,543,757-7,526-953,794
WN1,614,5761,609,912+4,664+914,103
Total-40,895-3,097,317

SOFR: OI Points To Position Covering In Most SOFR Futures On Thursday

The combination of yesterday’s twist steepening of the SOFR futures strip and preliminary OI data points to a mix of long and short cover dominating on Thursday.

  • PPI data had little lasting impact, given the lack of meaningful knock on re: PCE projections.
  • Market-implied rate pricing for the Fed rate path has moved to new territory post-CPI, triggering a mix of net profit taking and stop outs on Thursday.
11-Apr-2410-Apr-24Daily OI ChangeDaily OI Change In Packs
SFRH4948,914959,316-10,402Whites-46,688
SFRM41,178,1771,188,613-10,436Reds-21,580
SFRU4953,107956,200-3,093Greens-33,442
SFRZ41,223,7511,246,508-22,757Blues-14,870
SFRH5709,433720,141-10,708
SFRM5814,773827,348-12,575
SFRU5691,342680,253+11,089
SFRZ5668,139677,525-9,386
SFRH6496,761506,430-9,669
SFRM6523,910525,382-1,472
SFRU6374,042375,359-1,317
SFRZ6356,639377,623-20,984
SFRH7229,195233,690-4,495
SFRM7197,798200,147-2,349
SFRU7171,010171,310-300
SFRZ7164,742172,468-7,726

EUR/USD Downside In Focus After Busiest Options Trading in Months

  • Solid start Friday for FX hedging volumes, after two consecutive sessions of very busy markets. Wednesday and Thursday saw ~$130bln and ~$120bln total notional trade, making for the some of the busiest sessions of the year so far.
  • Options trade over the past few sessions has been typified by the overriding USD strength, evident in the solid demand for EUR/USD puts. Most salient trades tended to revolve around 1.07 put strikes. An eye-catching $4.1bln notional has been wagered against 1.07 put strikes across the past two sessions alone, trades which are now in-the-money thanks to this morning’s weakness in spot.
  • The breakout for the USD and closing proximity to potential policy pivots from the Fed and ECB continues to support the belly of the EUR vol curve, with 3m implied now topping 6 points for the first time since mid-February, capturing the very live June 6th ECB meeting, and the lead-up to the coin-toss July Fed meeting (but importantly not the decision itself).
  • Similarly, persistent USD/JPY strength and little sign of pushback from the Japanese authorities has driven trade in USD/JPY topside – with Y152.50-154.00 call strikes seeing an impressive $8.3bln notional interest. Perhaps more interestingly, call strikes as high as Y155.00 also saw solid interest, with over $1bln traded.

FOREX: USD Storms to New Highs, As Post-CPI Strength Persists

  • The USD is higher against all others in G10 as the currency continues its post-CPI uptick. The USD Index crested at a new multi-month high of 105.737 in early European trade, with options market activity providing support as demand for USD upside dominates.
  • JPY also trades firmer, recovery off lows as a supportive Japanese yield curve lends some strength - nonetheless the dominant dollar theme has underpinned a new cycle and recovery high at 153.39 in USD/JPY.
  • EUR/USD has caught focus, with the pair breaking 1.07 on the way lower to print the lowest levels since November as rate differentials weigh. ECB speak has proved negative for the pair so far today, after ECB's Stournaras stated that it's time for the ECB to diverge from the Fed. Implied pricing still heavily favours a June cut from the ECB (a notion backed by ECB's Kazaks this morning), while Fed rate cut pricing continues to be pushed back - with July now seen as a coin toss.
  • Asset markets could see extra sensitivity across the University of Michigan sentiment release, as markets look to gauge any feedthrough from March's higher-than-expected CPI into inflation expectations. Import/export price indices are also due on top of speeches scheduled from Fed's Collins, Schmid, Bostic and Daly.

FX OPTIONS: Expiries for Apr12 NY cut 1000ET (Source DTCC)

  • EUR/USD: $1.0600(E914mln), $1.0650-55(E508mln), $1.0700(E2.9bln), $1.0720-30(E1.1bln), $1.0780-00(E1.9bln), $1.0950(E1.0bln)
  • USD/JPY: Y149.00-13($1.2bln), Y149.50($1.9bln), Y150.00($1.0bln), Y151.00($927mln), Y152.00($1.0bln), Y152.70-80($1.4bln), Y153.35($520mln)
  • GBP/USD: $1.2400(Gbp593mln), $1.2590-00(Gbp1.0bln), $1.2650(Gbp644mln), $1.2750(Gbp1.4bln)
  • NZD/USD: $0.6050(N$550mln)
  • USD/CAD: C$1.3685($803mln), C$1.3725-27($732mln)
  • USD/CNY: Cny7.2500($1.4bln)

EQUITIES: Trend Condition Unchanged, And Pointed Higher

  • The trend condition in S&P E-Minis is unchanged and remains bullish. The recent move down highlights a short-term corrective cycle and this is allowing a recent overbought signal to unwind. The contract has breached bull channel support drawn from the Jan 17 low.
  • A corrective cycle in Eurostoxx 50 futures remains in play and the move down is allowing an overbought trend condition to unwind. The break of support around the 20-day EMA suggests potential for a deeper retracement.

COMMODITIES: Gold Surges to New Highs, Momentum Still Firm

  • A bull theme in WTI futures remains intact and the contract is holding on to the bulk of its recent gains. Recent gains reinforced current bullish conditions and confirmed a resumption of the uptrend. The contract has traded through $84.87, the Sep 15 ‘23 high.
  • The trend condition in Gold remains bullish and the yellow metal is trading higher today, extending the current impulsive bull phase. The move higher maintains the price sequence of higher highs and higher lows and note that moving average studies.



DateGMT/LocalImpactFlagCountryEvent
12/04/20241100/1200UK BOE's Bernanke Review of Forecasting for Monetary Policymaking
12/04/20241100/1300EU ECB's Elderson Speaks At Delphi Economic Forum
12/04/2024-***CN Trade
12/04/20241200/0800US San Francisco Fed's Mary Daly
12/04/20241230/0830**US Import/Export Price Index
12/04/20241300/0900*CA CREA Existing Home Sales
12/04/20241400/1000**US U. Mich. Survey of Consumers
12/04/20241700/1300**US Baker Hughes Rig Count Overview - Weekly
12/04/20241700/1300US Kansas City Fed's Jeff Schmid
12/04/20241830/1430US Atlanta Fed's Raphael Bostic
12/04/20241930/1530US San Francisco Fed's Mary Daly
15/04/20242350/0850*JP Machinery orders
15/04/20240630/0230US Dallas Fed's Lorie Logan
15/04/20240900/1100**EU Industrial Production
15/04/20241115/1215UK BoEs Breeden on Payments Innovation
15/04/20241230/0830**CA Monthly Survey of Manufacturing
15/04/20241230/0830**CA Wholesale Trade
15/04/20241230/0830***US Retail Sales
15/04/20241230/0830**US Empire State Manufacturing Survey
15/04/20241400/1000*US Business Inventories
15/04/20241400/1000**US NAHB Home Builder Index
15/04/20241415/1615EU ECB's Lagarde Speaks On ECB Podcast

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