MNI US MARKETS ANALYSIS - Steady Ahead of the Fed

US TSYS SUMMARY: A busy session ahead of FOMC

A busier European early session in Govies with elevated volumes in Europe and the US.

• US treasuries dipped lower, dragged by decent pressure emerging in Europe.
• TYM1 pushed lower and tested initial support at 131.25 (printed 131.25+ low).
• This has in turn pushed US 10yr yield to the 14-15th April high at 1.6483%, printed a 1.6484% high.
• Better EU Bank results kept Equities underpinned, and Core Bond offered, as investors position for the FOMC.
• Looking ahead, US Wholesale Inventories is the notable data.
• Most of the focus will be on the FOMC, but desks see the June meeting as they key one.
• Earning tech season continues and includes Apple, Ebay and FB today.
• 2y yields down -0.2bp today at 0.179%
• 5y yields up 1.1bp today at 0.893%
• 10y yields up 1.9bp today at 1.642%
• 30y yields up 1.4bp today at 2.310%
• 2s10s up 2.1bp today at 146.3bp-
• 10s30s down -0.5bp today at 66.8bp

EGB/GILT SUMMARY - Trading Weaker Ahead of the FOMC

European sovereign curves have bear steepened ahead of the FOMC meeting later today, while equities have inched higher.

• Gilts have underperformed EGBs. Cash yields are 1-5bp higher on the day with the curve 4bp steeper.
• The bund curve has similarly steepened with the 2s30s spread up 3bp.
• OATs trade in line with bunds.
• BTP yields are 1-3bp higher. Last yields: 2-year -0.2841%, 5-year 0.1746%, 10-year 0.8903%, 30-year 1.8864%.
• Supply this morning came from the UK (linker, GBP900mn), Germany (Bund, EUR2.132bn allotted), Italy (BOTs, EUR6.5bn), Netherlands (DSL, ER2.35bn) and Greece (GTBs, EUR625mn). Portugal also conducted an OT exchange (EUR93mn).
• French consumer confidence data for April came in slightly stronger than exepcted (94 vs 93 survey).

EUROPE ISSUANCE UPDATE: 

Germany allots E2.132bln 0% May-36 Bund, Avg yield 0.06% (Prev. 0.02%), Bid-to-cover 1.08x (Prev. 1.10x), Buba cover 1.27x (Prev. 1.33x)

UK DMO sells GBP900mln of the 0.125% Aug-31 linker, Avg yield -2.537% (Prev. -2.595%), Bid-to-cover 2.82x (Prev. 3.54x)

Portuguese exchange results:

IGCP buys:
E501mln of the 2.20% Oct-22 OT at 104.123
E482mln of the 5.65% Feb-24 OT at 117.343

IGCP sells:
E671mln of the 2.125% Oct-28 OT at 115.15
E312mln of the 2.25% Apr-34 OT at 109.90

EUROPE OPTION FLOW SUMMARY

Eurozone:
RXM1 170.5/169.0/167.5p fly, sold at 37 in 2k

3RU1 99.875p/100.375c RR, bought the p for 0.25 in 25k total. (Now 117k total have been done)
0RZ1 100.50/100.37/100.25p ladder, bought for 1.25 in 5k
0RH2 100.37/100ps, bought for 5 in 2k

ERU2 100.50^ sold at 20 in 2k and 20.25 in 2.5k (4.5k total)

UK:
2LZ1 99.62/99.75/99.87c fly 1x2x1.5, bought for 2 in 8kx16kx12k
2LK1 99.50/99.37ps, sold at 4.5 in 5k
2LU1 99.75/99.87cs, bought for 0.75 in 2.5k
2LU1 99.37/99.12/98.87p fly, bought for 4.75 in 2k

US:
TYM1 132/131ps 1x2, bought for 5 in ~2.4k

FOREX: USD Index Trades Either Side of 91.00 Pre-Fed

• With focus on the Fed rate decision later today, markets are trading inside their recent ranges with equity futures broadly flat, although US 10y yields are inching higher. The USD index holds the week's gains into the NY crossover, trading either side of the 91.00 handle.
• CHF, AUD and JPY are trading poorly, while NOK, NZD are trading more favourably. USD/JPY's minor uptrend this week remains intact, with the pair touching 109.08 and extending the bounce from the late Friday lows of 107.48.
• Their April decision is not seen as a major factor for markets at this juncture, with the board expected to stay the course on policy and steer clear of any discussion over the tapering of asset purchases.
• Outside of the FOMC decision, Canadian retail sales and speeches from ECB's Rehn, Schnabel and Lagarde are due to cross.

FX OPTIONS: Expiries for Apr28 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.1900(E2.0bln), $1.1980-85(E1.8bln-EUR puts), $1.2000(E2.6bln, E2.35bln of EUR puts), $1.2030-50(E1.5bln), $1.2080(E1.1bln), $1.2100-05(E1.4bln), $1.2125-45(E1.7bln-EUR puts), $1.2150(E823mln)
• USD/JPY: Y108.10-15($1.0bln-USD puts)
• GBP/USD: $1.4000(Gbp362mln)
• EUR/GBP: Gbp0.8550-55(E500mln)
• EUR/NOK: Nok10.00(E400mln), Nok10.08(E568mln), Nok10.29(E561mln)
• AUD/USD: $0.7700(A$516mln), $0.7720-35(A$753mln-AUD puts), $0.7800-05(A$520mln-AUD puts)
• USD/CAD: C$1.2600($1.1bln-USD puts), C$1.2800($800mln)
• USD/CNY: Cny6.60($683mln)

Price Signal Summary - Yen On The Back Foot

• In the equity space, S&P E-minis are consolidating but maintain a bullish focus. Attention is on 4195.50, 1.618 projection of the Feb 1 - Feb 16 - Mar 4 price swing. Key support is unchanged at 4110.50, Apr 21 low.
• In the FX world, EURUSD remains below the bear channel resistance drawn off the Jan 6 high that intersects at 1.2113 today. Monday's high of 1.2117 also represents resistance and a clear break would strengthen bullish conditions. Key short-term support remains 1.1994, Apr 22 low. GBPUSD remains below 1.4009, Apr 20 high. A bearish risk dominates while this level remains intact. Support to watch is at 1.3824, Apr 22 low. The Yen is under pressure:
  • USDJPY has found support at 107.48. Just below trendline support drawn off the Jan 6 low. This week's recovery highlights a developing bullish theme while support at 107.48 remains intact.
  • EURJPY rallied yesterday and confirmed a resumption of the underlying uptrend. This opens 132.36, 2.236 projection of the Jun - Sep - Oct 2020 price swing. The cross remains within its bull channel, drawn off the Oct 30, 2020 low.
• On the commodity front, Gold is softer. The outlook remains bullish and the focus is on $1805.7, Feb 25 high. Watch support at $1763.4 - 50-day EMA. Brent (M1) remains below last week's high. Key support to watch is $63.62, the 50-day EMA. WTI (M1) found resistance last week at $64.38 on Apr 20. The 50-day EMA at $60.26 is seen as a firm intraday support.
• In the FI space, Bunds (M1) are trading lower and approaching support at 170.05, 76.4% of the Feb 25 - Mar 25 rally. A break would open 169.24, Feb 25 low. Gilts (M1) are lower this morning and have probed support at 127.81, Apr 14 low. A clear break would open 127.32, Apr 1 low.

EQUITIES: Asian/European stocks a bit higher but US equity futures flat

• Japan's NIKKEI up 62.08 pts or +0.21% at 29053.97 and the TOPIX up 5.51 pts or +0.29% at 1909.06
• China's SHANGHAI closed up 14.457 pts or +0.42% at 3457.068 and the HANG SENG ended 129.8 pts higher or +0.45% at 29071.34
• The German Dax up 49.29 pts or +0.32% at 15298.05, FTSE 100 up 15.88 pts or +0.23% at 6961.75, CAC 40 up 23.62 pts or +0.38% at 6297.58 and Euro Stoxx 50 up 1.33 pts or +0.03% at 4012.82.
• Dow Jones mini down 46 pts or -0.14% at 33837, S&P 500 mini up 2.25 pts or +0.05% at 4181, NASDAQ mini down 23.25 pts or -0.17% at 13928.5.

COMMODITIES: Silver weaker but all the majors within 1% of close

• WTI Crude up $0.05 or +0.08% at $62.99
• Natural Gas up $0.01 or +0.35% at $2.883
• Gold spot down $6.95 or -0.39% at $1769.27
• Copper down $1.8 or -0.4% at $446.75
• Silver down $0.22 or -0.85% at $26.0284
• Platinum down $3.83 or -0.31% at $1226.76