MNI US MARKETS ANALYSIS - Treasuries Pressured as Waller Leans on Rate Cuts

US TSYS: Fed Gov Reality Check For Projected Rate Cut

• Cash Treasuries are near late overnight lows, ongoing pressure after Fed Gov Waller said late Wednesday the Fed should wait a "couple months" to get a better understanding of the trajectory of inflation. That said, Waller still expects the central bank to begin reducing the target range for the federal funds rate this year.
• Yields 5bp higher in the short end, curves bear flattening: 2s10s -2.813 at -41.012.
• Heavy volume as Treasury futures reverse yesterday's rally, Jun'24 10Y futures near midrange for the week at 110-20.5 (-7.5) on volume of 361k at the moment. initial technical support at 110-08+/109-24+ (Low Mar 21 / 18 and the bear trigger).
• Busy day ahead to wrap up the short week with markets closed tomorrow for Good Friday. Economic data: Weekly Claims, GDP and Personal Consumption at 0830ET, MNI Chicago PMI at 0945ET, followed by Pending Home Sales and UofM Sentiment at 1000ET. Kansas City Fed Mfg Activity wraps up the day at 1100ET.
• US Treasury auctions: $75B 4W and $80B 8W Bills wrap up the week's Tsy supply at 1130ET (no coupon auctions next week).
• Note: Friday data includes Personal Income/Spending, PCE Deflator, Adv Trade Balance, Retail/Wholesale Inventories, KC Fed Services. SF Fed Daly open remarks at policy conf at 1115ET while Fed Chairman Powell speaks at a moderated discussion at 1130ET.
• Short end SOFR futures mildly weaker while projected rate cut pricing retreats (post-Waller): May 2024 at -9.8bp from -15% late Wednesday w/ cumulative -2.5bp at 5.302%; June 2024 -56.9% vs. -63.1% w/ cumulative rate cut -16.7bp at 5.159%. July'24 cumulative at -26.4bp vs. -30.06bp, Sep'24 cumulative -44.4bp from -49.3bp.

TSYS: OI Points To Sizeable Net Long Setting On Wednesday

The combination of yesterday's rally in Tsy futures and OI data points to net long setting across the curve, with a sizeable net DV01 equivalent of ~$10.5mn longs added across the major contracts.

• TY futures saw the largest net OI DV01 equivalent swing.
• Feedthrough from a well received round of 7-Year Tsy supply added to the rally late in the day, after upticks in European bonds provided support earlier int he day.
• HAwkish commnets from Fed Governor Waller have weighed on Tsys in pre-NY trade on Thursday.

SOFR: OI Points To Mix Of Net Long Setting & Short Cover On Wednesday

The combination of yesterday's rally in most SOFR futures and preliminary OI data points to the following position swings:

• Whites: Short cover seemed to dominate, although it is hard to be sure when it comes to SFRH4 & M4 positioning given their unchanged price status come settlement.
• Reds: Rounds of long setting and short cover seemed to offset.
• Greens & Blues: Net long setting seemed to dominate, with pockets of short cover seen.
• Comments from Fed Governor Waller leave SOFR futures and Tsys a little below levels seen late yesterday at typing.

MNI Riksbank Review - March '24: Coin Toss Between May & June

EXECUTIVE SUMMARY

• The Riksbank indicated that a May rate cut is well on the cards at its March monetary policy meeting, with Governor Thedéen acknowledging that the revised rate path assigns a 50% probability of such a move in the press conference.
• The MNI Markets Team had expected the revised policy path to tilt slightly in favour of a June cut, but the Riksbank’s messaging suggests they have no problem easing policy before the ECB/Fed if they deem it warranted by the data.
• In the press conference, Governor Thedéen noted that if all data (i.e. not just inflation) were in line with the March MPR projections, a cut in May would be the most likely scenario.
• In this respect, the March inflation reading (released on April 12, and the sole inflation reading before the May meeting) may be the deciding factor in determining when the first cut takes place.
• However, the SEK remains a risk to the outlook, and Thedéen confirmed that a weaker development of the exchange rate in the coming months would impact rate decisions in May and June.

MNI Riksbank Review - 2024-03.pdf

EUROPE ISSUANCE UPDATE: Finland Q2 funding plan

• Finland has released its Quarterly Review including its Q2 funding plan.
• It has announced that it intends to launch its second RFGB of the year. The Treasury notes that this "may have a 10-year maturity" but that "if market conditions were to prove favorable for a longer maturity, e.g. 15 years, that could be considered."
• In addition, Finland will look to hold three RFGB auctions in the quarter (16 April, 21 May and 11 June), all for E1.0-1.5bln. (This is in addition to the two ORI operations that had already been announced on 4 April and 30 May).
• Altogether the Treasury notes that this will see 70% of the annual long-term funding by the end of Q2.
• In addition it will hold three RFTB auctions (9 April, 14 May, 4 June) for E1-2bln each.
• Recall that Finland's net borrowing requirement has evolved from the E12.88bln initial requirement to E11.441bln in the Budget (19 December) and then to E12.933bln in the first supplementary budget (21 March). The benchmark bond issuance target is E21.0bln plus an additional E1.5bln from EMTN/other and a further E20.685bln from RFTBs.
• The next quarterly review will be published on 28 June 2024.

EGBs: Medium-Term Fiscal Headwinds Pressure OATs, Ratings Updates Will Be Key

OATs have widened vs. most EGBs over the last week, with French fiscal worry at the fore in light of the ’23 deficit figures/government commentary and subsequent comments from rating agency Moody’s re: the French fiscal outlook.

• Medium-term fiscal pressure has clearly increased.
• The fiscal headwinds resulted in French PM Attal pointing to deeper cuts to unemployment welfare schemes late on Wednesday.
• Finance Minister Le Maire had already tabled the idea of further spending cuts.
• We have flagged the upcoming French sovereign credit rating round (across April & May) as the next focal point for OATs.
• S&P already has France on a ‘negative’ outlook (rating AA), with risks of a one notch downgrade seemingly elevated.
• We also highlighted the risk of a negative outlook move at Fitch (current rating: AA-; Outlook Stable), while this isn’t a consensus view, the odds of such a move are non-negligible.
• We believe a negative outlook move at Fitch would have more of an impact on OATs than a one-notch downgrade at S&P, with France already rated one notch lower by Fitch.
• Citi suggest that France’s “fiscal woes might speed up OATs’ convergence with Bonos,” which has been a preferred medium-term view of theirs.
• Their preferred trading expression is a 15s30s Bono flattener vs OATs (entered in late January), given “the relationship of long-end credit risk premium with debt/GDP ratios.”

FOREX: USD Firms on Waller, Golden Cross Provides Background Support

• EUR/USD trades at daily lows just ahead of the NY crossover, extending the USD's gains posted following the formation of a golden cross technical pattern in the USD Index (50-dma > 200-dma). Hawkish comments from Fed's Waller proved key, who spoke after the Wednesday US close to argue that the Fed should delay, or reduce altogether, an easing cycle in light of recent inflation data.
• The weight in EUR/USD has been pushed through on generally firm volumes - with notable uptick in activity on the break of the overnight lows, potentially signalling the break of stops to accelerate the move. Price action so far today confirms the bearish theme is still dominant and further USD strength should result in a test of 1.0695, the bear trigger. Weakness to this mark is unlikely today, but next week's CPI Exp survey and the March inflation read could prove instrumental.
• This keeps the USD the firmest in G10, with JPY also similarly strong. Antipodean currencies are the poorest performers, with AUD and NZD trading soft, while SEK is weaker again after the Riksbank rate decision this week pointed to a potential rate cut at either the May or June meetings.
• Focus ahead turns to tertiary US GDP data, the Canadian growth release for January, weekly US jobless claims data and the final print for UMich sentiment. MNI Chicago PMI is also set for release, with markets expecting the gauge to rise to 46.0 from 44.0. The central bank speaker slate is quiet, with just ECB's Villeroy scheduled after the European close.

FX OPTIONS: Expiries for Mar28 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0675(E710mln), $1.0700-15(E1.7bln), $1.0750-52(E803mln), $1.0815-30(E2.4bln), $1.0840-50(E1.7bln), $1.0925(E544mln)
• USD/JPY: Y148.25($894mln), Y150.00($1.3bln), Y150.50($2.9bln), Y151.00($732mln), Y152.00-25($2.8bln)
• GBP/USD: $1.2600(Gbp1.1bln), $1.2700-09(Gbp569mln)
• USD/CAD: C$1.3585-00($1.6bln), C$1.3625($744mln)
• USD/CNY: Cny7.2500($1.2bln)

EQUITIES: Bullish E-Mini S&P Close to Recent Cycle Highs

• A bullish trend condition in Eurostoxx 50 futures remains intact and the contract has traded to fresh cycle highs this week. The climb once again confirms a resumption of the uptrend and maintains the price sequence of higher highs and higher lows. Moving average studies remain in a bull-mode position, highlighting positive market sentiment. Sights are on 5074.7, a Fibonacci projection. Initial firm support is at 4936.90, the 20-day EMA.
• The trend condition in S&P E-Minis is unchanged and remains bullish. Recent gains reinforce this theme and the break of 5257.25, Mar 8 high, confirmed a resumption of the uptrend. Note that moving average studies remain in a bull-mode position reflecting positive market sentiment. Sights are on 5416.33, the top of a bull channel drawn from the Jan 17 low. Initial firm support is 5226.59, the 20-day EMA. A move lower is considered corrective.

COMMODITIES: Gold Trading Close to This Week's High

• A bull theme in WTI futures remains intact and the latest pullback is considered corrective. Recent gains resulted in a break of $79.87, the Mar 1 high. The move higher confirms a resumption of the uptrend that has been in place since mid-December last year. Sights are on $83.87 next, the Oct 20 ‘23 high. A break of this level would open $84.87, the Sep 15 ‘23 high and a key resistance. Support to watch is $79.97, the 20-day EMA.
• The trend condition in Gold remains bullish and the yellow metal is trading closer to its recent highs. The initial rally on Mar 21 delivered another all-time high and confirmed a resumption of the primary uptrend. Moving average studies are in a bull-mode condition, reflecting positive market sentiment. This signals scope for a climb towards $2230.1, a Fibonacci projection. Key short-term trend support has been defined at $2146.2, the Mar 18 low.