Highlights:
- Markets look to Canada CPI to gauge June rate cut odds
- Techs and data pose upside risks to EUR/CAD
- Fed's Waller set to speak on the economy just ahead of the opening bell
US TSYS: Paring Of Yesterday’s Net Losses, Fedspeak Again In Focus
- Treasuries have pared most of yesterday’s corporate supply-induced net losses, aided by a more than 1% decline in WTI.
- Cash yields sit 2-2.5bp lower on the day, with 2s10s unchanged at -40bps.
- TYM4 at 109-04+ is 1+ ticks off session highs but again with subdued overnight volumes at 215k.
- Yesterday’s low of 108-30+ marked another step towards support at 108-28 (20-day EMA) in what’s deemed a corrective pullback, whilst resistance is seen at the bull trigger of 109-31+ (May 16 high).
- Today sees another day with no notable data and focus instead on Fedspeak, although this time is more clearly concentrated around Governor Waller’s discussion on the economy and monetary policy. A light data docket could also see some spillover from any large surprises in Canadian CPI at 0830ET.
- Data: Philly Fed non-mfg May (0830ET)
- Fedspeak: Barkin (0900ET), Waller (0900ET), Williams (0905ET), Bostic (0910ET), Barr (1145ET), 1900ET Botic moderates panel with Collins and Mester (1900ET) – see STIR bullet
- Bill issuance: US Tsy $75B 43D CMB Bill (1130ET)
STIR: Fed Implied Rates Edge Lower For Late 2024, Waller In Focus
- Fed Funds implied rates are unchanged for meetings out to September and beyond that nudge lower to chip away at yesterday’s increase on a day of limited macro drivers.
- Cumulative cuts from 5.33% effective: 1bp Jun, 6.5bp Jul, 19bp Sep, 27bp Nov and 42bp Dec.
- Today’s Fedspeak schedule looks heavy but in reality sole monetary policy focus should be on Governor Waller’s prepared text at 0900ET before Q&A. Waller last meaningfully spoke Mar 27 when he said rate cuts are likely appropriate this year but not yet, and that the economy is giving us no reason to implement big cuts.
- Barr yesterday laid out some options the Fed is looking at including forcing larger banks to maintain a certain amount at the Fed’s discount window or limits on assets that banks can hold as their liquidity buffers.
- Bostic meanwhile speaks for the fourth and fifth times in a week with six appearances.
- 0900ET – Barkin (’24) welcome remarks at Rural America conf (text tbd)
- 0900ET – Waller (voter) on US economy and mon pol (text + Q&A)
- 0905ET – Williams (voter) opening remarks at governance conf (no text or Q&A)
- 0910ET – Bostic (’24) brief welcome remarks at 2nd day of Atl Fed conf
- 1145ET – VC Supervision Barr (voter) in fireside chat on liquidity crisis lessons (no text)
- 1900ET – Bostic (’24) moderates panel with Collins (’25 voter) & Mester (’24 retiring June)
Yellen To Speak On Transatlantic Alliance
Treasury Secretary Janet Yellen is set to deliver remarks shortly to the Frankfurt School of Finance and Management on the topic of 'the importance of the transatlantic alliance for people in the U.S., Europe, and around the world.' Livestream can be found here.
- Some sections of Yellen's remarks have been trailed early. Regarding sanctions on Russia and utilising windfall profits from Moscow's frozen assets to fund Ukraine, Yellen is to say "It’s [...] critical that we ensure Ukraine has the support it needs[...]. That’s why I believe it’s vital and urgent that we collectively find a way forward to unlock the value of Russian sovereign assets immobilized in our jurisdictions for the benefit of Ukraine."
- Reuters reports, "the U.S. has proposed a plan to pull forward the interest on [Russian] assets to back a bond or a loan that would provide Ukraine perhaps $50 billion in the near term[...]. The plan comes with some controversy, because it would require Western powers to hold the assets for around 20 years..."
- Aside from security issues, the WSJ is reportingthat Yellen has come out strongly against the prospect of a global 'billionaires tax' proposed by this year's G20 president, Brazil. The upcoming G7 fin mins meeting is set to discuss a global wealth tax, but Yellen states “We believe in progressive taxation. But the notion of some common global arrangement for taxing billionaires with proceeds redistributed in some way—we’re not supportive of a process to try to achieve that,”
EUROPE ISSUANCE UPDATE
UK auction results:
- Continued solid demand for the 20-year gilt with a 3.67x cover (highest for this gilt this year) and relatively tight tail of 0.4bp (although that is the wider end of the range seen this year for this gilt).
- The LAP of 102.117 was higher than the secondary market price for the last half an hour of the auction window. The gilt is now trading in excess of the auction price around 102.15 at writing.
- GBP2.25bln of the 4.75% Oct-43 Gilt. Avg yield 4.58% (bid-to-cover 3.67x, tail 0.4bp).
German auction results:
- E4bln (E3.328bln allotted) of the 2.10% Apr-29 Bobl. Avg yield 2.56% (bid-to-offer 2.29x; bid-to-cover 2.75x).
Finland auction results:
- E771mln of the 2.875% Apr-29 RFGB. Avg yield 2.854% (bid-to-cover 1.45x).
E715mln of the 3.00% Sep-34 RFGB. Avg yield 2.996% (bid-to-cover 1.73x).
EFSF syndication: Launched
- E1.5bln tap of the 2.375% Apr-28 (MNI expected E1.0-1.5bln). Books closed in excess of E10.4bln, spread set at MS flat (guidance was MS+2 bps area).
- E2.5bln of the new 7-year May-31 (MNI expected E2.0-3.0bln). Books in excess of E21.4bln, spread set at MS+12bps (guidance was MS+14 bps area).
France syndication:
*"The REPUBLIC OF FRANCE has mandated BNP PARIBAS, CITI, CREDIT AGRICOLE CIB, HSBC, J.P. MORGAN and MORGAN STANLEY to act as Joint Lead Managers on an upcoming new long-dated OATi benchmark, linked to the European harmonised index of consumer prices (excluding tobacco) and due 25th July 2043. The transaction will be launched by syndication in the near future, subject to market conditions."
* Note that we had this pencilled in for May.
* We pencil in a E3.0-4.5bln transaction size tomorrow.
Austria syndication: Mandate
* "The REPUBLIC OF AUSTRIA has mandated Barclays, BofA Securities, Deutsche Bank, Erste Group, J.P. Morgan and Raiffeisen Bank International to lead manage its new Reg S/144a eligible 15y EUR Benchmark transaction maturing 15 July 2039. The transaction is expected to be launched and priced in the near future, subject to market conditions. The remaining primary dealer group will be invited to participate as co-lead managers."
* We had also flagged this as one of the most likely to issue this week.
* We pencil in E3.5-5.0bln with a transaction likely tomorrow.
Portugal syndication: Mandate
- Portugal has also announced a mandate for a new Jun-54 OT.
- We pencil in a E3-4bln syndication size with a transaction tomorrow.
- This is also a transaction that we had been expecting: we had pencilled in a Portuguese syndication in late May.
EUR: Single Currency Technicals/Canadian Data Pose Upside Risks for EURCAD
- EURUSD is trading closer to last week’s highs and the recent consolidation appears to be a bull flag. The move higher last week resulted in a clear bear channel breakout and the break confirms a stronger reversal. Sights are on 1.0933 next, a Fibonacci retracement.
- With this in mind and given today’s Canadian CPI release, it is worth highlighting that EURCAD has recently broken above a cluster of highs from the past six months around 1.4780 and hovers close to the most recent highs of 1.4822. Exponential moving averages are also in a bull mode position.
- Clear attention is being paid to today’s data as markets look to gauge the timing of a first rate cut from the Bank of Canada - with market focus on a potential June cut. Our full preview here.
- A softer print from today’s CPI report would significantly bolster the EURCAD trend and likely target the downward trendline from the July 2020 highs, which intersects around the 1.4900 handle. Above here, 150.45 represents key resistance, the Nov 2023 high. Initial support is at 1.4746, he 20-day EMA.
Canada CPI Eyed as Markets Test June Cut Theory
- Currency markets sit broadly inline with the Monday close, as markets await broader cues from the Canadian and UK inflation releases set for the coming few days.
- Canadian inflation is seen rising 0.5% on the month and 2.7% Y/Y, however more attention may be paid to the trimmed and median inflation metrics as markets look to gauge the timing of a first rate cut from the Bank of Canada - with market focus on a potential June cut. USD/CAD trades either side of the 50-dma of 1.3638, and any break lower and unwind of the dovish rate pricing will eye a May low at 1.3590.
- Scandi currencies are creeping higher amid quieter markets, and despite a mixed outlook for commodities and equities. USD/NOK sits on support at 10.6478/10.6537, and a recovery in Brent crude prices could see this pair break lower.
- Outside of the Canadian numbers, UK CBI trends data and appearances from Fed's Barkin, Waller, Williams, Bostic and Barr are due, as well as an appearance from BoE Governor Bailey, who delivers a lecture to the LSE.
The uptrend in S&P E-Minis remains intact and the contract is holding on to its latest gains. Recent gains have resulted in a break of a key resistance at 5333.50, Apr 1 high. This confirms a resumption of the primary uptrend and signals scope for a climb to 5372.73. A bullish theme in Eurostoxx 50 futures remains intact despite the latest pullback. Last week’s gains resulted in a break of key resistance at 5079.00, the Apr 2 high, to confirm a resumption of the uptrend and maintain the price sequence of higher highs and higher lows.
M/T Trend Structure in Gold Remains Bullish
The medium-term trend structure in Gold is unchanged and remains bullish. Yesterday’s initial gains resulted in a print above resistance at $2431.5, the Apr 12 high and bull trigger. Despite the latest move higher, a bearish theme in WTI futures remains intact and short-term gains are considered corrective. Price has recently traded below the 50-day EMA, strengthening a bearish set-up that highlights potential for a deeper correction.
| Date | ET | Impact | Period | Release | Prior | Consensus | |
| 21/05/2024 | 0830 | ** | May | Philadelphia Fed Nonmfg Index | -12.4 | -- | |
| 21/05/2024 | 0855 | ** | 18-May | Redbook Retail Sales y/y (month) | 6.3 | -- | % |
| 21/05/2024 | 0855 | ** | 18-May | Redbook Retail Sales y/y (week) | 6.3 | -- | % |
| 21/05/2024 | 1130 | * | 24-May | Bid to Cover Ratio | -- | -- | |
| 22/05/2024 | 0700 | ** | 17-May | MBA Mortgage Applications w/w | 0.5 | -- | % |
| 22/05/2024 | 1000 | *** | Apr | Existing Home Sales | 4.19 | 4.19 | (m) |
| 22/05/2024 | 1000 | * | Q1 | Service Revenue | 1.9 | -- | % |
| 22/05/2024 | 1030 | ** | 17-May | Crude Oil Stocks ex. SPR w/w | -2.508 | -- | bbl (m) |
| 22/05/2024 | 1030 | ** | 17-May | Distillate Stocks w/w change | -0.045 | -- | bbl (m) |
| 22/05/2024 | 1030 | ** | 17-May | Gasoline Stocks w/w change | -0.235 | -- | bbl (m) |
| 22/05/2024 | 1300 | ** | May | Bid to Cover Ratio | -- | -- |