MNI US MARKETS ANALYSIS - Yields, Commodities Slide as Growth Doubts Linger

US TSYS: Holding Richer With FOMC, ISM Services and ADP All Ahead

• Cash Tsys are off session highs but maintain a new rally on the day with WTI also sliding further to sub-$70. The front end has still reversed a majority of yesterday’s modest paring of gains seen initially on softer JOLTS and US regional banks sliding, whilst the long end has pushed notably higher.
• Attention will be firmly on the upcoming FOMC decision but after yesterday’s sensitivity to JOLTS downside, ADP and ISM services in particular will be watched closely before then.
• In yield space, 2YY -0.8bp at 3.953%, 5YY -2.1bp at 3.428%, 10YY -2.1bp at 3.403% and 30YY -2.0bp at 3.692%.
• TYM3 trades 7+ ticks higher at 115-25+ off a high of 115-30+ which matched resistance at the Apr 26 high. A further move higher could open 116-08 (Apr 12 high).
• FOMC decision (1400ET), Chair Powell presser (1430ET) - see preview here
• Data: ADP Apr (0815ET), S&P Global PMI Apr F (0945ET), ISM Services Apr (1000ET) plus weekly MBA data Apr 28 (0700ET)
• Bill issuance: US Tsy $36B 17W bill auction (1130ET)

STIR FUTURES: Fed 2H23 Rate Path Back Near Post-JOLTS Lows

• Fed Funds imply a 21.5bp hike for today’s FOMC decision, unchanged from yesterday’s close after recovering off 20bps post-JOLTS having been 24bps prior.
• Larger declines further out, with the hike fully unwound in Sep before 24bp of cuts from current to 4.59% Nov (-3bp) and 45bp cuts from current to 4.38% Dec (-3bp).
• Former Dallas Fed Pres. Kaplan recommends a hawkish pause today, citing bank equities being marked down solely because of overinvestment in USTs with the “normally more serious” credit phase yet to unfold. He told MNI Apr 27 he sees the Fed maintaining hawkish guidance as structural factors will make it very challenging to get inflation below 4%.

FOMC-dated Fed Funds implied ratesSource: Bloomberg

EUROPE ISSUANCE UPDATE:

Gilt auction result

• A relatively good auction for the 3.50% Oct-25 gilt auction with the tail of 0.7bp in line with most auctions over the past month and a decent bid-to-cover of 2.56x. Definitely much stronger than the last auction of this gilt in March.
• Post-auction we traded just under the LAP achieved at the auction.
• GBP4bln of the 3.50% Oct-25 Gilt. Avg yield 4.121% (bid-to-cover 2.56x, tail 0.7bp).

• This was a decent 7-year Bund auction with a higher volume of bids (E6.369bln) than the March auction (E5.613bln) despite today's auction being for the smaller amount of E3bln (versus E4bln).
• The price was broadly in line with prevailing secondary pricing but we saw a bit of a move higher post-auction and the 2.10% Nov-29 Bund sat marginally above the average price achieved at auction (99.26).
• E3bln (E2.55bln allotted) of the 2.10% Nov-29 Bund. Avg yield 2.22% (bid-to-cover 2.12x).

FOREX: JPY, CHF Gain as Growth Concerns Weigh Ahead of the Fed

• Currency markets trade with a risk-off feel, putting JPY and CHF at the top of the G10 pile, while a pressured US yield curve saps the greenback. Growth concerns remain the key driver ahead of the Fed decision later today, with bank stability still a background concern. Regional names in focus during Tuesday trade are again lower, with Pacwest Bancorp and Western Alliance off as much as 9% in pre-market trade.
• Currency futures volumes showing typical pre-Fed below-average activity, as markets tread water ahead of the FOMC: EUR futures see volumes 19% below average for this time of day, JPY 29% below, GBP 16% below.
• In tandem with the softer risk outlook, WTI and Brent crude futures are plumbing new multi-month lows and dragging commodity tied currencies. AUD and NZD are weaker, putting AUD/USD back below the 50-dma of 0.6685 - although yesterday's 0.6621 low remains out of reach for now.
• USD/JPY's pullback puts the pair over 2 points off the week's high at 137.77 - opening next support at the 50-dma of 133.96.
• Outside of the FOMC decision and press conference, ADP Employment change and the April ISM Services Index will draw focus

FX OPTIONS: Expiries for May03 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0995-00(E662mln), $1.1100(E833mln)
• USD/JPY: Y136.70-80($723mln)

EQUITIES: Modest Bounce Sees European and US Equity Futures Higher

• A key short-term support in Eurostoxx 50 futures at 4285.90 has been breached - the 20-day EMA. The recent move down is considered corrective for now. A continuation lower would signal scope for a deeper corrective pullback towards 4216.60, the 50-day EMA. On the upside, a break of 4363.00, the Apr 21 high and bull trigger, would confirm a resumption of the uptrend.
• S&P E-minis traded lower Tuesday and the contract breached the 20-day EMA. The move lower appears to be a correction. Trend conditions remain bullish with moving average studies still in a bull-mode set-up. The focus is on 4206.25, the May high and bull trigger. A break would confirm a resumption of the uptrend and open 4223.00, the Feb 14 high. Initial support to watch is 4098.34, the 50-day EMA.

COMMODITIES: WTI Futures Slip on Recession Fears and Concern Over Future Oil Demand

• WTI futures remain in a downtrend and yesterday’s sharp sell-off reinforces this theme. The contract has cleared a number of retracement levels and this signals scope for weakness towards the $70.00 handle next and $69.02, the 76.4% retracement of the Mar 20 - Apr 12 rally. On the upside a key short-term resistance has been defined at $76.92, the Apr 28 high where a break would ease bearish pressure and potentially highlight a reversal.
• Gold traded higher Tuesday. For now, the yellow metal remains in a short-term bearish corrective cycle. Price has recently pierced support at $1990.5, the 20-day EMA, highlighting potential for a deeper retracement. A move lower would open $1955.2, the 50-day EMA. For bulls, key short-term resistance has been defined at $2048.7, the Apr 5 high. A break would confirm a resumption of the uptrend.