Highlights:
- JPY firms further off lows on reports BoJ could consider reducing bond buys as soon as next week
- Oil slide persists, undermining oil-tied currencies
- US JOLTs release provides latest clues on US labour market
US TSYS: Tsys Resume Climb Off Four Week Lows, Weaker Stocks, Soft Swiss CPI
- Treasuries continue to climb off last week's 4 week lows this morning, a combination of weaker global equities and lower than expected Swiss CPI inflation data contributing to the move.
- Midmorning data on tap: JOLTS Job Openings and Factory/Durables/Cap Goods Orders at 1000ET. The Fed remains in policy Blackout through June 13. US Treasury auctions $60B 42D Bill CMBs at 1130ET. Main focus this week is on Friday's headline employment figures for May, Bbg mean survey est at +185k vs. +175k prior.
- Cash yields are currently running mildly lower: 2s -.0085 at 4.7995%, 10s -.0078 at 4.3806%, 30s -.0067 at 4.5309%, while curves look mildly mixed: 2s10s -0.129 at -42.299, 5s30s +0.573 at 13.500.
- Meanwhile, Sep'24 10Y Treasury futures are trading back near mid-May highs, TYU4 at 109-22 (+4) vs. 109-23 high after breaching technical resistance of 109-12.5 yesterday (50-day EMA).
- Monday's move clear break and signals scope for a continuation higher near-term. Sights are on 109-28 next, the May 17 high. On the flipside, any resumption of bearish activity would instead refocus attention on support at 107-31.
STIR: OI Points To Modest Net Short Cover Across Much Of SOFR Strip On Monday
The combination of Monday’s rally in SOFR futures and preliminary OI data points to a mix of net short cover and long setting through the blues, with the former dominating in net pack OI terms.
- Still, net OI swings were relatively contained in both individual contract and pack terms.
- A reminder that softer-than-expected ISM manufacturing and construction spending data allowed an early rally to extend, with the details of the ISM survey promoting deeper/further stagflation-lite commentary.
- SOFR futures moved further away from '24 lows as a result.
- Note that the data resulted in a fairly sharp adjustment lower for the Atlanta Fed’s GDPNow tracker, although the Q2 estimate provided by that reading still sits closer to 2% than 1% (falling from 2.7% to 1.8%).
- Recent Fedspeak and the trend in early ’24 inflation data keeps FOMC-dated OIS titled towards the hawkish depths of year-to-date pricing, but Monday’s move allows the first 25bp cut to be fully discounted come the end of the Nov FOMC, with ~42bp of cuts then showing through year end (vs. ~36bp late Friday).
| 03-Jun-24 | 31-May-24 | Daily OI Change | Daily OI Change In Packs | ||
| SFRH4 | 920,011 | 922,859 | -2,848 | Whites | -18,272 |
| SFRM4 | 1,230,556 | 1,237,839 | -7,283 | Reds | -18,400 |
| SFRU4 | 1,173,208 | 1,177,796 | -4,588 | Greens | -16,941 |
| SFRZ4 | 1,174,897 | 1,178,450 | -3,553 | Blues | -3,583 |
| SFRH5 | 811,755 | 818,629 | -6,874 | ||
| SFRM5 | 806,021 | 817,082 | -11,061 | ||
| SFRU5 | 732,724 | 732,096 | +628 | ||
| SFRZ5 | 782,730 | 783,823 | -1,093 | ||
| SFRH6 | 561,257 | 565,143 | -3,886 | ||
| SFRM6 | 505,684 | 513,197 | -7,513 | ||
| SFRU6 | 408,286 | 410,087 | -1,801 | ||
| SFRZ6 | 356,504 | 360,245 | -3,741 | ||
| SFRH7 | 255,561 | 259,849 | -4,288 | ||
| SFRM7 | 193,035 | 190,012 | +3,023 | ||
| SFRU7 | 163,665 | 163,545 | +120 | ||
| SFRZ7 | 154,458 | 156,896 | -2,438 |
EUROPE ISSUANCE UPDATE
Austria auction results
* E978mln (E850mln allotted) of the 3.45% Oct-30 RAGB. Avg yield 2.905% (bid-to-cover 2.11x; bid-to-issue 1.84x).
* E1.035bln (E900mln allotted) of the 2.90% Feb-34 RAGB. Avg yield 3.013% (bid-to-cover 2.22x; bid-to-issue 1.93x).
UK auction results
* A relatively wide tail at the 40-year 4.00% Oct-63 gilt auction with the tail of 1.3bp double February's 0.6bp. This led to the LAP of 89.630 coming in notably below the pre-auction mid-price of 89.784 and lower than levels seen for around 90 minutes (and the yield on the secondary market mids have risen by around 1bp since the auction results were published).
Gilt futures knee jerk down 9 ticks on the results, again to their lowest levels in almost 90 minutes.
* The bid-to-cover of 3.10x was decent, so there was a decent quantity of bids at the auction - but the poor quality of those bids is what is driving the reaction here.
* GBP2bln of the 4.00% Oct-63 Gilt. Avg yield 4.57% (bid-to-cover 3.1x, tail 1.3bp).
German auction results
* E4.5bln (E3.69bln allotted) of the 2.90% Jun-26 Schatz. Avg yield 3.01% (bid-to-offer 2.21x; bid-to-cover 2.70x).
German syndication: Final terms
E3bln WNG of the 1.80% Aug-53 Green Bund. Books in excess of E19.4bln, spread set at 1.80% Aug-53 Bund conventional twin (DE0001102614) -1.0bp (guidance was -0.5bps area).
Funding Currencies Firm, With CHF and JPY on Front Foot
- CHF trades well against broader G10 despite headline CPI coming in alongside expectations - although EU harmonized CPI showed some signs of life - as fading equity markets helped prop haven FX and funding currencies outperformed.
- On a similar vein, JPY is firmer against most others in G10. The pullback off last week's highs in USD/JPY continues, with the pair through yesterday's lows and narrowing the gap with next key support at the 50-day EMA / 50-dma at 154.65 / 154.74. Pullbacks at these levels are considered corrective above the trendline drawn off the Dec 28 low - crossing today at 153.81.
- The JPY trade-weighed index is now firmer for a second session (two consecutive positive closes would be the first since the early May intervention) as Japanese ministers defend the effectiveness of currency intervention (Suzuki overnight) and as BoJ members warn of the impacts of a weak currency (Himino this morning).
- Lastly, NOK sits at the bottom of the G10 pile as the ongoing sell-off in Brent crude futures continues to weigh, prompting NOKSEK to approach key support at 0.9918 (trendline drawn from the December 2023 low). The cross is currently 0.4% lower, having fallen around 0.7% yesterday.
- Focus for the remainder of the Tuesday session turns to JOLTS job openings data, at which markets are on watch for any leading signs of fragility in the labour markets, while final April durable goods orders should confirm the steady pace in the prelim update.
- The central bank speaker slate remains typically quiet given both the ECB, BoE and Fed remain inside media blackout periods (ECB and Fed due to upcoming rate decisions, BoE due to the July 4th general election).
JPY Edges to New Daily Highs on BoJ Sources Report
- The Bank of Japan are said to be mulling a reduction in bond buys as early as the June 14th meeting, according to Bloomberg sources, however they are said to be watching markets until the last moment before deciding, with the Bank having no intention to surprise bond traders.
- New highs for JPY on the back of those headlines - tilting hawkish ahead of the June 14th rate decision. USD/JPY slips to 155.04 briefly before stabilising, with similar slip lower in EUR/JPY. JGB futures lose ~30 ticks before recovering from lows.
- MNI's Policy Team in Tokyo had previously reported that bank officials see the need to clarify the pace of lowering JGB buying to pave the way for market players to factor in future reductions smoothly. The BOJ has also not determined by how much it can shrink its JPY590 trillion balance of JGBs. The fact that this idea has already been relatively widely discussed probably limits the scope of the move that came alongside the Bloomberg headlines, although growing newswire speculation will add greater weight to the idea.
Options Keen to Capture USD/CHF Upside, Despite Weakness in Spot
- USD/CHF seems to have found some intraday support at the 100-dma of 0.8932 today, pausing the three-day sell-off in the pair. Overnight options activity shows interest in upside exposure in an above-average volume session for CHF hedges. Trades consistent with 0.8930/0.9200 calendar call spread crossed in Asia-Pac hours, capturing the SNB's June rate decision, at which markets are evenly split over pricing another 25bps rate cut.
- CAD vols are seeing support, with USD/CAD overnight vols rising above 8 points as the contract captures the Wednesday Bank of Canada decision. The vol premium added implies a relatively tight ~40 pip swing in the pair into the Wednesday expiry - reflecting the extent to which a rate cut is priced in tomorrow (~80% vs. ~65% before last week's GDP data).
- Most notable expiries for today's NY cut include: E550mln at 1.0887-90 in EUR/USD, $502mln at Y155.00 in USDJPY, A$301mln at $0.6650 in AUD/USD and E643mln at 0.8500 in EUR/GBP.
Eurostoxx 50 Futures Continue to Trade Above Last Week's Lows
- Eurostoxx 50 futures continue to trade above Thursday's low of 4950.00. The recent move down appears to be a correction, but note that support at the 50-day EMA, at 4967.00, has been pierced. A clear break of the average would undermine the short-term bullish theme and signal scope for a deeper retracement, towards 4894.90, a Fibonacci retracement. Initial resistance is seen at 5082.00, the May 28 high.
- The uptrend in S&P E-Minis remains intact, however, a corrective cycle has resulted in a pullback from the recent high of 5368.25 (May 23). The latest move down resulted in a print below support at the 50-day EMA, at 5216.53 A clear break of this average would signal scope for a deeper retracement. The recovery from Friday’s low is a positive development, a continuation would open 5368.25 and a breach of this level resumes the trend.
Sharp Move Lower in WTI Futures Reinforces Bearish Theme
- WTI futures traded sharply lower Monday, starting the week on a bearish note. The contract has cleared support at $76.15, the May 24 low, and breached $75.64, the Mar 11 low. This reinforces a bearish theme and signals scope for an extension near-term. Sights are on $73.24, a Fibonacci retracement. Note that moving average studies are in a bear-mode position, highlighting a downtrend. Initial firm resistance is at $80.62, the May 29 high.
- A bear cycle in Gold remains in play for now, and the yellow metal is trading closer to its recent lows. The medium-term trend structure is bullish and the recent move down appears to be a correction that is allowing an overbought condition to unwind. Moving average studies are in a bull-mode position, highlighting an uptrend. A resumption of gains would open $2452.5 next, a Fibonacci projection. The 50-day EMA, at $2309.5, represents a key support.
| Date | GMT/Local | Impact | Country | Event |
| 04/06/2024 | 1255/0855 | ** |  US | Redbook Retail Sales Index |
| 04/06/2024 | 1400/1000 | ** | US | Factory New Orders |
| 04/06/2024 | 1400/1000 | *** | US | JOLTS jobs opening level |
| 04/06/2024 | 1400/1000 | *** | US | JOLTS quits Rate |
| 04/06/2024 | 1530/1130 | * | US | US Treasury Auction Result for Cash Management Bill |
| 04/06/2024 | 2000/2100 |  GB | Sunak Vs Starmer : ITV Debate | |
| 05/06/2024 | 0130/1130 | *** |  AU | Quarterly GDP |
| 05/06/2024 | 0645/0845 | * |  FR | Industrial Production |
| 05/06/2024 | 0900/1100 | ** |  EU | PPI |
| 05/06/2024 | 0900/1000 | ** | GB | Gilt Outright Auction Result |
| 05/06/2024 | 1100/0700 | ** | US | MBA Weekly Applications Index |
| 05/06/2024 | 1215/0815 | *** | US | ADP Employment Report |
| 05/06/2024 | 1345/0945 | *** |  CA | Bank of Canada Policy Decision |
| 05/06/2024 | 1400/1000 | *** | US | ISM Non-Manufacturing Index |
| 05/06/2024 | 1430/1030 | ** | US | DOE Weekly Crude Oil Stocks |
| 05/06/2024 | 1430/1030 | CA | BOC Governor Press Conference | |
| 06/06/2024 | 0130/1130 | ** | AU | Trade Balance |
| 06/06/2024 | 0130/1130 | ** | AU | Lending Finance Details |
| 06/06/2024 | 0545/0745 | ** |  CH | Unemployment |
| 06/06/2024 | 0600/0800 | ** |  DE | Manufacturing Orders |
| 06/06/2024 | 0700/0900 | ** |  ES | Industrial Production |
| 06/06/2024 | 0730/0930 | ** | EU | S&P Global Final Eurozone Construction PMI |
| 06/06/2024 | 0800/1000 | * |  IT | Retail Sales |
| 06/06/2024 | 0830/0930 | ** | GB | S&P Global/CIPS Construction PMI |
| 06/06/2024 | 0830/0930 | GB | BOE's Decision Maker Panel Data | |
| 06/06/2024 | 0900/1100 | ** | EU | Retail Sales |
| 06/06/2024 | 1215/1415 | *** | EU | ECB Deposit Rate |
| 06/06/2024 | 1215/1415 | *** | EU | ECB Main Refi Rate |
| 06/06/2024 | 1215/1415 | *** | EU | ECB Marginal Lending Rate |
| 06/06/2024 | 1230/0830 | *** | US | Jobless Claims |
| 06/06/2024 | 1230/0830 | ** | US | WASDE Weekly Import/Export |
| 06/06/2024 | 1230/0830 | ** | US | Trade Balance |
| 06/06/2024 | 1230/0830 | ** | US | Non-Farm Productivity (f) |
| 06/06/2024 | 1230/0830 | ** | CA | International Merchandise Trade (Trade Balance) |
| 06/06/2024 | 1245/1445 | EU | ECB Monetary Policy Press Conference | |
| 06/06/2024 | 1400/1000 | * | CA | Ivey PMI |
| 06/06/2024 | 1415/1615 | EU | ECB's Lagarde presents monpol decision on podcast | |
| 06/06/2024 | 1430/1030 | ** | US | Natural Gas Stocks |
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