Highlights:
- Core bonds lower, with UST 10y supply in view
- Collins likely the highlight, with little macro data to follow
- Riksbank join SNB in initiating easing cycle
- Treasuries have followed EGBs lower overnight on little by way of clear headline drivers although German IP did fall by less than expected.
- Another light data docket sees focus on 10Y supply, after yesterday’s relatively smooth digesting of front end issuance with the 3Y trading through by 0.2bps.
- Cash yields sit between 0.5-2.5bp higher on the day, bear steepening but with 2s10s at -35.5bps within yesterday’s range after flattening.
- TYM4 has seen a day’s low of 108-27+, back at the low end of yesterday’s range to extend the reversal from 109-09, on strong volumes of almost 380k.
- Yesterday’s climb exposed notable resistance levels at 109-06+ (channel top from the Feb 1 high) and 109-08+ (50-day EMA) in a renewed look at 109-09+ (snap reaction after payrolls on May 3). Renewed upward pressure could open 109-22+ (Fibo retracement of Feb 1 – Apr 25 bear leg).
- Data: Weekly MBA mortgage data (0700ET), Wholesale trade sales/inventories Mar/Mar f (1000ET)
- Fedspeak: Jefferson (1100ET), Collins (1145ET), Cook (1330ET) – see STIR bullet
- Issuance: US Tsy $42B 10Y Note auction - 91282CKQ3 (1300ET)
- Bill issuance: US Tsy $60B 17W Bill auction (1130ET)
STIR: Fed Rates Modestly Higher, Collins Likely Pick Of Mon Pol-Focused Fedspeak
- Fed Funds implied rates have pushed a little higher overnight on no clear headline driver.
- Cumulative cuts from 5.33% effective: 3bp Jun, 8.5bp Jul, 21bp Sep, 29bp Nov, 43bp Dec.
- Yesterday, Kashkari (non-voter) reiterated potential for no cuts this year (unsure whether he’ll stick with two cuts in next month’s SEP or just one or no cuts).
- Ahead, the main monetary policy relevant Fedspeak is likely Collins although Jefferson could offer a few lines.
- 1110ET - Vice Chair Jefferson (voter) speaks on careers in economics (1110ET).
- 1145ET - Collins (’25 voter) speaks to MIT students including prepared remarks. She said Apr 12 that it’s too soon to tell if the recent CPI numbers, which were on the “high end” of expectations, were more than a bump whilst she sees the Fed cutting later than previously thought.
- 1330ET - Gov. Cook (voter) speaks on financial stability (text tbd).
US TSY FUTURES: OI Points To Net Short Cover As Dominant Positioning Swing On Tuesday
The combination of yesterday’s twist flattening of the Tsy futures curve and preliminary OI data points to the following net positioning swings on Tuesday:
- Net long cover: TU
- Net short cover: FV, TY, UXY & WN futures.
- Net long setting: US futures
- The apparent net short cover flagged above provided the dominant positioning move in net curve terms.
- A reminder that news flow was fairly muted on Tuesday, with a rally in European & UK bonds providing support ahead of the smooth passage of 3-Year Tsy supply. Tsys then faded from session highs into the close.
- More boradly, net shorts have seemingly been pared in the time since Friday's NFP release.
| 07-May-24 | 06-May-24 | Daily OI Change | OI DV01 Equivalent Change ($) | |
| TU | 4,070,231 | 4,082,117 | -11,886 | -434,197 |
| FV | 6,042,604 | 6,098,063 | -55,459 | -2,276,332 |
| TY | 4,383,473 | 4,415,156 | -31,683 | -2,015,857 |
| UXY | 2,143,272 | 2,147,959 | -4,687 | -402,496 |
| US | 1,600,281 | 1,590,133 | +10,148 | +1,294,521 |
| WN | 1,643,616 | 1,644,199 | -583 | -114,463 |
| Total | -94,150 | -3,948,823 |
STIR: OI Points To Mix Of SOFR Positioning Swings On Tuesday, Long Cover Dominated In Whites
The combination of yesterday’s twist flattening of the SOFR futures strip and preliminary OI data points to the following net positioning swings on Tuesday:
- Whites: Long cover seemed to dominate in most contracts. A 30K block sale in SFRU4 futures provided the most notable flow here. The net OI swing in the contract and the fact that it came in the wake of apparent net long setting in the contract on Friday (40K bought across 2 blocks) points to cover of an existing position.
- Reds: Short setting seemed to dominate in most contracts.
- Greens & Blues: Net long setting seemed to dominate, although pockets of short cover were also seen.
| 07-May-24 | 06-May-24 | Daily OI Change | Daily OI Change In Packs | ||
| SFRH4 | 911,865 | 911,673 | +192 | Whites | -38,573 |
| SFRM4 | 1,084,971 | 1,087,094 | -2,123 | Reds | +19,816 |
| SFRU4 | 1,086,179 | 1,118,520 | -32,341 | Greens | +5,744 |
| SFRZ4 | 1,211,745 | 1,216,046 | -4,301 | Blues | +2,380 |
| SFRH5 | 804,559 | 799,660 | +4,899 | ||
| SFRM5 | 805,720 | 808,123 | -2,403 | ||
| SFRU5 | 713,780 | 710,348 | +3,432 | ||
| SFRZ5 | 843,207 | 829,319 | +13,888 | ||
| SFRH6 | 503,962 | 497,049 | +6,913 | ||
| SFRM6 | 521,572 | 519,510 | +2,062 | ||
| SFRU6 | 388,142 | 388,618 | -476 | ||
| SFRZ6 | 353,200 | 355,955 | -2,755 | ||
| SFRH7 | 244,364 | 242,652 | +1,712 | ||
| SFRM7 | 182,050 | 182,138 | -88 | ||
| SFRU7 | 172,311 | 172,400 | -89 | ||
| SFRZ7 | 141,219 | 140,374 | +845 |
EUROPE ISSUANCE UPDATE:
UK Gilt auction results
- A relatively soft 30-year green gilt auction with a tail of 0.6bp, but more importantly the lowest accepted price of 50.953 was below the prevailing secondary market price going into the end of the auction (although there was a dip just below this price a couple of minutes before the end of the auction period and in line with other gilts the price of the 1.50% Jul-53 green gilt has been moving slightly higher since around 8:40BST).
- Some minor weakness in the price after the auction results were published but we wouldn't really read into this too much for the wider gilt market with no impact on gilt futures.
- GBP2.5bln of the 1.50% Jul-53 Green Gilt. Avg yield 0% (bid-to-cover 0x).
Portugal OT auction results
- E405mln of the 2.875% Oct-34 OT. Avg yield 3.075% (bid-to-cover 1.82x).
- E608mln of the 3.50% Jun-38 OT. Avg yield 3.297% (bid-to-cover 1.63x).
Italy Day 3 BTP Valore Books At E1.155bln
Day 3 books for the 6-year retail-only BTP Valore are currently at E1.155bln.
• So far, E3.701bln was sold on day 1 and E2.865bln on day 2, bringing total take-up to E7.721bln.
• 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.
ISRAEL: KAN-US Official: Concerns On Rafah Op Not Yet Fully Addressed
Israel's KAN reportingcomments from an unnamed senior US official regarding Israel's nascent ground operation in the city of Rafah, and reports that Washington has paused the transfer of sizeable ordnance to Israel due to the lack of a comprehensive plan to avoid mass civilian casualties. US official: "Discussions with Israel on the humanitarian and operational issues in Rafah continue and our concerns were not fully addressed. When we saw that Israeli leaders were approaching a decision point regarding such an operation, we began to carefully examine proposed transfers of certain weapons to Israel that might be used in Rafah."
- WaPo reported on the pause in shipments on the evening of 7 May, with an unnamed US official saying the move comes as "a “shot across the bow” intended to underscore to Israeli leaders the seriousness of U.S. concerns about the offensive in Rafah,"
- Saudi media also reporting that at his upcoming meeting with CIA Director William Burns, Israeli PM Benjamin Netanyahu will inform Burns that Israel 'rejects the broad outlines of the [ceasefire] agreement submitted by Hamas'.
- The situation remains delicately poised. With the IDF seemingly on the verge of a full-scale ground operation in Rafah, the urgency at reaching a ceasefire deal rapidly will be apparent for mediators in the US, Qatar, and Egypt. If an agreement cannot be reached in the coming days, it may prove impossible for a ceasefire to come into effect before a surge in fighting between the IDF and Hamas in and around Rafah.
FOREX: USD/JPY Extends Bounce Off Post-Intervention Support
- USD/JPY continues to grind higher, with the pair touching a new post-intervention recovery high in the European morning, extending the bounce off the 50-dma support that crosses today at 152.17. The moves put the JPY spot trade-weighted Index at around 3% off the pre-intervention lows, but tolerance of the authorities should get tested well ahead of reaching that mark.
- With Japan having already spent already spent ~$60bln in reserves in this year's intervention phase, markets speculate on what other steps the BoJ could take to shore up the currency - with further rate hikes likely to remain part of the conversation across this week's real cash earnings data and National CPI on the 24th May.
- The USD Index is firmer, with the greenback outperforming most others. The Riksbank decision saw Sweden join Switzerland in being one of the first European countries to kick off their easing cycle. EUR/SEK was higher in response, but outsized price action was broadly contained. Material currency weakness was avoided as the bank stressed that a follow-up rate cut in June was unlikely, leaving the rate path guidance in March intact.
- Data remains few and far between Wednesday, with just March final wholesale trade sales and inventories data due. The speaker schedule is busier, as ECB's Wunsch & de Cos and Fed's Jefferson, Cook and Collins make appearances.
OPTIONS: Busier CNY, GBP Make Up for Quieter EUR, JPY Hedges
- Following an understandably muted session for currency hedging markets on Monday, activity bounced back yesterday with near $110bln notional crossing via the DTCC. Wednesday trade so far is slightly more muted, but busier CNY, AUD and GBP hedges are compensating for quieter JPY and EUR trade.
- The front-end of the G10 vol curve is seeing small support, as the pullback in USD vols evident off the April highs begins to slow, and partially reverse. This keeps GBP/USD 1m vols in line with the YTD average of ~6.5 points.
- GBP/USD activity so far today leans toward upside demand, with decent interest in short-dated call strikes layered between $1.2500 and 1.2530 largely responsible – a decent part of which expire on Friday – thereby capturing tomorrow’s BoE event risk.
- The normalization of the CNY vol curve off YTD lows (3m risk reversal vols briefly shifted to favour USD/CNH puts over calls for the first time since 2011 in March) persists, with upside exposure again the theme: over $3 in calls have traded for every $2 in puts, with demand for call strikes evident as high as Cny 7.2700-7.2850.
OPTIONS: Expiries for May08 NY cut 1000ET (Source DTCC)
- EUR/USD: $1.0750(E793mln), $1.0775-80(E612mln), $1.0825(E525mln)
- USD/JPY: Y153.75($708mln), Y154.40-50($510mln)
- GBP/USD: $1.2489-00(Gbp496mln)
- EUR/GBP: Gbp0.8580-90(Gbp827mln)
- AUD/USD: $0.6600(A$629mln)
EQUITIES: Eurostoxx 50 Futures Narrow Gap to Bull Trigger at 5079.00
Eurostoxx 50 futures are holding on to their most recent gains. The contract recently traded through the 20-day EMA and resistance at 4990.00, the Apr 15 high. This highlights a potentially stronger reversal. An extension higher would expose the bull trigger at 5079.00, the Apr 2 high. Initial resistance is at 5006.00, the Apr 29 / May 7 high. Key support lies at 4762.00, the Apr 19 low. A break would be bearish. Initial support to watch is 4885.50 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. This highlights a stronger short-term bullish condition and a continuation would expose the key resistance and bull trigger at 5333.50, the Apr 1 high. Initial resistance is 5246.18, a Fibonacci retracement. Firm support lies at 5036.25, the May 2 low.
COMMODITIES: WTI Futures Trading Close to Cycle Lows
A bearish theme in WTI futures remains intact and the contract traded to a fresh short-term cycle low yesterday. Price has recently breached the 50-day EMA. 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 is unchanged and remains in consolidation mode. A bearish condition is intact. The precious metal has recently traded through the 20-day EMA and this highlights a corrective cycle. A continuation lower would signal scope for an extension towards $2252.8, the 50-day EMA. Note that a short-term bear cycle is allowing a 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 | |||||
| 08/05/2024 | 1100/0700 | ** |  US | MBA Weekly Applications Index | |||||
| 08/05/2024 | 1400/1000 | ** | US | Wholesale Trade | |||||
| 08/05/2024 | 1430/1030 | ** | US | DOE Weekly Crude Oil Stocks | |||||
| 08/05/2024 | 1500/1100 | US | Fed Vice Chair Philip Jefferson | ||||||
| 08/05/2024 | 1545/1145 | US | Boston Fed's Susan Collins | ||||||
| 08/05/2024 | 1700/1300 | ** | US | US Note 10 Year Treasury Auction Result | |||||
| 08/05/2024 | 1730/1330 | US | Fed Governor Lisa Cook | ||||||
| 08/05/2024 | 1935/1535 | US | New York Fed's Roberto Perli | ||||||
| 09/05/2024 | 2301/0001 | * |  GB | RICS House Prices | |||||
| 09/05/2024 | 2301/0001 | ** | GB | KPMG/REC Jobs Report | |||||
| 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 | - | *** |  CN | Trade | |||||
| 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 | |||||