MNI US MARKETS ANALYSIS - JPY Intervention Pattern Matches '22

Highlights:

• Fed Funds implied rates modestly extend yesterday's Powell-driven decline
• JPY intervention so far matches patterns of 2022
• Weekly jobless claims, final durable goods due ahead of tomorrow's NFP

US TSYS: Firmer But Rangebound, Productivity and Other Labor Data In Store

• Treasuries have extended yesterday’s rally but remain within FOMC-inspired ranges, underperforming EGBs on the day as they catch-up with yesterday’s post-FOMC price action.
• Cash yields range between 0.5-2.5bp lower, with declines led by the belly. The 0.5bp climb in 2s10s to -32.5bps consolidating yesterday’s steepening aided by a larger pace of QT reduction than expected.
• TYM4 has pushed higher through European hours but at 108-00 remains 3+ ticks down from yesterday’s settle, and off highs of 108-06+. Volumes are above average at 350k.
• Yesterday marked a step closer to resistance at 108-10 (20-day EMA) but the trend needle still points south with support at 107-04 (Apr 25 low).
• Data: Challenger job cuts Apr (0830ET), Productivity/ULCs Q1 prelim (0830ET) ,Weekly jobless claims (0830ET), Trade balance Mar (0830ET), Factory orders Mar (1000ET)
• Fed: Media blackout ends tonight.
• Bill issuance: US Tsy $70B 4W, $75B 8W Bill auctions (1130ET)

STIR: Modest Extension Of Post-Powell Decline In Fed Rate Path

• Fed Funds implied rates have modestly extended yesterday’s Powell-driven decline, with the Dec’24 rate 1.5bps lower on the day for 7bps lower since the decision.
• Powell reinforced a clearer "higher for longer" message but the "well positioned" assessment doesn't make it sound like a hike is yet on the FOMC's mind (and Powell noted that "I think it's unlikely that the next policy rate move will be a hike"), disappointing some of the more hawkish positions.
• Cumulative cuts from 5.33% effective: 2.5bp Jun, 7.5bp Jul, 17bp Sep, 24bp Nov, 35bp Dec.
• The FOMC remains in media blackout, ending tonight. First up on the schedule is Williams (voter) and Goolsbee (’25) in a panel on Friday late on at 1945ET.

US TSY FUTURES: OI Points To Modest Post-FOMC Net Positioning Swings

The combination of yesterday’s rally in Tsy futures and preliminary open interest data point to surprisingly modest positioning adjustments in the wake of yesterday’s FOMC.

• Long setting (in TU, UXY, US & WN) marginally outstripped short cover (in FV & TY) in net curve OI DV01 equivalent terms.
• Net positioning seems to remain short across all contracts.

STIR: OI Points To Post-Fed Short Cover In SOFR White & Red Futures

The combination of yesterday’s rally in SOFR futures and preliminary OI data points to short cover as the dominant positioning factor in the whites and reds.

• The whites seemed to see net short cover in all contracts, while only apparent net long setting in SFRZ5 broke the trend in the reds.
• Net pack OI was little changed in the greens and blues, with rounds of net short cover and long setting seen there.
• Fed Chair Powell failed to provide a meaningful shock to markets when it came to the rate outlook, pushing back against any suggestions that the Fed is considering a hike at present, while sounding a little more guarded when it came to progress in returning inflation to target.
• The net impact saw FOMC-dated OIS pull away from ’24 extremes, leaving a little over 35bp of ’24 cuts priced at typing.

EUROZONE DATA: PMIs Suggest Limited Pricing Power Amongst Manufacturing Firms

The Eurozone-wide manufacturing PMI was 45.7 (vs 45.6 flash, 46.1 prior). One interesting theme across the reports of the four main Eurozone economies was that input cost increases were not necessarily passed through into output charges, with competition limiting pricing power:

• In Spain, a “broad-based rise in raw material prices said to have driven up cost bases” but “firms’ own pricing power was restricted by competitive pressures and a desire to stimulate sales. Subsequently, output charges fell again in April, though only marginally”.
• Similarly in France, the “April survey data indicated an increase in input costs. Sources of price pressure included oil-based products, steel and foodstuff”. Despite this, “competitive pressures prevented firms from passing on higher costs to their clients”.
• In Italy, “April saw input prices rise for the first time since January 2023, owing to inflated raw material costs. However, firms kept selling prices broadly the same in April, with some firms discounting charges to encourage sales”.
• Germany was an exception to the above trend, with input costs falling overall (though even there “a number of firms of higher prices paid for some materials, including chemicals and non-ferrous metals”). Subsequently, output prices “showed the steepest drop since September 2009. Anecdotal evidence pointed to strong competition for new work across the breadth of the manufacturing sector”.
• Overall, while base effects may stall the disinflation in non-energy industrial goods HICP in the months ahead, anecdotal evidence from the PMIs suggests pricing power is low, which should contain any notable pick-up in NEIG inflation going forward.
• Additionally, the competitive pressures imply a compression of company profit margins, which should be reflected in the unit profits component of the GDP deflator – in line with the ECB’s central scenario from the March macroeconomic projections.

JAPAN: 2024 JPY Intervention So Far Matches 2022 Action

Bank of Japan's daily accounts data strongly suggests another phase of intervention took place after-market yesterday, with the daily update suggesting intervention of around Y3.5trl - a slightly smaller quantity relative to Monday's Y5.5trl.

Comparing the two waves of intervention so far - this week's JPY buying roughly equivalent to the three confirmed phases in late 2022:

• May1: Y3.5trl
• Apr30: Y5.5trl

2024 phase total (so far): Y9.0trl

• Oct 2022 (2/2): Y0.729trl
• Oct 2022 (1/2): Y5.62trl
• Sep 2022: Y2.84trl

2022 phase total: Y9.2trl

EUROPE ISSUANCE UPDATE: 

 LT OATs
A decent skew towards the 10-year area in today's LT OAT auction with the on-the-run 3.50% Nov-33 OAT on offer alongside the 1.25% May-34 OAT and over E7.5bln sold between them. In terms of the auction size, E11.926bln was sold (which is marginally smaller than the April LT OAT auction but smaller than Jan/Feb/March).
Bid-to-covers were fairly decent throughout with the low price above the pre-auction market price for all OATs sold. Overall a solid auction.

• E4.324bln of the 3.50% Nov-33 OAT. Avg yield 3.01% (bid-to-cover 2.35x).
• E3.215bln of the 1.25% May-34 OAT. Avg yield 3.03% (bid-to-cover 2.18x).
• E2.623bln of the 2.50% May-43 OAT. Avg yield 3.36% (bid-to-cover 2.52x).
• E1.764bln of the 3.25% May-55 OAT. Avg yield 3.47% (bid-to-cover 2.76x).

FOREX: USD/JPY Well Off Lows Despite Confirmation of Heavy Official Sales After the Close

• Despite the Fed decision late yesterday, market focus reverted swiftly to the JPY as USD/JPY's slide to 153.04 after the close was confirmed as likely intervention via the BoJ's daily accounts data released this morning. With USD/JPY sales estimated at Y9trl so far this week, the BoJ are generally matching the strategies laid out in 2022's intervention phases, leaving markets on watch during phases of low liquidity.
• USD/JPY has recovered off lows, and has re-taken the Y155.00 mark ahead of the US crossover. Nonetheless, yesterday's highs at just under Y158.00 are still some way off.
• The CHF is the firmest performer so far, reversing a small part of recent weakness as data this morning confirmed the stickiness of CPI, which came in well ahead of expectations (1.4% vs. Exp. 1.1% Y/Y). As a result, USD/CHF has reversed further below 0.92 and is lining up a test of next support at the 0.9088 level.
• NOK trades poorly despite a positive showing from oil markets. EUR/NOK remains in reach of the cycle high printed yesterday at 11.8733, and a break above here opens the highest levels for the cross since November last year.
• Focus for the duration of the Thursday session turns to weekly jobless claims data from the US, trade balance from the US and Canada as well as final durable goods orders for March. ECB's Lane is set to speak, but not until after the US markets close. There are no scheduled Fed speakers following yesterday's rate decision.

OPTIONS: Expiries for May02 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0630(E720mln), $1.0660-75(E2.5bln), $1.0695-02(E971mln), $1.0745-50(E2.0bln)
• USD/JPY: Y155.00($500mln), Y156.05($646mln), Y156.75($625mln)
• AUD/USD: $0.6475(A$557mln)
• USD/CAD: C$1.3850($975mln)

EQUITIES: Eurostoxx 50 Futures Extend Pullback from 5000 Handle

Eurostoxx 50 futures are trading above 4762.00, the Apr 19 low. The contract has recently traded through the 20-day EMA and resistance at 4990.00, the Apr 15 high. This continues to highlight a potentially stronger reversal and the end of the correction between Apr 2 - 19. An extension higher would expose the bull trigger at 5079.00, the Apr 2 high. Key support lies at 4762.00, a break would be bearish. Initial support to watch is 4878.10, the 50-day EMA. The short-term trend condition in S&P E-Minis remains bearish and recent gains appear to have been a correction. The contract has recently traded through the 50-day EMA, signalling scope for a continuation lower. A resumption of the bear leg would open 4907.57, a Fibonacci retracement. Firm resistance at 5124.01, the 20-day EMA, has been pierced, a clear break would signal a reversal and expose key resistance at 5333.50, Apr 1 high.

COMMODITIES: Recent Price Action in WTI Futures Signals Scope for Deeper Correction Lower

WTI futures traded lower yesterday. Price has breached key support at the 50-day EMA, at $81.14. 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 traded lower Tuesday and breached initial support at $2291.6, the Apr 23 low. The precious metal has also traded through the 20-day EMA and this highlights a corrective cycle. A continuation lower would signal scope for an extension towards $2242.7, the 50-day EMA. Note that a short-term bear cycle is allowing significant overbought condition to unwind. Key resistance and the bull trigger is at $2431.5, the recent Apr 12 high.

Date	GMT/Local	Impact	Country	Event
02/05/2024	1230/0830	***	US	Jobless Claims
02/05/2024	1230/0830	**	US	WASDE Weekly Import/Export
02/05/2024	1230/0830	**	US	Trade Balance
02/05/2024	1230/0830	**	US	Preliminary Non-Farm Productivity
02/05/2024	1230/0830	**	CA	International Merchandise Trade (Trade Balance)
02/05/2024	1245/0845		CA	BOC's Macklem appears at House finance committee.
02/05/2024	1400/1000	**	US	Factory New Orders
02/05/2024	1430/1030	**	US	Natural Gas Stocks
02/05/2024	1530/1130	**	US	US Bill 04 Week Treasury Auction Result
02/05/2024	1530/1130	*	US	US Bill 08 Week Treasury Auction Result
02/05/2024	2015/2215		EU	ECB's Lane lecture at University of Stanford
03/05/2024	0645/0845	*	FR	Industrial Production
03/05/2024	0700/0300	*	TR	Turkey CPI
03/05/2024	0800/1000	***	NO	Norges Bank Rate Decision
03/05/2024	0900/1100	**	EU	Unemployment
03/05/2024	1230/0830	***	US	Employment Report
03/05/2024	1400/1000	***	US	ISM Non-Manufacturing Index
03/05/2024	1700/1300	**	US	Baker Hughes Rig Count Overview - Weekly