Highlights:
- BoE vote split in focus, with Ramsden a potential cut vote
- USD Index firmer for third session
- Initial jobless claims seen ticking higher, 30y supply follows
US TSYS: Treasuries Follow EGBs Lower, Jobless Claims and 30Y Supply On Docket
- Treasuries have pushed lower overnight despite nearer-term Fed rates sitting little unchanged, again following a larger sell-off in EGBs whilst crude oil extends yesterday’s recovery.
- Cash yields sit 1-2.5bps higher, bear steepening with 2s10s at -33.7bps (+0.4bps).
- TYM4 sits at 108-21+ off an earlier low of 108-19+ on slightly above average volumes of 305k. It steps closer to support at 108-16+ (20-day EMA) as it moves away from tightly packed resistance at 109-06+ (Channel top from Feb 1 high), 109-08+ (50-day EMA) and 109-09+ (May 3 high).
- The BoE rate decision could offer some spillover early on before attention turns to jobless claims and then later on issuance, with 30Y supply after yesterday’s 10Y tailed by 1bp but was otherwise relatively well received.
- Data: Weekly jobless claims (0830ET)
- Fedspeak: Daly in a fireside chat (1400ET)
- Note/bond issuance: US Tsy $25B 30Y auction - 912810UA0 (1300ET)
- Bill issuance: US Tsy $80B 4W and 8W Bill auctions (1130ET)
- Speaking for the first time on the balance sheet since Oct, NY Fed’s SOMA Manager Perli said yesterday that slowing runoff represents an important and prudent step. Indicators currently point toward abundant reserves but uncertainty about their abundance is a reason to slow now. Asset runoff has been smooth but can’t take it for granted. Remarks here.
STIR: Fed Rates Little Changed Ahead Of BoE & Jobless Claims
- Fed Funds implied rates are unchanged for meetings out to Sept and after that fractionally higher on the day.
- Cumulative cuts from 5.33% effective: 3bp Jun, 9bp Jul, 21bp Sep, 30bp Nov and 43bp Dec.
- Potential spillover from the BoE rate decision offers the first point of focus before weekly jobless claims data in a particularly light data week.
- Later on, SF Fed's Daly (’24 voter) speaks in a fireside chat at 1400ET. She said Apr 16 that the worst thing the Fed can do now is act urgently as it’s not necessary - it needs to be confident inflation is going to 2% before reacting.
STIR: OI Points To Mix Of Short Setting & Long Cover In SOFR Futures On Wednesday
Yesterday's downtick in most SOFR futures and preliminary OI data points to the following net positioning swings:
- Whites: The only real inference that we can provide with conviction points to net long cover in SFRZ4. Net OI was little changed in the remaining contracts, while pricing in SFRH4 through U4 was unchanged at settlement. This was despite a wave of buying in the whites during the NY morning.
- Reds: Net long cover was seemingly seen in all contracts.
- Greens: Net short setting was seemingly seen in all contracts.
- Blues: A mix of net short setting and long cover.
- The move off the recent hawkish extremes has stalled a little, with participants awaiting the next catalyst (which may come in the form of cross-market impact from today's BoE decision).
| 08-May-24 | 07-May-24 | Daily OI Change | Daily OI Change In Packs | ||
| SFRH4 | 911,794 | 911,865 | -71 | Whites | -4,489 |
| SFRM4 | 1,086,534 | 1,084,779 | +1,755 | Reds | -23,781 |
| SFRU4 | 1,083,877 | 1,083,312 | +565 | Greens | +38,335 |
| SFRZ4 | 1,205,007 | 1,211,745 | -6,738 | Blues | +2,216 |
| SFRH5 | 788,029 | 804,613 | -16,584 | ||
| SFRM5 | 801,462 | 805,727 | -4,265 | ||
| SFRU5 | 711,909 | 713,780 | -1,871 | ||
| SFRZ5 | 842,143 | 843,204 | -1,061 | ||
| SFRH6 | 506,000 | 503,881 | +2,119 | ||
| SFRM6 | 530,693 | 521,572 | +9,121 | ||
| SFRU6 | 405,697 | 388,142 | +17,555 | ||
| SFRZ6 | 362,707 | 353,167 | +9,540 | ||
| SFRH7 | 247,244 | 244,364 | +2,880 | ||
| SFRM7 | 180,456 | 182,050 | -1,594 | ||
| SFRU7 | 172,527 | 172,311 | +216 | ||
| SFRZ7 | 141,933 | 141,219 | +714 |
US TSY FUTURES: OI Points To Mix Of Modest Short Setting & Long Cover On Wednesday
Yesterday's move lower in Tsy futures and preliminary OI data points to a mix of modest short setting and long cover across the major contracts, although there was little net movement in individual and curve-wide DV01 equivalents.
| 08-May-24 | 07-May-24 | Daily OI Change | OI DV01 Equivalent Change ($) | |
| TU | 4,063,002 | 4,070,220 | -7,218 | -263,245 |
| FV | 6,069,071 | 6,042,671 | +26,400 | +1,081,675 |
| TY | 4,377,078 | 4,382,164 | -5,086 | -322,712 |
| UXY | 2,145,123 | 2,143,172 | +1,951 | +166,879 |
| US | 1,596,068 | 1,600,237 | -4,169 | -527,869 |
| WN | 1,641,165 | 1,643,428 | -2,263 | -439,582 |
| Total | +9,615 | -304,854 |
STIR: BoE Pricing Comfortably Off Extremes Into BoE, Greater Market Risk Probably On Dovish Side
A visualisation of the swings in BoE-dated OIS pricing through the end of ’24 in the time since the March MPC can be seen below.
- Pricing is comfortably off extremes, albeit a little closer to the hawkish boundary than the dovish boundary,
- BoE-dated OIS shows close to 25bp less easing through year end than at the close that followed the March MPC.
- Repricing surrounding the U.S. Fed has been a major factor, with sporadic activity surrounding UK data releases and a dovish round of commentary from BoE Deputy Governor Ramsden also seen in that window.
- Our full preview of the impending BoE decision can be found here.
- On Wednesday we suggested that a dovish BoE outcome probably presents the greatest risk to current market pricing, although the move away from recent hawkish extremes provides a little more balance to the risk profile heading into the decision (click for more).
| BoE Meeting | SONIA BoE-Dated OIS (%) | Difference Vs. Current Effective SONIA Rate (bp) |
| May-24 | 5.196 | -0.4 |
| Jun-24 | 5.090 | -11.0 |
| Aug-24 | 4.958 | -24.2 |
| Sep-24 | 4.873 | -32.7 |
| Nov-24 | 4.754 | -44.6 |
| Dec-24 | 4.662 | -53.8 |
Source: MNI - Market News/Bloomberg
EUROPE ISSUANCE UPDATE:
Spain auction results
* E2.408bln of the 3.50% May-29 Bono. Avg yield 2.974% (bid-to-cover 1.58x).
* E1.458bln of the 0.70% Apr-32 Obli. Avg yield 3.1% (bid-to-cover 2.16x).
* E1.911bln of the 3.90% Jul-39 Obli. Avg yield 3.611% (bid-to-cover 2.00x).
* E470mln of the 0.70% Nov-33 Obli-Ei. Avg yield 1.042% (bid-to-cover 2.64x).
Ireland auction results
* E600mln of the 2.60% Oct-34 IGB. Avg yield 2.882% (bid-to-cover 2.05x).
* E400mln of the 0.55% Apr-41 IGB. Avg yield 3.064% (bid-to-cover 2.52x).
Italy BTP Valore Books Cumulatively Over E9.5bln
Day 4 books for the 6-year retail-only BTP Valore are around E835mln on the day, brining the cumulative total slightly above E9.5bln at writing.
* E3.701bln was sold on day 1 and E2.865bln on day 2 and E2.129bln on day 3.
* The previous 6-year Mar-30 BTP Valore issue saw E14.654bln of take-up across the first three days.
* The previous 6-year Mar-30 BTP Valore issue saw E6.44bln sold on day 1, E4.611bln sold on day 2, E3.603bln on day 3 and E2.29bln sold on day 4 and E1.37bln on day 5.
GBP: Markets Maintain Sizeable GBP Short into BoE
- Markets head into the BoE decision maintaining the largest net short GBP position since H2 2022, having built the net short position consistently across April. At 12.3% of open interest, markets may be exposed to the threat of a short squeeze should the BoE come in more hawkish than expected (e.g. Via an 8-1 vote split, or by pushing against the likelihood of a rate cut by August).
- Such a squeeze higher would initially target the 200-dma of 1.2544, but it would take a firmer rally above 1.2634 to confirm a resumption of the recovery off the April low.
- Conversely, nearby support in GBP/USD looks thin below 1.2466, leaving market focus instead on EUR/GBP's 0.8618 and firmer resistance at 0.8644. These levels will be in focus in case of any firmer easing signalling today, or a particularly negative downward revision to inflation projections.
- While vols have been run higher in the lead-up to today's BoE - EUR/GBP may be the cross to watch rather than GBP/USD, as overnight EUR/GBP vols crest above 9 points, the highest since the February BoE decision (which also saw an MPR release).
FOREX: GBP in Focus, With EUR/GBP Eyeing Key Levels
- GBP is in focus ahead of the BoE decision, with overnight vols bid across all GBP crosses. EUR/GBP vols north of 9 points tilts markets to price the biggest swing since the February BoE decision and the last MPR. The Bank are expected to hold the Bank Rate, but opinions are divided over the potential vote split and whether another MPC member - most likely Ramsden - will join Dhingra in voting for a rate cut at this meeting.
- For a third consecutive session, the USD index is firmer, putting the 106.00 handle in sight and following the gyrations of the US yield curve, as the 2yr yield continues to creep higher and off pullback lows posted at 4.7077% last week.
- JPY is the weakest in G10 as rate differentials squeeze the currency - the trade weighted JPY is again narrowing the gap with pre-intervention lows, which should keep pressure on the Japanese authorities to monitor the currency and verbally warn of fresh action should markets become disorderly once more.
- Outside of the BoE decision, weekly jobless and continuing claims data cross, as well as speeches from ECB's Vujcic, Cipollone & de Guindos, BoE's Bailey & Pill and Fed's Daly.
EUROZONE DATA: H2 Recession Risk Remains Low
Q1 euro area GDP rose 0.3% q/q following two slightly negative quarters which the business cycle dating committee are unlikely to declare a recession. MNI's probability estimates are not signalling a risk of a recession in H2 this year either. With growth likely to stay below trend and inflation heading towards the ECB’s target, an easing cycle looks likely to begin soon.
- Our recession probability indicator 6-months ahead estimated from 1985, covering four recessions, has suggested almost no risk of a downturn since the start of last year. In April, it again signalled no risk 6-months ahead.
- The one from 1998, using three recessions, has signalled a probability of around a third throughout this year. Since that is under the breakeven 50% mark, growth in the euro area is likely to struggle rather than experience a prolonged contraction. The April probability rose moderately to 36% from 33% in March. It has been around this rate since December 2023.
- The 3-month change in the real repo rate, real equities, economic sentiment indicator, real 10 year yield and 6-month change in unemployment have all helped to bring the recession probability lower. Real oil prices in euros, real money supply and yield curve have added upward pressure.
- It is worth noting that econometric calculations are only estimates and not predictions.
COMMODITIES: WTI Futures Moderately Recover from Wednesday's Fresh Cycle Lows
A bearish theme in WTI futures remains intact and the contract traded to a fresh short-term cycle low yesterday. Gains are considered corrective. Price has recently breached the 50-day EMA, strengthening a short-term bearish theme that highlights potential for a deeper correction. Scope is seen for a move to $76.07, Mar 11 low. Key resistance and the bull trigger is at $86.97, the Apr 12 high. Initial firm resistance is at $84.46, the Apr 26 high. Gold is unchanged and remains in consolidation mode. A bearish short-term condition is intact. The precious metal has recently traded through the 20-day EMA highlighting a corrective cycle. A continuation lower would signal scope for an extension towards $2255.0, the 50-day EMA. Note that a short-term bear cycle has allowed a significant overbought condition to unwind. Key resistance and the bull trigger is at $2431.5, the recent Apr 12 high.
EQUITIES: E-Mini S&P Remains Close to This Week's Highs
Eurostoxx 50 futures maintain a firmer tone and the contract has traded higher this week. Recent gains have resulted in a breach of the 20-day EMA, and resistance at 4990.00, Apr 15 high, highlighting a stronger reversal. Wednesday’s break of 5006.00, the Apr 4 high, reinforces the current bullish condition. Sights are on the bull trigger at 5079.00, Apr 2 high. Key support is 4762.00, the Apr 19 low. Initial support to watch is 4890.80, the 50-day EMA. S&P E-Minis have traded higher this week, extending the current bull cycle. Price has moved through resistance at the 20-day EMA - a bullish development. This highlights scope for a continuation higher that would expose the key resistance and bull trigger at 5333.50, the Apr 1 high. Initial resistance is 5246.18, a Fibonacci retracement. Initial firm support lies at 5036.25, the May 2 low.
| Date | GMT/Local | Impact | Country | Event | |||||
| 09/05/2024 | 1100/1200 | *** |  GB | Bank Of England Interest Rate | |||||
| 09/05/2024 | 1100/1200 | *** | GB | Bank Of England Interest Rate | |||||
| 09/05/2024 | 1130/1230 | GB | BoE Press Conference | ||||||
| 09/05/2024 | 1215/1415 |  EU | ECB's De Guindos remarks at Panel Civico | ||||||
| 09/05/2024 | 1215/1415 | EU | ECB's Cipollone remarks at seminar on financial instrument tokenisation | ||||||
| 09/05/2024 | 1230/0830 | *** |  US | Jobless Claims | |||||
| 09/05/2024 | 1230/0830 | ** | US | WASDE Weekly Import/Export | |||||
| 09/05/2024 | 1300/1400 | GB | BOE's Decision Maker Panel Data | ||||||
| 09/05/2024 | 1400/1000 |  CA | Bank of Canada Financial System Review (and Survey) | ||||||
| 09/05/2024 | 1430/1030 | ** | US | Natural Gas Stocks | |||||
| 09/05/2024 | 1530/1130 | * | US | US Bill 08 Week Treasury Auction Result | |||||
| 09/05/2024 | 1530/1130 | ** | US | US Bill 04 Week Treasury Auction Result | |||||
| 09/05/2024 | 1615/1715 | GB | BOE's Pill MPR Virtual Q&A | ||||||
| 09/05/2024 | 1700/1300 | *** | US | US Treasury Auction Result for 30 Year Bond | |||||
| 09/05/2024 | 1800/1400 | US | San Francisco Fed's Mary Daly | ||||||
| 09/05/2024 | 1900/1500 | *** |  MX | Mexico Interest Rate | |||||
| 10/05/2024 | 0500/1400 |  JP | Economy Watchers Survey | ||||||
| 10/05/2024 | 0600/0700 | ** | GB | UK Monthly GDP | |||||
| 10/05/2024 | 0600/0700 | ** | GB | Trade Balance | |||||
| 10/05/2024 | 0600/0700 | *** | GB | GDP First Estimate | |||||
| 10/05/2024 | 0600/0700 | ** | GB | Index of Services | |||||
| 10/05/2024 | 0600/0700 | *** | GB | Index of Production | |||||
| 10/05/2024 | 0600/0700 | ** | GB | Output in the Construction Industry | |||||
| 10/05/2024 | 0600/0800 | ** |  SE | Private Sector Production m/m | |||||
| 10/05/2024 | 0600/0800 | *** |  NO | CPI Norway | |||||
| 10/05/2024 | 0700/0900 | EU | ECB's Cipollone presentation on digital euro | ||||||
| 10/05/2024 | 0800/1000 | * |  IT | Industrial Production | |||||
| 10/05/2024 | 0845/1045 | EU | ECB's Elderson in roundtable at ASVIS/ECCO | ||||||
| 10/05/2024 | 1115/1215 | GB | BOE's Pill at National MPC Agency Briefing | ||||||
| 10/05/2024 | 1145/1245 | GB | BOE's Dhingra remarks at KCL Econdat Conference | ||||||
| 10/05/2024 | - | *** |  CN | Money Supply | |||||
| 10/05/2024 | - | *** | CN | New Loans | |||||
| 10/05/2024 | - | *** | CN | Social Financing | |||||
| 10/05/2024 | 1230/0830 | *** | CA | Labour Force Survey | |||||
| 10/05/2024 | 1300/0900 | US | Fed Governor Michelle Bowman | ||||||
| 10/05/2024 | 1400/1000 | ** | US | U. Mich. Survey of Consumers | |||||
| 10/05/2024 | 1400/1000 | US | Dallas Fed's Lorie Logan | ||||||
| 10/05/2024 | 1400/1000 | US | Minneapolis Fed's Neel Kashkari | ||||||
| 10/05/2024 | 1600/1200 | *** | US | USDA Crop Estimates - WASDE | |||||
| 10/05/2024 | 1645/1245 | US | Chicago Fed's Austan Goolsbee | ||||||
| 10/05/2024 | 1700/1300 | ** | US | Baker Hughes Rig Count Overview - Weekly | |||||
| 10/05/2024 | 1730/1330 | US | Fed Vice Chair Michael Barr | ||||||
| 10/05/2024 | 1800/1400 | ** | US | Treasury Budget | |||||