MNI US MARKETS ANALYSIS - JPY Weakness Pervades

Highlights: 

• JPY weakness pervades, with implied vols shooting higher ahead of BoJ
• US advance GDP data takes focus, with weekly claims also due
• Treasury curve consolidates steepening move, with a focus on PCE

US TSYS: Consolidating Prior Steepening Ahead Of GDP/PCE Data

• Cash Tsy yields sit 0.5bp lower to 0.5bp higher on the day as markets await key US data, plus further supply with the 7Y after yesterday's modest tail for the 5Y.
• It consolidates yesterday’s bear steepening, with 2s10s at -27.7bps after -27.1bp yesterday marked the steepest since January.
• TYM4 has kept to a narrow range on subdued volumes of 220k. The bear trend remains in place. At 107-26+ (+ 03), it’s off yesterday’s low of 107-20 whilst support is seen at 107-13+ (Apr 16 low).
• Overnight flow has seen another TU/FV/UXY fly trade, selling the wings & buying the belly, after a similar structure during pre-NY trade yesterday. With the 2s5s10s cash butterfly continuing to see 5s trading close to the cheapest levels since Oct '23, the block looks to fade that move.
• Data: GDP/PCE Q1 advance (0830ET), Weekly jobless claims (0830ET), Adv Goods trade balance Mar (0830ET), Retail and wholesale inventories Mar/Mar prelim (0830ET), Pending home sales Mar (1000ET), Kansas City Fed mfg Apr (1100ET).
• Note/bond issuance: US Tsy $44B 7Y Note auction (91282CKN0) – 1300ET
• Bill issuance: US Tsy $70B 4W, $75B 8W Bill auctions – 1130ET
• Earnings: Today sees some heavy names with Microsoft and Alphabet after the close.

STIR: Fed Rates Almost Unchanged Overnight

• Cumulative cuts from 5.33% effective: 1bp May, 5bp Jun, 12.5bp Jul, 25bp Sep, 43bp Dec.
• Today’s data focus is on the GDP/PCE Q1 advance plus weekly jobless claims, with continuing claims covering the payrolls reference period, both at 0830ET.
• With increased focus on supply side strength, the inflation data within the GDP report will be even more important in guiding the market reaction.

US TSY FUTURES: OI Points To Net Short Setting Across Curve On Wednesday

Yesterday’s sell off in Tsys and preliminary OI data points to relatively meaningful net short setting across the curve. A little over $8mn of OI DV01 equivalent in net shorts was added across the curve.

• This came as European bonds led Tsys lower, with a slightly firmer-than-expected headline durable goods reading and soft demand metrics at the 5-Year Tsy auction also factoring in.

STIR: OI Points to Mix Of Short Setting & Long Cover In SOFR Futures On Wednesday

Yesterday’s downtick in SOFR futures and preliminary OI data points to a mix of net short sales and long cover through the blues as the market-implied pricing of Fed policy rates stuck within the recent ranges.

• Spill over from moves in the longer end of global curves seemed to be the driver from the start of London trade, after Asia-Pac inflation data applied pressure.
• Net pack OI movements were relatively insignificant.
• Individual contracts also failed to provide meaningful net OI swings.

SPAIN: Potential For Political Instability Should PM Sanchez Resign

The shock announcement late on 24 April that PM Pedro Sanchez is considering his position as President of the Government risks engendering notable political uncertainty within the already-fragile Spanish political landscape. A court has opened a corruption investigation into Sanchez's wife, with the PM stating that he will announce to the Spanish public on Monday 29 April whether he will remain in office or resign. Sanchez and his wife, Begoña Gómez, deny any wrongdoing.

• Sanchez has served as PM since June 2018, and has managed to hold on to power despite significant policial uncertainty and perceived electoral setbacks. He currently leads a minority gov't that includes separatist parties and holds a razor-thin majority in the Congress of Deputies.
• Should Sanchez vacate office, it is not clear a) who his successor would likely be, and b) whether this individual would be able to keep the Catalan separatist parties on-side to ensure a majority and avoid potential snap elections.
• To add to the complications, Catalonia holds snap regional elections on 12 May. The heightened political rhetoric surrounding the vote could damage relations between Sanchez's centre-left PSOE and the pro-independence Junts, that work together at the national level, but are opponents in the Catalan parliament.
• Should Junts withdraw its support for the gov't under a new PM it would deny the PSOE-Sumar minority gov't its majority, risking votes of no confidence and a snap election.

Chart 1. Spanish Congress of Deputies, Seats

Source: congreso.es

FOREX: JPY Weakness Pervades, Implied Vols Ratchet Higher Pre-BoJ

• JPY weakness is once again the market focus, as USD/JPY's incline continues apace to print a new cycle high of 155.74 in early European / late Asia-Pac trade. Markets continue to test the resolve of the Japanese authorities, as several 'lines in the sand' at Y150.00 and Y155.00 go by with little sign of intervention. The BoJ are expected to discuss the weakening currency at their policy meeting - on which MNI understands that the USD/JPY at current levels is insufficient to prompt any immediate rate hike from the BoJ.
• Overnight JPY options vols are pricing a sizeable swing across the BoJ decision on Friday, with markets pricing options at their most sensitive level of the year so far. We wrote last week that the next phase higher for USD/JPY could be harder to come by, with extremely short positioning and an overbought technical condition making gains more difficult from here – however a placid attitude from the BoJ toward the currency could unlock fresh USD/JPY longs.
• GBP trades more favourably, with AUD and NZD also firmer. While equity futures have rolled off the weekly highs, the strength posted off the April lows continues to underpin risk appetite, despite still high US yields and tighter Fed policy pricing.
• Focus for the duration of the session turns to Q1 advanced US GDP data and the latest core PCE price index release. March trade balance, pending home sales and the latest weekly jobless claims are also set to cross. Central bank appearances include ECB's Lagarde, Nagel (on climate change) and Panetta.

JPY: Overnight Vols Blow Wider, Implying Highest JPY Sensitivity Since December

• Option vol for contracts expiring after the BoJ tomorrow have suitably surged, with the contract rallying to 30 points, the highest level this year and the highest since the December BoJ decision. The run higher in vols blows out the break-even on an overnight straddle to around ~190 pips, almost four times the implied overnight swing relative to the YTD average background vol.
• We wrote last week that the next phase higher for USD/JPY could be harder to come by, with extremely short positioning and an overbought technical condition making gains more difficult from here – however a placid attitude from the BoJ toward the currency could unlock fresh USD/JPY longs – with upside hedges targeting 157.50 and resistance at 157.65, the 2.236 proj of the Feb 1 - 13 - Mar 8 price swing.
• Overnights are not the only part of the curve seeing interest, with one-week USD maturities surging across G10 as the contracts capture Wednesday’s Fed decision – although JPY is clearly more sensitive relative to peers. Our full BoJ preview found here: https://roar-assets-auto.rbl.ms/files/61017/BOJ%20...

OPTIONS: Expiries for Apr25 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0640-50(E1.7bln), $1.0700(E526mln), $1.0750-60(E1.6bln)
• USD/JPY: Y154.00($724mln), Y155.00($1.6bln), Y155.85($801mln)
• GBP/USD: $1.2495-00(Gbp650mln)
• AUD/NZD: N$1.0850(A$1.1bln)
• USD/CNY: Cny7.1800($1.3bln)

EQUITIES: Latest Recovery in E-Mini S&P Appears Technically Corrective

Eurostoxx 50 futures have traded higher this week, extending the recovery from 4762.00, Apr 19 low. The contract has breached the 20-day EMA and resistance at 4990.00, Apr 15 high. This highlights a potentially stronger reversal and signals the end of the correction between Apr 2 - 19. A continuation higher would expose the bull trigger at 5079.00, Apr 2 high. Key support lies at 4762.00. Initial support to watch is 4868.30, the 50-day EMA. The short-term trend condition in S&P E-Minis remains bearish and the latest recovery appears - for now - to be a correction. Last week’s bearish extension reinforced current short-term conditions. The contract has recently cleared the 50-day EMA, signalling scope for a continuation lower. Sights are on 4907.57 next, a Fibonacci retracement. Firm resistance is 5144.86, the 20-day EMA. A clear break of the average would signal a possible reversal.

COMMODITIES: WTI Futures Remain Above Key Short-Term Support at $80.93

WTI futures have recovered from their recent lows and price remains above key short-term support at $80.93, the 50-day EMA. The recent move lower highlights a corrective phase and a clear break of the 50-day average would signal scope for a deeper retracement towards $76.07, the Mar 11 low. On the upside, key resistance and the bull trigger has been defined at $86.97, the Apr 12 high. A break would resume the uptrend. Gold is trading closer to its recent lows. The precious metal has pierced the 20-day EMA and this signals the start of a possible corrective cycle. A continuation lower would signal scope for an extension towards $2225.1, the 50-day EMA. Note that a short-term bear cycle would allow a significant overbought trend condition to unwind. Key resistance and the bull trigger has been defined at $2431.5, the recent Apr 12 high.

Date	GMT/Local	Impact	Country	Event
25/04/2024	1100/0700	***	TR	Turkey Benchmark Rate
25/04/2024	1230/0830	***	US	Jobless Claims
25/04/2024	1230/0830	**	US	WASDE Weekly Import/Export
25/04/2024	1230/0830	***	US	GDP
25/04/2024	1230/0830	*	CA	Payroll employment
25/04/2024	1230/0830	**	US	Advance Trade, Advance Business Inventories
25/04/2024	1400/1000	**	US	NAR Pending Home Sales
25/04/2024	1430/1030	**	US	Natural Gas Stocks
25/04/2024	1500/1100	**	US	Kansas City Fed Manufacturing Index
25/04/2024	1530/1130	**	US	US Bill 04 Week Treasury Auction Result
25/04/2024	1530/1130	*	US	US Bill 08 Week Treasury Auction Result
25/04/2024	1700/1300	**	US	US Treasury Auction Result for 7 Year Note
26/04/2024	2301/0001	**	GB	Gfk Monthly Consumer Confidence
26/04/2024	2330/0830	**	JP	Tokyo CPI
26/04/2024	0130/1130	**	AU	Trade price indexes
26/04/2024	0200/1100	***	JP	BOJ Policy Rate Announcement
26/04/2024	0645/0845	**	FR	Consumer Sentiment
26/04/2024	0800/1000	**	EU	M3
26/04/2024	0800/1000	**	EU	ECB Consumer Expectations Survey
26/04/2024	0800/1000		EU	ECB's De Guindos at Academia Europea Leadership
26/04/2024	1230/0830	**	US	Personal Income and Consumption
26/04/2024	1400/1000	**	US	U. Mich. Survey of Consumers
26/04/2024	1500/1100		CA	Finance Dept monthly Fiscal Monitor (expected)
26/04/2024	1700/1300	**	US	Baker Hughes Rig Count Overview - Weekly