MNI US MARKETS ANALYSIS - Surprise RBA Move Puts AUD on Top

US TSYS: Retracing Yesterday's ISM Sell-Off, Yellen Updates On Debt Limit

• Despite Fed rate expectations holding yesterday’s climb, front-end cash Tsys have rallied although they do at least underperform the rest of the curve for a bull flattening. It chips away at yesterday’s significant bear steepening in a move that was driven on by stronger than expected ISM mfg prices paid.
• Yellen has informed Congress that the Treasury will exhaust funds under the debt limit “potentially as early as June 1” but possibly “a number of weeks later”, whilst McCarthy has accepted to meet with President Biden on May 9 according to CNN.
• 2YY -1.6bp at 4.124%, 5YY -3.8bp at 3.596%, 10YY -3.4bp at 3.534% and 30YY -2.5bp at 3.783%.
• TYM3 trades 8 ticks higher at 114-24 on reasonable volumes of 330k. Yesterday’s low of 114-10 tested support at the 50-day EMA of 114-19 with a clear break highlighting a bearish threat which could expose the key near-term 113-30+ (Apr 19 low).
• Fed: FOMC begins day 1 of 2-day meeting
• Data: JOLTS Mar (1000ET), Factory orders Mar/durables Mar final (1000ET), Wards vehicle sales Apr
• Bill issuance: US Tsy $40B 21-Day CMB auction (1130ET)

STIR FUTURES: Consolidating Prior Climb, Fed Personnel Changes Taking Shape

• Fed Funds implied rates have edged higher after climbing yesterday in a move that was supported further by higher than expected ISM mfg prices paid.
• 24bp hike priced for tomorrow’s decision (+0.5bp) before a cumulative 32bp of hikes for Jun (+1.5bp). This is now only just reversed with the Nov FOMC at 4.80% (+1.5bp) before 23bp of cuts from current to 4.60% Dec (+0.5bp).
  
  
• The NY Times reported late Mon that President Biden is closing in on promoting Gov. Philip Jefferson to the Vice Chair seat vacated by Brainard, with Adriana Kugler (US executive director of the World Bank) in turn taking his seat.
• A person familiar also noted that the KC Fed president role could also be filled soon, with Phillip Swagel of the CBO being tipped for what would be a ’25 voting role.

FOMC-dated Fed Funds futures implied ratesSource: Bloomberg

OATS: Wider Vs. Bunds, Fitch Downgrade In Focus

OATs maintain their early widening bias vs. German equivalents across all major tenors, with catch up to Monday’s moves in U.S. Tsys and, more notably, Fitch’s decision to downgrade France to AA-; Outlook Stable from AA; Outlook Negative dictating price action.

• The degree of widening is most pronounced at the front end of the curve (~3bp at the 2-Year point), moderating as we move further out the term structure, sitting at ~0.5bp at the 30-Year point. The 10-Year spread to Bunds hovers around YtD wides, a couple of bp shy of the 60bp mark.
• In terms of reasoning behind the downgrade (click for full release), Fitch noted that “fiscal metrics are weaker than peers and Fitch expects general government debt/GDP to remain on a modest upward trend, reflecting relatively large fiscal deficits and only modest progress with fiscal consolidation.” Also, Fitch “believes that social and political pressures illustrated by the protests against the pension reform will complicate fiscal consolidation.”
• Earlier today, analysts at Commerzbank suggested that “while markets should not be bothered too much by the downgrade of France given the focus on the liquidity premium of OATs as well as the extremely stable issuance dynamics, catch-up by other rating agencies could be on the cards as well as mechanical follow-up downgrades for EFSF and French agencies.”

FRANCE: Unions Call For Nationwide Strikes 6 Jun Following May Day Violence

Bloomberg reporting that French trade union federations have called for a nationwide day of action in just over a months on 6 June in order to protest the gov'ts controversial pension reforms. This comes a day after mass violence erupted in several French cities on the May Day bank holiday that in many nations is used as a day of protest by labour organisations. The French Interior Ministry stated that 406 police officers were injured in the violence, 259 in Paris, 540 individuals were arrested, and that the protests were the largest since 2002.

• Andrew Connell at Sky News: "Unions are not giving up their fight. They believe there are still avenues to get this law repealed. There will be a debate in the French parliament next month about a bill to cancel the law. Before that, there will be a decision this week on whether there could be a referendum. And there are due to be talks between the French prime minister and unions perhaps next week. They have so far refused to meet Elisabeth Borne. And protest days are likely to be called, so demos on the streets are set to continue. As yesterday showed, the opposition is entrenched."
• The Constitutional Council is set to rule tomorrow (3 May) on a second request for a referendum on the pension reforms, with the likelihood that the request is rejected.
• Two days after the planned 6 June strikes, the small opposition LIOT group in the National Assembly is due to present renewed legislation to repeal the reforms.

EUROPE ISSUANCE UPDATE:

• E500mln (E410mln allotted) of the 0.10% Apr-33 ILB. Avg yield -0.04% (bid-to-cover 1.08x).

FOREX: AUD On Top as RBA Act Again

• AUD performs solidly headed through to NY hours following the surprising rate hike from the RBA overnight. The bank raised its cash rate by 25 basis points to 3.85%, stressing that it aimed to return inflation to its 2-3% target in a "reasonable timeframe" and strengthening language on future hikes. RBA Governor Lowe said in the accompanying statement that “further tightening may be needed”. At typing, AUD/USD is narrowing in on the 200-dma at 0.6734 - a break above here would target the mid-April highs of 0.6806.
• The market response to Eurozone CPI was more muted - the headline topped forecast by 0.1ppts, but core was inline with expectations. As such, there was little movement in implied ECB rate hike pricing for this week's meeting - with ~29bps priced in.
• CHF is the poorest performer alongside GBP, while AUD and SEK outperform most others. The USD Index is off the lows, sitting slightly higher pre-NY.
• Focus ahead turns to JOLTS job openings data, final durable goods data for March as well as a speech from RBA's Lowe at 1220BST.

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

• A key short-term support in Eurostoxx 50 futures at 4288.90 has been pierced - the 20-day EMA. The recent move lower is considered corrective - for now - and a clear break of the average is required to highlight scope for a deeper correction. This would open 4214.90, the 50-day EMA. On the upside, a break of 4363.00, the Apr 21 high and bull trigger, would confirm a resumption of the uptrend.
• S&P E-minis rallied late last week to erase the sell-off earlier in the week and cancel a bearish threat. The contract traded higher Monday, piercing resistance at 4198.25, the Apr 18 high. Clearance of this level would confirm a resumption of the uptrend that started Mar 13 and open 4244.00, the Feb 2 high. On the downside, key short-term support has been defined at 4068.75, the Apr 26 low. A break would be bearish.

COMMODITIES: Gold Fully Reverses Monday's Sharp Spike

• The outlook in WTI futures remains bearish and last Wednesday's strong sell-off reinforces the current theme. $73.98 was pierced late last week, the 50.0% retracement of the Mar 20 - Apr 12 rally. A clear break of this level would open $72.76, the Mar 30 low. A key short-term resistance has been defined at $79.18, the Apr 24 high where a breach is required to ease bearish pressure. This would also highlight a potential reversal.
• Gold remains in consolidation mode. The broader trend theme remains bullish, however, the yellow metal has recently entered a short-term corrective cycle. Price has pierced support at $1987.8, the 20-day EMA, highlighting potential for a deeper retracement. A move lower would open $1952.6, the 50-day EMA. Key short-term resistance has been defined at $2048.7, the Apr 5 high. A break would confirm a resumption of the uptrend.