MNI US MARKETS ANALYSIS - NZD Vol Premium Surges With RBNZ, CPI Risks in View

US TSYS: 2Y Stops Just Shy Of 4.8% Overnight Before Yields Follow Europe Lower On Strong Supply

• Cash Tsy yields sit 2-3bp lower, with 2s pulling back off fresh YtD highs of 4.797% early in the Asia session whilst the rest of the curve pulls further away from yesterday’s mid-session YtD highs which included the 10Y yield topping out at 4.462%.
• They have followed European FI, with strong supply instead setting the tone amidst light headline flow. 3Y supply headlines today’s session with focus firmly on tomorrow’s CPI report followed by the FOMC minutes from the March FOMC.
• TYM4 at 109-15 (+ 06+) is a little off earlier highs of 109-17 on strong cumulative volumes of over 400k. It has lifted off yesterday’s 109-02, having come close to support at 109-00, but the bearish trend structure is seen remaining in play.
• Data: No further data with the NFIB survey already released for today
• Note/bond issuance: US Tsy $58B 3Y Note auction (91282CKJ9) – 1300ET
• Bill issuance: US Tsy $65B 42D CMB Bill auction (1130ET)

STIR: Fed Rate Path Off Latest Highs But Still Only 64bp Of Cuts For 2024

• Fed Funds implied rates have dipped off overnight night highs, following European moves, but still see an end-2024 rate notably higher than the FOMC median. A particularly light session today sees focus firmly on tomorrow’s CPI report and FOMC minutes.
• Cumulative cuts from 5.33% effective: 1.5bp May, 13.5bp Jun, 22bp Jul, 39bp Sep and 64bp Dec.
• Kashkari (non-voter) in a town hall after the close yesterday: the labor market is no longer “red hot” but still tight, and his base case is that inflation will continue to fall. He revealed on Thu that he wrote down two cuts this year in the March SEP.
• Former St Louis Fed President Bullard meanwhile sees three rate cuts as the base case with the first cut justified by the data.

MNI RBNZ Preview - April 2024: Too Soon To Ease

• The RBNZ is firmly on hold and there appears to be a high bar for it to shift rates in either direction for now. When it meets on April 10, we expect it to leave rates again at 5.5% where they have been since May last year.
• The April meeting will not include a forecast update or a press conference. We expect the statement to be in line with February’s softer tone with a moderate tightening bias retained, as the RBNZ has “limited tolerance to increase the time to the target mid-point” and it has an asymmetric reaction function with the consequences of easing too soon outweighing those of a delay.
• Governor Orr said in February that policy needs to remain “restrictive” to return inflation to target but the MPC is now more confident this will occur as expected. However, it is still too soon to discuss rate cuts, which it didn’t do at the last meeting, and the OCR path is steady through 2024. If the economy continues to develop as the central bank expects then rate cuts are unlikely until early 2025.
• Click here for the full preview.

EUROPE ISSUANCE UPDATE:

UK Gilt auction results

• GBP2.25bln of the 4.75% Oct-43 Gilt. Avg yield 4.495% (bid-to-cover 3.67x, tail 0.1bp).

• E863mln (E750mln allotted) of the 0.50% Feb-29 RAGB. Avg yield 2.704% (bid-to-cover 2.24x; bid-to-issue 1.95x)
• E1.15bln (E1bln allotted) of the 2.90% Feb-34 RAGB. Avg yield 2.893% (bid-to-cover 2.54x; bid-to-issue 2.21x)

• E4bln (E3.275bln allotted) of the 2.10% Apr-29 Bobl. Avg yield 2.41% (bid-to-offer 2.11x; bid-to-cover 2.57x)

• E7bln of the Oct-29 OLO. Books at above E46bln, spread set at MS-1 (guidance was MS+1 area)

FOREX: USD Index Subdued, Key 50-dma Support Underpins

• Amid muted newsflow and data releases, G10 FX trades well within recent ranges - keeping major pairs on their now well-trodden path. This has kept the USD Index underpinned, as the 50-dma support flagged earlier this week holds as the key downside level. The mark (at 103.949 today) successfully contained a pullback in prices earlier this month.
• Similarly, GBP/USD trades inside the technical parameters of 1.2575 - 1.2684, leaving markets to tread water ahead of the economic releases later in the week including the Bernanke review of Bank of England forecasting due on Friday.
• Spot gold is the standout in commodities space, as the precious metal crests at a new all-time high, buoyed by simmering geopolitical risk in the Middle-East and the break of key resistance en-route to 2359.33 this morning - record levels.
• Front-end vols are well bid as contracts begin to capture the release of US CPI on Wednesday (an overnight option struck today expires 90 minutes after the data release). Overnight implied vols across G10 are touching new April highs, most notably in NZD and CAD, which also capture their respective central bank's rate decisions tomorrow.
• Releases set for the duration of the Tuesday session include US NFIB Small Business Optimism data, with no central bank speakers due.

FX OPTIONS: NZD, CAD Get Vol Boost Ahead of Respective Rate Decisions

• The front-end of the G10 FX vol curve is well bid as USD contracts begin to capture the US CPI risks present on Wednesday. An overnight option struck today will expire 90 minutes after the inflation release tomorrow - however the vol premium added for some currencies is of particular interest.
• G10 FX overnight vols have added ~4.5 vol points on average, but this near doubles for NZD, highlighting the risks surrounding the RBNZ rate decision overnight. While no change to headline policy is expected, markets are cognizant of the dovish risks given the softer-than-expected GDP release and threat of recession across New Zealand this year.
• Our preview found here: https://roar-assets-auto.rbl.ms/files/60784/MNI%20... flags that by year-end, a cumulative 59bps of easing is factored into OIS pricing, despite the RBNZ's OCR track implying little chance of rate cuts this calendar year.
• An overnight ATM straddle breaks even on a ~45 pip swing in NZD/USD, double the swing implied by prevailing background vols. This suggests a dovish RBNZ tilt could prompt a challenge of $0.60 in NZD/USD as well as 0.5997, the 50% retracement of the upleg off the cycle low printed Apr01.

Expiries for Apr09 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0800(E685mln), $1.0860-75(E604mln)
• USD/JPY: Y151.50($1.1bln), Y153.00-15($987mln)
• AUD/USD: $0.6615-30(A$1.5bln)
• USD/CNY: Cny7.2200($980mln)

EQUITIES: US Futures Point to Mixed Cash Open

• The trend condition in S&P E-Minis remains bullish, however, the recent move lower highlights a corrective cycle that remains in play for now, and last week's sell-off reinforces this condition. The contract has breached bull channel support drawn from the Jan 17 low and cleared the 20-day EMA.
• The primary uptrend in Eurostoxx 50 futures remains intact and recent weakness is considered corrective and is allowing an overbought condition to unwind. The break of support around the 20-day EMA - at 4968.70 - suggests potential for a deeper retracement near-term.

COMMODITIES: Spot Gold Crests at a New Alltime High

• The trend condition in Gold remains bullish and the yellow metal traded higher Monday, starting the week on a bullish note. This maintains the price sequence of higher highs and higher lows and note that moving average studies are in a bull-mode condition.
• A bull theme in WTI futures remains intact and last week’s rally reinforces current conditions, confirming a resumption of the uptrend. The contract has traded through $84.87, the Sep 15 ‘23 high, paving the way for a climb towards the $90.00 handle further out.