MNI US MARKETS ANALYSIS - Tsys Mirror Moderate Rebound in EGBs

Highlights:

• Treasuries mirror moderate rebound in EGBs
• Weaker Italian PMI countered by stronger Spain
• ISM Manufacturing in focus after weak MNI Chicago PMI on Friday

US TSYS: Tsys Mirror Moderate Rebound in EGBs Ahead US Mfg PMI Final

• Treasuries are gaining this morning, near early London session highs - mirroring support in core EGBs following down-revisions vs. flash PMIs reading for Germany and France.
• The Fed is in policy blackout through June 13, the day after the next FOMC policy announcement. Midmorning data on tap: S&P Mfg PMI (f) at 0945ET followed by flash ISM Mfg/Prices Paid and Construction Spending at 1000ET. Main focus this week is on Friday's headline employment figures for May.
• Cash yields are currently running mildly lower: 2s -.0126 at 4.8601%, 10s -.0296 at 4.4689%, 30s -.0320 at 4.6152%, while curves resume last week's flattening: 2s10s -1.910 at -39.531, 5s30s -0.906 at 12.940.
• Meanwhile, Sep'24 10Y Treasury futures are trading back near last week's highs, TYU4 at 109-02 (+8.5) vs. 109-02.5 high; decent volumes with TYU4 over 335k. Short-term gains are considered corrective and trend signals continue to highlight a bearish condition. Resistance to watch is 109-12, the 50-day EMA. A clear break of this average is required to signal scope for a stronger bounce.

EUROPEAN INFLATION: MNI Eurozone Inflation Insight – May 2024

Services Stall Underscores ECB Need For Post-June Caution

• The Eurozone May flash inflation round saw services HICP more than reverse April’s progress, printing at 4.1% Y/Y – higher than what it was 6 months ago.
• This meant that the wider Eurozone core HICP inflation metric surprised to the upside at 2.9% Y/Y (vs 2.7% cons), with the headline reading likewise coming in above expected at 2.6% (2.5% cons).
• The ECB’s seasonally adjusted series also pointed to a further acceleration of services momentum in May.
• For the ECB, the May inflation metrics are very unlikely to stand in the way of the well-signalled June rate cut. However, the ongoing stickiness in services momentum will have a bearing on rate decisions past June.
• Recent ECB speak has again highlighted the differences in opinion amongst policymakers on this topic, and the May data will support the hawkish contingent’s calls for caution on the path ahead.
• Our review of May's preliminary Eurozone inflation data includes breakdowns and analysis of the national inflation prints, and some sell-side reactions.

Full PDF analysis:

May2024EZCPIReview.pdf

STIR: OI Points To Mix Of Short Cover & Long Setting In SOFR Futures Following Friday's Data

The combination of Friday’s rally in most SOFR futures and preliminary OI data points to a mix of long setting and short cover across the strip.

• Still, only the whites saw a meaningful net positioning swing in net pack OI terms, as short cover seemed to dominate in the wake of the PCE and MNI Chicago PMI data.
• The data left ~36bp of ’24 cuts priced into FOMC-dated OIS as of Friday’s close vs. ~34bp the week prior.
• The Tsy space seemed to see further demand on the back of month-end related flows, helping underpin SOFR futures into the close.

EGB SYNDICATION: German 30-year Green mandate

• "The Federal Republic of Germany has mandated BofA Securities, Citi, Danske Bank, DZ BANK, NatWest Markets and Societe Generale, as joint lead managers for their upcoming EUR 3bn (no-grow) increase of their existing Green 30-year DBR Benchmark, due 15 August 2053 (DE0001030757). The transaction will be launched and priced in the near future, subject to market conditions." From market source
• We had thought the syndication schedule would slow down this week ahead of the ECB meeting this week. However, we had also noted that there was still one more green syndication to come this year.

FOREX: EUR/GBP Extends Bounce Off Lows Despite Mixed PMIs

• PMI data from across Europe came in mixed, with stronger Spanish numbers countering weakness in Italy. The data provided largely inconsequential for currencies, with EUR/GBP extending the modest uptick off late May lows.
• The USD Index is more stable after two sessions of declines into the Friday close, as month-end sales abated and markets found support again at the 100-dma of 104.420.
• JPY is among the firmest performers in G10, helping the spot trade-weighted JPY off fresh post-intervention lows posted overnight.
• Equity futures are generally firmer across both Europe and the US, indicating a firmer cash open later on Monday.
• Focus for the duration of the Monday session turns to ISM manufacturing numbers for May. Markets expect the headline to improve slightly to 49.6 from 49.2 - however the broad downside miss in the MNI Chicago PMI release from Friday could keep markets on the defensive. Central bank speak is thin as banks enter their pre-meeting media blackout periods.

OPTIONS: EUR Within Range of Sizeable Strikes

Despite EUR/USD's fade off highs, spot remains in close proximity to the larger strikes of the session rolling off at 1.0850-70 - full expiry schedule here:

• EUR/USD: $1.0805(E881mln), $1.0850-70(E2.0bln)
• USD/JPY: Y157.00($624mln), Y158.00($832mln)
• USD/CAD: C$1.3520($520mln)

CHF: Swiss CPI Takes Focus Following SNB Governor Remarks

• The Swiss Franc is consolidating on Monday following a decent rally across the latter half of last week. As a reminder, the currency was particularly sensitive to comments from SNB President Jordan, stating that the biggest risk of higher inflation stems from a weaker Swiss franc. Jordan also identified a “small” upward risk to the SNB’s inflation forecast, while noting that there are reasons to believe that the natural rate of interest has increased somewhat or might rise over the coming years.
• The comments clearly thrust Tuesday’s inflation data into focus, where the surveyed median expectation sees annual CPI remaining at 1.4% Y/y.
• The print will likely be crucial in forming expectations for the June 20 meeting, having seen rate cut expectations significantly tempered following the SNB remarks.
• We pointed out that moves in both EURCHF & USDCHF appeared corrective at this stage, at least from a technical standpoint, however tomorrow’s data will likely be the next key driver of short-term CHF sentiment.
• EURCHF remains below the 20-day EMA and the pair is currently hovering just above next support at the 50-day EMA (0.9777). A clear break of this average would signal potential for a deeper retracement and initially expose the May 3 low (0.9730).
• USDCHF now trades below support at the 50-day EMA (0.9051) and will now focus on a short-term pivot support at the May 16 low (0.8988).
• Technical indicators for CHFJPY confirm a bullish theme, however we remain around a big figure below the April high of 175.08, prior to the MoF intervention. Support here is at 172.08, the 20-day EMA.

CFTC: Markets Build GBP Net Long as GBP/USD Tests 1.2800

• Markets built a net long GBP position having been neutral in the prior week. Traders added a net 24k contracts to put the position at +9% of open interest. GBP marked the biggest outright change in positioning for the week-ending May 28th.
• While the CAD net short retreated from a 52w low of -48.7%, the Z-score remained among the most negative of the currencies surveyed at -1.2 (only surpassed by JPY's -1.4 and CHF's -1.9).
• Markets maintained the net long EUR, NZD and MXN position, while holding net short of JPY, AUD, CAD and CHF.
• Full update here:

Recovery in E-Mini S&P From Friday's Low a Positive Development

• Eurostoxx 50 futures traded lower last week but prices have recovered from Thursday's low of 4950.00. The recent move down appears to have been a correction, but note that support at the 50-day EMA - at 4965.20 - has been pierced. A clear break of the average would undermine the short-term bullish theme and signal scope for a deeper retracement, towards 4894.90, a Fibonacci retracement. Initial resistance is seen at 5082.00, the May 28 high.
• The uptrend in S&P E-Minis remains intact, however, a corrective cycle has resulted in a pullback from the recent high of 5368.25 (May 23). The latest move down resulted in a print below support at the 50-day EMA, at 5213.24  A clear break of this EMA would signal scope for a deeper retracement. The recovery from Friday’s low is a positive development, a continuation would open 5368.25 and a breach of this level resumes the trend.      

Bear Cycle in Gold Remains in Play

• WTI futures have pulled back from last Wednesday’s high of 80.62. The trend direction is unchanged and remains down. The latest recovery appears to have been a correction. A continuation lower would signal scope for a move towards $75.64, the Mar 11 low. On the upside, key resistance and the bull trigger is at $86.16, the Apr 12 high. Initial firm resistance to watch is at $80.62, the May 29 high.
• A bear cycle in Gold remains in play for now, and the yellow metal has started this week on a bearish note. The medium-term trend structure is bullish and the recent move down appears to be a correction that is allowing  an overbought condition to unwind. MA studies are in a bull-mode position, highlighting an uptrend. A resumption of gains would open $2452.5 next, a Fibonacci projection. The 50-day EMA, at $2307.8, represents a key support. 

Date	GMT/Local	Impact	Country	Event
03/06/2024	-	***	US	Domestic-Made Vehicle Sales
03/06/2024	1345/0945	***	US	S&P Global Manufacturing Index (final)
03/06/2024	1400/1000	***	US	ISM Manufacturing Index
03/06/2024	1400/1000	*	US	Construction Spending
03/06/2024	1530/1130	*	US	US Treasury Auction Result for 13 Week Bill
03/06/2024	1530/1130	*	US	US Treasury Auction Result for 26 Week Bill
04/06/2024	2301/0001	*	GB	BRC-KPMG Shop Sales Monitor
04/06/2024	0130/1130		AU	Business Indicators
04/06/2024	0130/1130		AU	Balance of Payments: Current Account
04/06/2024	0630/0830	***	CH	CPI
04/06/2024	0755/0955	**	DE	Unemployment
04/06/2024	0900/1000	**	GB	Gilt Outright Auction Result
04/06/2024	1255/0855	**	US	Redbook Retail Sales Index
04/06/2024	1400/1000	**	US	Factory New Orders
04/06/2024	1400/1000	***	US	JOLTS jobs opening level
04/06/2024	1400/1000	***	US	JOLTS quits Rate
04/06/2024	1530/1130	*	US	US Treasury Auction Result for Cash Management Bill
04/06/2024	2000/2100		GB	Sunak Vs Starmer : ITV Debate
05/06/2024	0130/1130	***	AU	Quarterly GDP
05/06/2024	0645/0845	*	FR	Industrial Production
05/06/2024	0900/1100	**	EU	PPI
05/06/2024	0900/1000	**	GB	Gilt Outright Auction Result
05/06/2024	1100/0700	**	US	MBA Weekly Applications Index
05/06/2024	1215/0815	***	US	ADP Employment Report
05/06/2024	1345/0945	***	CA	Bank of Canada Policy Decision
05/06/2024	1400/1000	***	US	ISM Non-Manufacturing Index
05/06/2024	1430/1030	**	US	DOE Weekly Crude Oil Stocks
05/06/2024	1430/1030		CA	BOC Governor Press Conference