MNI US MARKETS ANALYSIS - Tsy Issuance Profile in Focus

Highlights:

• Treasury issuance profile in focus after holiday weekend
• UK shadow chancellor rules out emergency budget in case of election victory
• Muted markets await cues from Thursday's PCE indices

US TSYS: 2s10s Steepen Off YtD Lows, Heavy Issuance In Focus Ahead

• Treasuries trade twist steeper after yesterday’s closures for Memorial Day and other regional bank holidays, the steepening taking 2s10s away from YtD lows.
• Cash yields range from 1.7bp lower (2s) to +0.5bps (30s), pivoting after 10s. They underperform Gilts, but both outperform EGBs in catch-up after the latter rallied yesterday on dovish ECB speak.
• TYM4 has kept to reasonably narrow ranges overnight after yesterday’s holiday-thinned session, back at 108-24+ (+02 from Friday’s full close). Key support at 108-15 (May 14 low) remains intact for now whilst resistance is seen at 109-05+ (50-day EMA).
• Treasury issuance can play a large role today with a heavy slate in the Memorial Day-shortened week. Beyond that, data focus should be on the Conf. Board consumer survey after the recent slide in the U.Mich counterpart, whilst keeping an eye on the labor market differential as usual ahead of next week’s payrolls report.
• Data: FHFA/S&P CoreLogic house prices Mar (0900ET), Conf. Board Consumer Survey May (1000ET), Dallas Fed Mfg May (1030ET)
• Fedspeak: Kashkari panel remarks (0955ET, just Q&A), Cook & Daly on AI & economy (1305ET, just Q&A)
• Note/bond issuance: US Tsy to sell $69bn 2Y notes (1130ET), US Tsy to sell $70bn 5Y notes (1300ET)
• Bill issuance: US Tsy to sell $70bn 13-wk bills, $70bn 26-wk bills (1000ET), US Tsy to sell $65bn 42-day CMB (1130ET)

2s10s lift on YtD lowsSource: Bloomberg

STIR: Fed Rates At Most Slightly Lower, Mester Wants More Forecast Details

• Post-Memorial Day, Fed Funds implied rates are unchanged from Friday’s close for meetings through to September (where there are still low odds of a first cut), with meetings beyond that drifting slightly lower.
• Cumulative cuts from 5.33% effective: 0.5bp Jun, 3bp Jul, 14bp Sep, 21bp Nov and 35bp Dec.
• Ahead, Kashkari (non-voter) gives panel remarks at 0955ET (no text) before Governor Cook (voter) and Daly (’24 voter) speaks on AI’s impact on the economy at 1305ET (also no text).
• Overnight, Kashkari said he needs "Many more months of positive inflation data, I think, to give me confidence that it's appropriate to dial back" when asked what’s needed for cuts.
• Before that, Mester called for more detail in Fed statements and forecasts, building on a growing number of FOMC participants critiquing the current approach.
• Gov. Bowman (voter) meanwhile “would have supported either waiting to slow the pace of balance sheet runoff to a later point in time or implementing a more tapered slowing in the pace of runoff.”

EUROPE ISSUANCE UPDATE

Netherlands auction results
* E1.625bln of the 0% Jan-38 DSL. Avg yield 2.923%.

Italy auction results
* E1.75bln of the 0% Dec-24 BTP. Avg yield 3.48% (bid-to-cover 1.73x).
* E2.75bln of the 3.20% Jan-26 BTP Short Term. Avg yield 3.51% (bid-to-cover 1.42x).
* E1.5bln of the 0.10% May-33 BTPei. Avg yield 1.72% (bid-to-cover 1.44x).

Germany auction results
* E1bln (E986mln allotted) of the 2.10% Apr-29 Green Bobl. Avg yield 2.6% (bid-to-offer 2.70x; bid-to-cover 2.73x).
* E1bln (E846mln allotted) of the 2.30% Feb-33 Green Bund. Avg yield 2.51% (bid-to-offer 2.87x; bid-to-cover 3.39x).

UK: Shadow CX Appears To Rule Out Emergency Budget If Labour Win Election

In her first major speech of the election campaign, Shadow Chancellor of the Exchequer Rachel Reeves has appeared to rule out the holding of an emergency summer budget in the event that the centre-left Labour party wins the general election on 4 July. Says that “The [independent Office for Budgetary Responsibility] OBR requires 10 weeks’ notice to provide an independent forecast ahead of a budget, and I've been really clear that I would not deliver a fiscal event without an OBR forecast”. 

• Opinion polling shows Labour with a substantial lead just over five weeks ahead of the election, with the party seen as strong favourites to win power with a large majority in the House of Commons. 
• Post-election budgets are relatively common, especially when power changes hands. However, if Reeves maintains her stance it would likely see the next fiscal event take place in the autumn, potentially delaying the implementation of its provisions into 2025. 
• Reeves also shot down the prospect of Labour matching the Conservatives' pledge of a  'triple lock plus' for state pensions that would see the tax-free pensions allowance rising by 2.5%, earnings, or inflation (whichever is highest). The shadow chancellor called the plan “another desperate gimmick” and said “she will never take those risks” with public finances. 

GBPUSD Rally Contained as BRC Shop Prices Slow

• SEK, NZD modestly outperform, while USD, GBP and JPY are among the poorest performing currencies.  
• The UK BRC Shop Price Index came in lower than expected, at 0.6% vs. Exp. 1.0% and the lowest since November 2021. The data, while stopping well short of arguing for a June rate cut, may be helping contain the rally in GBP/USD posted off last week's low, with the 1.28 handle.
• Nonetheless, the GBPUSD trend condition remains bullish and the pair is trading higher this week. An important retracement point at 1.2754 has been cleared, 76.4% of the Mar 8 - Apr 22 bear leg. This reinforces current bullish conditions and paves the way for a climb towards 1.2803 next.
• USD/CNH traded firmer again in early London hours, extending recent outperformance and putting the pair to new monthly highs at 7.2642. Today's price action narrow the gap with next major resistance into 7.2739.
• SEK extends recent outperformance to press EUR/SEK below the 200-dma of 11.4988 - a close below which would be the first since early April. 
• Focus for the duration of the Tuesday session turns to house price index data and the May consumer confidence release from the US. Central bank speak includes ECB's Centeno and Knot, while Fed's Kashkari, Cook and Daly also make appearances. 

Eurostoxx 50 Futures Extend Corrective Recovery From Last Week's Lows

The trend condition in Eurostoxx 50 futures remains bullish and the recent  pullback appears to be a correction. The contract has recently cleared a key hurdle at 5079.00, the Apr 2 high, to confirm a resumption of the uptrend. This opens 5127.70 next, a Fibonacci projection. Key trend support is 4762.00, the Apr 19 low. Support at the 20-day EMA has been pierced. The next level to watch is 4959.80, the 50-day EMA. The uptrend in S&P E-Minis remains intact and the pullback last Thursday appears to have been a correction. The contract also traded to a fresh cycle high that day, reinforcing a bullish theme. Recent gains have also resulted in a break of 5333.50, Apr 1 high. This confirms a resumption of the primary uptrend and opens 5372.73, a Fibonacci projection. Moving average studies are in a bull-mode set-up. Initial support is 5259.02, the 20-day EMA.    

• Japan's NIKKEI closed lower by 44.65 pts or -0.11% at 38855.37 and the TOPIX ended 2.14 pts higher or +0.08% at 2768.5.
• Elsewhere, in China the SHANGHAI closed lower by 14.471 pts or -0.46% at 3109.572 and the HANG SENG ended 6.19 pts lower or -0.03% at 18821.16.
• Across Europe, Germany's DAX trades higher by 64.82 pts or +0.35% at 18838.87, FTSE 100 lower by 9.26 pts or -0.11% at 8309.19, CAC 40 down 12.1 pts or -0.15% at 8122.38 and Euro Stoxx 50 up 8.96 pts or +0.18% at 5068.74.
• Dow Jones mini up 26 pts or +0.07% at 39185, S&P 500 mini up 15 pts or +0.28% at 5337.5, NASDAQ mini up 92.75 pts or +0.49% at 18973.
   

Gold Trades Just Ahead of Recent Lows

WTI futures are trading inside a range. A bearish theme remains intact and the sideways move is seen as a pause in the downtrend. Price has recently traded below the 50-day EMA, strengthening a bearish set-up that highlights potential for a deeper correction. Scope is seen for a move to $75.64, the Mar 11 low. Key resistance and the bull trigger is at $86.16, the Apr 12 high. Initial resistance to watch is at $80.11, the May 20 high. Gold traded down last week and the yellow metal is trading just ahead of its recent low. The trend structure remains bullish and the move down appears to be a correction Moving average studies are in a bull-mode position and the move lower is allowing an overbought condition to unwind. A resumption of gains would open $2452.5 next, a Fibonacci projection. The 50-day EMA, at $2301.9, represents a key support. A clear break of it would be bearish. 

• WTI Crude up $1.06  or +1.36% at $78.81
• Natural Gas down $0.01 or -0.28% at $2.513
• Gold spot down $6.93 or -0.29% at $2343.96
• Copper up $4.35 or +0.92% at $479.8
• Silver down $0.17 or -0.53% at $31.474
• Platinum down $8 or -0.76% at $1047.81
  
   

Date	GMT/Local	Impact	Country	Event
28/05/2024	1230/0830	*	CA	Industrial Product and Raw Material Price Index
28/05/2024	1300/0900	**	US	S&P Case-Shiller Home Price Index
28/05/2024	1300/0900	**	US	FHFA Home Price Index
28/05/2024	1300/0900	**	US	FHFA Home Price Index
28/05/2024	1300/0900	**	US	FHFA Quarterly Price Index
28/05/2024	1300/0900	**	US	FHFA Quarterly Price Index
28/05/2024	1355/0955		US	Minneapolis Fed's Neel Kashkari
28/05/2024	1400/1000	***	US	Conference Board Consumer Confidence
28/05/2024	1400/1000	*	US	US Treasury Auction Result for 26 Week Bill
28/05/2024	1400/1000	*	US	US Treasury Auction Result for 13 Week Bill
28/05/2024	1430/1030	**	US	Dallas Fed manufacturing survey
28/05/2024	1530/1130	*	US	US Treasury Auction Result for 2 Year Note
28/05/2024	1530/1130	*	US	US Treasury Auction Result for Cash Management Bill
28/05/2024	1700/1300	*	US	US Treasury Auction Result for 5 Year Note
28/05/2024	1700/1300		US	San Francisco Fed's Mary Daly
28/05/2024	1705/1305		US	Fed Governor Lisa Cook
29/05/2024	0130/1130	***	AU	CPI Inflation Monthly
29/05/2024	0600/0800	*	DE	GFK Consumer Climate
29/05/2024	0600/0800	**	SE	Retail Sales
29/05/2024	0600/1400	**	CN	MNI China Liquidity Index (CLI)
29/05/2024	0645/0845	**	FR	Consumer Sentiment
29/05/2024	0800/1000	**	EU	M3
29/05/2024	0800/1000	**	IT	ISTAT Business Confidence
29/05/2024	0800/1000	**	IT	ISTAT Consumer Confidence
29/05/2024	0800/1000	***	DE	North Rhine Westphalia CPI
29/05/2024	0800/1000	***	DE	Bavaria CPI
29/05/2024	0900/1000	*	GB	Index Linked Gilt Outright Auction Result
29/05/2024	1100/0700	**	US	MBA Weekly Applications Index
29/05/2024	1200/1400	***	DE	HICP (p)
29/05/2024	1255/0855	**	US	Redbook Retail Sales Index
29/05/2024	1400/1000	**	US	Richmond Fed Survey
29/05/2024	1430/1030	**	US	Dallas Fed Services Survey
29/05/2024	1530/1130	**	US	US Treasury Auction Result for 2 Year Floating Rate Note
29/05/2024	1700/1300	**	US	US Treasury Auction Result for 7 Year Note
29/05/2024	1745/1345		US	New York Fed's John Williams
29/05/2024	1800/1400		US	Fed Beige Book