April 16, 2024 10:59 GMT
MNI US MARKETS ANALYSIS - USD Index Crests at New Highs
Highlights:
- 2s10s curve consolidates bear-steepening move ahead of housing data, Powell appearance
- No let-up for GBP option vol as CPI set to follow firm wages data
- Israeli war cabinet set to meet for third consecutive day, forming Iran response
US TSYS: 2s10s Consolidate Bear Steepening With Powell Eyed
- Cash Tsy yields sit 3-5bp higher, with 7s leading the sell-off. Yesterday’s sizeable bear steepening is consolidated with 2s10s at -30bps for highs since mid-Feb.
- The front end to belly remains within yesterday’s ranges, including 2s at 4.949% vs a notable high of 4.993%, but 10Y yields are closer to highs and 30Y yields have pushed fresh YTD highs today.
- TYM4 is close to session lows of 107-23 (- 5+) as pushes back closer to yesterday’s 107-18+. Volumes are once again unusually heavy for the time of day at a cumulative 480k, close to recent above average sessions.
- The trend points south - yesterday’s low stopped just short of support at 107-16+ (Fibo projection) after which lies 107-07+.
- Data: Building permits/housing starts Mar (0830ET), NY Fed services Apr (0830ET), IP/Cap util Mar (0915ET)
- Fedspeak: Jefferson (0900ET), Williams (1230ET), Barkin (1300ET), Powell (1315ET) and Collins (1630ET)
- Bill issuance: US Tsy $65B 42D CMB and $46B 52W Bill auctions (1130ET)
STIR: Fed Rate Path Drifts Higher, Powell & Jefferson In Focus
- Fed Funds implied rates have extended yesterday’s net increase, only just fully pricing a first cut with the September meeting.
- Cumulative cuts from 5.33% effective: 1bp May, 5.5bp Jun, 13.5bp Jul, 25bp Sep and 43bp Dec.
- Today’s heavy Fedspeak sees Chair Powell in focus but with Vice Chair Jefferson also of note. Powell last spoke earlier this month at a Stanford event prior to latest payrolls and CPI reports, whilst this will be Jefferson’s first appearance in almost two months.
- 0900ET – Vice Chair Jefferson (voter) keynote address (text, no Q&A). He last spoke Feb 22, warning of easing too much on improving inflation whilst seeing it appropriate to cut later this year.
- 1230ET – NY Fed’s Williams (voter) moderates event with BdF’s Villeroy. Format should limit US mon pol content and he spoke yesterday, saying he doesn’t see recent inflation data as a turning point.
- 1300ET – Barkin (’24) on economic outlook (no text). He has already spoken since US CPI, on Apr 11 saying that it’s smart to take time to see if inflation slows and that not where we need to be but headed in the right direction.
- 1315ET – Chair Powell in moderated Q&A with BoC’s Macklem (no text). He last spoke Apr 3, saying the recent data do not materially change the overall picture, with Q&A focusing on supply side matters. It’s too soon to say if recent inflation data more than a bump and he doesn’t expect cuts until more confidence on inflation.
- 1630ET – Collins (non-voter) repeats a speech from last week
TSYS: OI Points To Mix Of Long Cover & Short Setting On Monday
The combination of yesterday’s continued weakness in Tsy futures and preliminary OI data points to modest rounds of net long cover across most contracts, with the only apparent exception coming via relatively contained net short setting in US futures.
- The long cover seen across most of the contracts likely reflected an unwind of some weekend geopolitical risk premium, after the Israel & Iran situation avoided the worst-case scenario.
- Still, related tension remains elevated and participants are on lookout for the Israeli response.
- Stronger-than-expected U.S. retail sales data also factored into the Tsy sell off.
15-Apr-24 | 12-Apr-24 | Daily OI Change | OI DV01 Equivalent Change ($) | |
TU | 3,949,347 | 3,955,265 | -5,918 | -217,379 |
FV | 6,040,450 | 6,043,995 | -3,545 | -146,240 |
TY | 4,411,782 | 4,417,169 | -5,387 | -340,987 |
UXY | 2,055,923 | 2,064,553 | -8,630 | -733,733 |
US | 1,552,620 | 1,540,612 | +12,008 | +1,494,506 |
WN | 1,609,322 | 1,615,528 | -6,206 | -1,183,715 |
Total | -17,678 | -1,127,548 |
STIR: OI Points To Mix Of SOFR Long Cover And Short Setting On Monday
Yesterday’s move lower in most SOFR futures and preliminary OI data points to net long cover in most contracts through the blues.
- Pockets of net short setting were also seen, most notably in the greens, where it prevailed in net pack OI terms.
- A reminder that an unwind of some of Friday’s geopolitical risk premium and firmer-than-expected retail sales data dominated on Monday.
- Those inputs allowed end of '24 FOMC pricing of cuts to test the shallow extremes seen in recent sessions.
15-Apr-24 | 12-Apr-24 | Daily OI Change | Daily OI Change In Packs | ||
SFRH4 | 930,017 | 938,024 | -8,007 | Whites | -32,140 |
SFRM4 | 1,179,318 | 1,191,155 | -11,837 | Reds | -21,731 |
SFRU4 | 950,579 | 944,771 | +5,808 | Greens | +9,578 |
SFRZ4 | 1,182,795 | 1,200,899 | -18,104 | Blues | -16,859 |
SFRH5 | 715,132 | 710,962 | +4,170 | ||
SFRM5 | 813,504 | 814,725 | -1,221 | ||
SFRU5 | 678,106 | 693,124 | -15,018 | ||
SFRZ5 | 676,511 | 686,173 | -9,662 | ||
SFRH6 | 490,030 | 493,451 | -3,421 | ||
SFRM6 | 508,536 | 504,564 | +3,972 | ||
SFRU6 | 375,669 | 374,721 | +948 | ||
SFRZ6 | 357,358 | 349,279 | +8,079 | ||
SFRH7 | 222,848 | 226,645 | -3,797 | ||
SFRM7 | 192,632 | 203,735 | -11,103 | ||
SFRU7 | 170,653 | 170,936 | -283 | ||
SFRZ7 | 160,443 | 162,119 | -1,676 |
EUROPE ISSUANCE UPDATE:
UK Inflation-linked gilt auction results:
- GBP1.5bln of the 0.75% Nov-33 linker. Avg yield 0.44% (bid-to-cover 3.4x)
- E805mln of the 2.875% Apr-29 RFGB. Avg yield 2.762% (bid-to-cover 1.35x)
- E580mln of the 2.95% Apr-55 RFGB. Avg yield 3.125% (bid-to-cover 1.45x)
- E4.999859bln of the 2.00% Jan-54 DSL (tap). Books at E14.719722bln, Cut-off spread 2.50% Aug-54 Bund (ISIN: DE000BU2D004) +18.0bp.
FOREX: Greenback Touches Fresh Cycle Best, Bull Trend Intact
- The greenback trades well, firmer against most others in G10, with the USD Index rising to a new cycle high at 106.437 in overnight trade.
- GBP/USD has been a subject of focus following jobs markets data. While average weekly earnings data came in ahead of expectations, the unemployment rate unexpectedly surged higher, potentially flagging labour market weakness ahead - another dovish consideration for the UK MPC going forward. There's been no let-up for GBP vols following this morning's data, however, with overnights now capturing the Wednesday CPI release. Overnight implied has cleared 13 points, to double the YTD average background vol of 6.5 points. This blows out the break-even on an overnight GBP/USD straddle to ~65 pips, thereby capturing the cycle low and key support at 1.2409.
- Topside USD/CAD has also drawn attention, key element being the break of congestion at 1.3614 (high from Mar 19, 22, 25 and 29). 1.3855 is next upside target - and the more markets row back on Fed rate cut pricing for this year, trend conditions should hold in bull-mode for the pair.
- Canadian CPI data takes focus going forward, with markets expecting CPI to have picked up to 0.7% M/M, and to 2.9% Y/Y. Importantly, the trimmed mean measure is expected to stand inline with previous at 3.2%. US industrial and manufacturing production numbers are also due.
- CB speak consists of speeches from Fed's Jefferson, Williams, Barkin, Collins and Powell - who participates in a moderated Q&A session. ECB speak is headlined by Villeroy and Vujcic - but they're likely to stick to the well-worn theme of flagging the growing likelihood of a June rate cut, and justifying policy divergence with the Federal Reserve.
GBP: Overnight Implied Doubles Background Vol, Leaving CPI in Spotlight
- No let-up for GBP vols following this morning's wages and unemployment rate data - with overnights now capturing the Wednesday CPI release. Overnight implied has cleared 13 points, to double the YTD average background vol of 6.5 points - with today's appearance from BoE's Lombardelli in front of the TSC adding to the theme.
- This blows out the break-even on an overnight GBP/USD straddle to ~65 pips, thereby capturing the cycle low and key support at 1.2409.
- While wages topped expectations today, we note the key caveat being how much of this number can be explained by early wage rises relative to the National Living Wage rise that came into effect in April – captured by today’s data. Thereby, limiting the extent to which markets can reverse ’24 rate cut pricing.
- This could make Wednesday’s inflation release more illustrative for monetary policy, and those looking for a corrective bounce eye a reversion back above the 200-dma at 1.2579 and fading GBP positioning, leaving markets far from stretched on the topside.
FX OPTIONS: Expiries for Apr16 NY cut 1000ET (Source DTCC)
- EUR/USD: $1.0650-70(E3.2bln), $1.0700(E936mln), $1.0750-60(E1.0bln), $1.0800(E2.1bln), $1.0820(E1.0bln), $1.0900(E1.9bln)
- USD/JPY: Y153.00($510mln)
- AUD/USD: $0.6500(A$1.0bln), $0.6600(A$737mln)
- AUD/NZD: N$1.0900(A$594mln)
- AUD/JPY: Y97.50-60(A$1bln)
- USD/CNY: Cny7.2450($1.3bln)
EQUITIES: Bearish Corrective Cycle in Eurostoxx 50 Futures Still in Play
- Eurostoxx 50 futures are trading lower today. A bearish corrective cycle remains in play and the move down this month is allowing an overbought trend condition to unwind. The contract is approaching support at 4856.40, the 50-day EMA and this level marks the next key pivot price point. A clear break of the EMA would signal scope for a deeper retracement. Initial resistance to watch is 4990.00, the Apr 15 high.
- The short-term trend condition in S&P E-Minis is unchanged and remains bearish. Yesterday’s move lower reinforces the current condition - the contract has traded through support at the 50-day EMA and this signals scope for a continuation lower near-term. Sights are on 5070.36 next, a Fibonacci retracement. Clearance of this level would open 5018.00, the Feb 21 low. Firm resistance is seen at 5221.49, the 20-day EMA.
COMMODITIES: Gold Remains Close to Last Week's Cycle Highs
- A bull theme in WTI futures remains intact and the latest move lower is considered corrective - for now. Recent gains reinforced current bullish conditions and confirmed a resumption of the uptrend. The contract has breached $84.87, the Sep 15 ‘23 high, paving the way for a climb towards the $90.00 handle further out. The next objective is $89.08, a Fibonacci projection. Initial firm support to watch lies at $83.86, the 20-day EMA.
- The trend condition in Gold remains bullish and the yellow metal is trading closer to its recent highs. The latest rally maintains the price sequence of higher highs and higher lows and note that moving average studies are in a bull-mode condition, reflecting positive market sentiment. The next objective is $2452.5, a Fibonacci projection. Initial firm support is at $2276.1, the 20-day EMA.
Date | GMT/Local | Impact | Flag | Country | Event |
16/04/2024 | 1215/0815 | ** | CA | CMHC Housing Starts | |
16/04/2024 | 1230/0830 | *** | CA | CPI | |
16/04/2024 | 1230/0830 | *** | US | Housing Starts | |
16/04/2024 | 1255/0855 | ** | US | Redbook Retail Sales Index | |
16/04/2024 | 1300/0900 | US | Fed Vice Chair Philip Jefferson | ||
16/04/2024 | 1315/0915 | *** | US | Industrial Production | |
16/04/2024 | 1530/1130 | * | US | US Treasury Auction Result for Cash Management Bill | |
16/04/2024 | 1530/1130 | ** | US | US Treasury Auction Result for 52 Week Bill | |
16/04/2024 | 1630/1230 | US | New York Fed President John Williams | ||
16/04/2024 | 1700/1800 | UK | BoE's Bailey Interview On IMF Today | ||
16/04/2024 | 1700/1300 | US | Richmond Fed's Tom Barkin | ||
16/04/2024 | 1715/1315 | US | Fed Chair Jerome Powell | ||
16/04/2024 | 2000/1600 | CA | Canada federal budget | ||
17/04/2024 | 2245/1045 | *** | NZ | CPI inflation quarterly | |
17/04/2024 | 2350/0850 | ** | JP | Trade | |
17/04/2024 | 0600/0700 | *** | UK | Consumer inflation report | |
17/04/2024 | 0600/0700 | *** | UK | Producer Prices | |
17/04/2024 | 0900/1100 | *** | EU | HICP (f) | |
17/04/2024 | 0900/1000 | ** | UK | Gilt Outright Auction Result | |
17/04/2024 | 0900/1100 | EU | ECB's Cipollone in Italian Banking Meeting | ||
17/04/2024 | 1100/0700 | ** | US | MBA Weekly Applications Index | |
17/04/2024 | 1205/1305 | UK | BoE's Greene on IIF Panel | ||
17/04/2024 | 1230/0830 | * | CA | International Canadian Transaction in Securities | |
17/04/2024 | 1300/1500 | EU | ECB's Cipollone at IIF Global Outlook Forum | ||
17/04/2024 | 1430/1030 | ** | US | DOE Weekly Crude Oil Stocks | |
17/04/2024 | 1545/1745 | EU | ECB's Schnabel Speaks At IRFMP | ||
17/04/2024 | 1600/1700 | UK | BoE's Bailey In IIF Fireside Chat | ||
17/04/2024 | 1700/1300 | ** | US | US Treasury Auction Result for 20 Year Bond | |
17/04/2024 | 1800/1400 | US | Fed Beige Book | ||
17/04/2024 | 1800/1900 | UK | BoE's Haskel At Kings College London Panel | ||
17/04/2024 | 2000/1600 | ** | US | TICS | |
17/04/2024 | 2130/1730 | US | Cleveland Fed's Loretta Mester |
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