MNI US MARKETS ANALYSIS - NOK Rallies as Markets Price Tighter Norges Bank Backdrop

US TSYS: Bear Flattening To Start The US Session On Headline Watch

• Cash Tsys trade cheaper, led by the front end for a bear flattening and underperforming EU FI across major benchmarks. We’re within yesterday’s ranges but after the larger flattening on the day, 2s are closer to lows having nearly returned to pre-initial claims levels whereas 10s are closer to highs. Subdued volumes in futures suggest lower conviction but could also help see some volatility ahead.
• With a completely blank docket, headlines are likely the main driver for today’s session but with focus otherwise firmly on next week which includes US CPI on Tue and the FOMC decision on Wed in amongst an action-packed week elsewhere.
• 2YY +4.3bp at 4.558%, 5YY +3.9bp at 3.897%, 10YY +3.3bp at 3.751% and 30YY +2.2bp at 3.910%
• TYU3 trades 9+ ticks lower at 113-14 after yesterday’s low of 112-30 saw key support at 112-29+ (May 26/30 lows) remain intact. Volumes are below average at just over 200k.

STIR FUTURES: Fed Rates Eat Into Post Claims Dip, 25bp Cuts Peak To Year-End

• Fed Funds implied rates are little changed for the next two meetings, with +7bp for Jun (+0.5bp on the day) and a cumulative +20bp for Jul (+0.5bp).
• They see slightly larger increases for subsequent meetings but remain within yesterday’s, the Dec’23 for instance at 5.02% pushing nearer to the 5.04% seen pre-initial claims yesterday and just about holding an increase since Wednesday’s BoC decision.
• A blank data docket could see some spillover from the CAD jobs report at 0830ET but focus will be firmly on US CPI on Tue followed by the FOMC rate decision Wed.

Issuance Deep Dive: TGA Rebuild To Have Large Impact On Reserves

Our monthly UST Issuance Deep Dive looks at measures Treasury will take to replenish its cash holdings post-debt limit crisis, and scenarios for the impact on overall liquidity in the US financial system.

• Treasury’s net debt issuance increase will be made up entirely of bills, and analyst expectations are that the total will run up to $800B-1T over the 4 months between June/Jul/Aug/Sep.
• The impact on the financial system will depend on the split in takeup of these bills, which will mostly derive from bank reserves and the Fed's overnight reverse repo facility.
• The rebuild of Treasury cash will have an impact similar to quantitative tightening, and It's not hard to see a situation in which bank reserves potentially become "scarce" as early as end-September.
• We look at sell-side analysts' varied expectations for the months ahead, and the possible fallout for liquidity, rates, and financial markets.
• We also review May's strong auction results, and provide our updated issuance calendar.

FOREX: NOK on Top as Markets Rush to Price in Tighter Policy

• Unexpected stickiness of core inflation has propped up the NOK to top the G10 table in early Friday trade. CPI-ATE went against forecast, rising to 6.7% vs. Exp. 6.3% on accelerating food price inflation. The subsequent NOK rally accompanied a tightening of rate expectations via NOK FRAs, which are now pricing the tightest monetary policy in Norway of this cycle so far.
  
• The NOK rally has tipped EUR/NOK through the 50-dma support for the first time since Q4 last year, which could represent a meaningful momentum shift for the currency over the medium-term. Focus turns to the June 22nd rate decision and MPR, where an upward revision for rate path expectations now looks inevitable.
  
• JPY sits at the other end of the G10 table, helping USD/JPY rally back above 139.50 having endured losses across Thursday trade. The moves follow a Bloomberg report citing sources that the BoJ see little requirement for a tweak in yield curve control at this juncture.
• The Canadian jobs report takes focus going forward, with markets looking for net change in employment of 21.3k, and an uptick in the unemployment rate to 5.1%. The Fed remain in their pre-meeting media blackout, meaning speeches from ECB's de Cos and Centeno will be watched by markets.

FX OPTIONS: Expiries for Jun09 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0695-00(E1.1bln), $1.0720-25(E759mln), $1.0750-60(E697mln), $1.0800(E622mln)
• USD/JPY: Y139.00($996mln), Y140.00($972mln)
• USD/CAD: C$1.3350-65($837mln), C$1.3390-00($1.0bln), C$1.3450($1.7bln), C$1.3500($2.1bln)
• USD/CNY: Cny7.10($990mln), Cny7.20($644mln)

EQUITIES: E-Mini S&Ps Remain Close to Recent Highs

• Eurostoxx 50 futures are consolidating and price remains above 4216.00, the May 31 low and a key support. For now, the recent move higher appears to be a correction. The recent breach of support at 4252.00, the May 25 low, highlights a potential bearish threat. The contract has also pierced support at 4233.00, the May 4 low and a key short-term level. Resistance to watch is 4362.00, May 29 high. Clearance of this level would be bullish.
• S&P E-minis continue to trade inside the recent range. The trend outlook remains bullish and the recent break of resistance at 4244.00, the Feb 2 high, reinforces current conditions. This confirmed a resumption of the uptrend that started in October 2022. The focus is on 4327.50 next, the Aug 16 2022 high (cont). The 50-day EMA, at 4165.06 remains a key support. A break is required to signal a reversal.

COMMODITIES: Gold Holds Onto Thursday Gains Though Remains in Technical Bear Cycle

• WTI futures continue to trade below key short-term resistance at $75.06, the Jun 5 high. The pullback from this level reinforces a bearish theme. A continuation lower would signal scope for weakness towards $67.03, the May 31 low and key support at $63.90, the May 4 low. Moving average studies remain in a bear mode position highlighting a downtrend. On the upside, a break of resistance at $75.06 is required to highlight a potential bullish theme.
• The bear cycle in Gold remains intact. The yellow metal traded lower Wednesday and once again pierced trendline support drawn from Nov 3 2022. The trendline intersects at $1955.7. A clear breach of this line would reinforce bearish conditions and open $1903.5, 61.8% of the Feb 28 - May 4 bull cycle. Initial firm resistance is $1985.3, the May 24 high. Clearance of this level would signal a short-term reversal.