MNI US MARKETS ANALYSIS - JPY Snaps Losing Streak

STIR FUTURES: Fed Hike Expectations Touch New Highs

• Fed hike expectations have held their ground overnight, with FOMC-dated Fed Funds futures showing 44bps for May, new highs of 86bps for June, 152bps for Sep (four meetings) and 195bps for Dec (six meetings).
• June shows a 67% chance of 100bps over the two meetings, something that analysts have begun to call for, with MS and TD yesterday joining BNP, GS and Nomura in looking for back-to-back 50bp hikes.
• Ahead: Williams should offer his first post-FOMC thoughts on monetary policy at 1000ET whilst we have renewed speaking from Daly (2024), Barkin (2024) and Waller (Governor).
• Recap: Evans (2023) was one of five dots calling for 175bps of hikes in 2022, comfortable with 25bps each meeting but open minded to a 50bp hike if it helps. Waller talked on the US’s “red hot” housing market whilst adding that the Fed could consider selling MBS in the longer run.

Source: Bloomberg

EUROPE ISSUANCE UPDATE

Italy sells:

• E2bln 0% Nov-23 BTP Short Term, Avg yield 0.140% (Prev. 0.140%), Bid-to-cover 1.73x (Prev. 1.58x)
• E1.5bln 0.10% May-33 BTPei, Avg yield -0.290% (Prev. -0.138%), Bid-to-cover 1.31x

EUROPE OPTION FLOW SUMMARY

Eurozone:
OEK2 129.50/128.50 ps vs 130.25 c, bought the ps for -.7.5 up to -6 (receive) in 20k total

ERZ2 99.37p, sold at 7.25 in 5k

US:
TYK2122.50/121.00ps vs 124.50c, bought the ps for 6 in 3,437

FOREX: JPY Reverses Course as BoJ Steer Clear of Intervention

• After several sessions of distinct underperformance and weakness, the JPY is solidly higher early Friday. The moves follow the BoJ failing to act as 10-year JGB yields hit 0.23%. A break above that level triggered BoJ fixed rate operations back in Feb as the central bank sought to defend the upper end of permitted 10-Year yield trading range (-/+0.25%). There was speculation that the level could again act as a trigger for BoJ intervention but the central bank chose to stay on the sidelines today.
• Elsewhere, GBP trades poorly after a particularly weak set of retail sales figures, with sales unexpectedly dropping in the month of February. The weight on sales was led by a sharp drop in online activity, with spending instead favouring in-person consumption and clothing and footwear as COVID restrictions were relaxed. After starting the overnight session strong, GBP/USD has faded, putting Thursday's lows under pressure at 1.3157. A break below here opens firmer support seen into 1.3120.
• The greenback is more mixed, with the USD Index holding inside the recent range as markets watch for any further signs of tentative progress in a resolution for the Ukraine Crisis. Reports continue to suggest an element of progression between Russian and Ukrainian negotiators, with traders now watching for anything more concrete on a potential ceasefire agreement.
• The data slate is relatively light, with just the final revision to March's UMich Sentiment data and pending home sales on the docket. Fedspeak remains thick and fast, with the highlight today being Williams, who speaks at 1400GMT/1000ET directly on monetary policy. Barkin, Waller and the BoC deputy governor Kozicki also make appearances.

FX OPTIONS: Expiries for Mar25 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.1000(E1.6bln)
• USD/JPY: Y119.25($1.0bln)
• AUD/USD: $0.7370-80(A$507mln)
• USD/CAD: C$1.2610-15($517mln)

Price Signal Summary - S&P E-Minis Remains Above The 50-Day EMA

• In the equity space, S&P E-Minis remain in a short-term uptrend and have delivered a fresh cycle high print today. The contract continues to trade at levels above the 50-day EMA that intersects at 4411.94 today. Scope is seen for a climb towards 4578.50, the Feb 9 high. Initial support is at the 20-day EMA, at 4375.64. EUROSTOXX 50 futures continue to trade inside its current range and the recent consolidation appears to be a bull flag. A bullish theme remains in place and attention is on the 50-day EMA at 3866.40. This average represents an important resistance. If cleared, it would further strengthen a bullish short-term theme and open 3965.50, the Feb 23 high.
• In FX, EURUSD is consolidating. Resistance at 1.1137, Mar 17 high, remains intact. Trend signals highlight a downtrend and the recent pullback signals a resumption of the bear cycle. The focus is on 1.0890, the Mar 9 low and 1.0806, Mar 7 low and the bear trigger. A break of 1.1137 would alter the picture. GBPUSD has failed to hold on to recent highs. The subsequent move lower means key resistance at 1.3337, the 50-day EMA, remains intact. Watch support at 1.3120, the Mar 22 low. A break would be bearish. The USDJPY uptrend remains intact and the pair has traded above 122.00. The focus is on 122.47, the 2.382 projection of the Dec 3 - Jan 4 - 24 price swing.
• On the commodity front, Gold traded higher Thursday. The short-term outlook however remains bearish following the recent sharp pullback from the Mar 8 high of $2070.4. Key support is at the 50-day EMA that intersects at $1899.6. A break of the EMA would signal scope for a deeper pullback. Firm S/T resistance is seen at $2009.2, Mar 10 high. Oil markets remain bullish. The next objective in WTI is $118.34, 76.4% of the Mar 7 - 15 downleg.
• In the FI space, Bund futures have this week cleared the 160.00 handle, confirming a resumption of the downtrend. The focus is on 157.92 150.0% retracement of the Feb 10 - Mar 7 rally. Gilts have this week breached key support at 121.10, Feb 16 low. This signals scope for a test of the 120.00 handle next.

EQUITIES: Energy Lags As Europe Trades Mixed

• Asian markets closed mostly weaker: Japan's NIKKEI closed up 39.45 pts or +0.14% at 28149.84 and the TOPIX ended 0.09 pts lower or 0% at 1981.47. China's SHANGHAI closed down 38.024 pts or -1.17% at 3212.24 and the HANG SENG ended 541.07 pts lower or -2.47% at 21404.88.
• European equities are mixed, with energy names lagging; the German Dax up 7.94 pts or +0.06% at 14281.36, FTSE 100 down 9.53 pts or -0.13% at 7457.75, CAC 40 up 13.46 pts or +0.21% at 6568.17 and Euro Stoxx 50 down 0.79 pts or -0.02% at 3862.66.
• U.S. futures are a little weaker, with the Dow Jones mini down 45 pts or -0.13% at 34559, S&P 500 mini down 9 pts or -0.2% at 4503.5, NASDAQ mini down 46 pts or -0.31% at 14717.75.

COMMODITIES: Brent Call Skew Falls as Put Volatility Increase

• Brent volatility remains very high with May ATM implied vol at 85% only just below the peak from 4th Mar at 92%
• The ongoing rise in trading costs as ICE raised Brent margin requirements again yesterday in assisting the large price swings and maintaining high volatility.
• The skew to calls has fallen in the last 2 days. ATM vols have remained largely unchanged while 25 delta puts have increase by 6% and calls decreased by 5%. 25 delta puts at 89% are back above 25 delta calls at 82%
• Europeans are trying to source oil and gas from alternative supplies away from Russia with Germany Economy Minster reporting German oil imports from Russia are already down from 35% to 25%. If alternative supplies can be found the upside to prices may reduce. This skew move suggests the market may already be starting to price in reduced upside risk.