MNI US MARKETS ANALYSIS - Markets Eye Fed Minutes for QT Clues

US TSYS SUMMARY: Continued Bear Steepening Ahead Of FOMC Minutes

• Cash Tsys have continued to bear steepen today in a move that started early yesterday well before hawkish Brainard comments drove the move further on talk of starting runoff as early as May with significantly larger caps than in the past.
• 2YY +6bps at 2.573%, 5YY +8.8bps at 2.784%, 10YY +10.3bps at 2.650% and 30YY +9.4bps at 2.667%. 2s10s continue their resurgence, up to +7bps having opened this week at -9.5bps.
• TYM2 is down 21 ticks at 120-06+ as it continues the resumption of its downtrend and is close to testing support at 120-04+ (continuation of the low from Dec 12/13, 2018) with the psychological 120-00 shortly after. Volumes are back solidly above average.
• FOMC minutes at 1400ET, with focus on language surrounding the pace and timing of tapering plus the likelihood of 50bp hikes in upcoming meetings.
• Fedspeak: Harker (2023 voter) on the economic outlook at 0930ET.
• Bond issuance: US Tsy $30B 119D bill CMB auction (912796XL8) at 1130ET.

Source: Bloomberg

STIR FUTURES: 225bp Of Fed Hikes For Rest of 2022

• Fed Fund futures imply 224bp of hikes over the remaining six meetings this year (earlier high of 225bp), 1bp above where they peaked after Brainard yesterday.
• It could be met by 3x50bp and then 3x25bp at the following meetings – above what most analysts have pencilled in.
• This starts with 46bp for May and 91bps priced for June, implying a greater chance of 125bps than 75bps (24% vs 16%) with 60% chance of 100bps over the two meetings.
• Harker (2023 voter) speaks at 0930ET. He was in line with the median dot of 7 hikes in 2022 and on Mar 29 didn’t want to rule out 50bp hike whilst waiting to see what happens to inflation and what he hears from liaison programs. Followed by FOMC minutes at 1400ET.

Source: Bloomberg

EUROPE ISSUANCE UPDATE:

EGB SYNDICATION: Portugal 10-year

• Size: E3bln (MNI had expected E3-5bln)
• Spread set earlier at MS+35bps (guidance was MS+36 area)
• Final books in excess E15.5bln (including E1.7bln JLM)

• E1.015bln 2.80% Dec-28 BTP, Avg yield 1.779%
• E430mln 2.70% Mar-47 BTP, Avg yield 2.626%
• E655mln 1.70% Sep-51 BTP, Avg yield 2.656%

EUROPE OPTION FLOW SUMMARY:

Eurozone:
0RM2 99.12/98.75 ps sold at 20.25 in 7k

ERZ2 99.875/99.75/99.50/99.375p condor, bought for 3.25 in 2k
ERZ2 99.50/99.125/99.00 broken put fly, bought for 7 in 2k

2EM2 96.625/96.25ps bought for 10 in 30k
3EM2 96.75/96.375ps 1x1.5, bought for 5 in 12k

SX5E (14/04) 3900 straddle, trades 128.4 in 2k vs VGM2 2k at 3780

FOREX: USD Backtracks Small Part of Post-Brainard Move

• The greenback is edging lower into the NY crossover, helping major pairs including EUR/USD and GBP/USD recover off the session lows. Despite the USD slipping lower over the past few hours, markets are yet to recover a major part of the post-Brainard moves posted yesterday, after the FOMC member argued in favour of a much faster, swifter QT process relative to post-Global Financial Crisis policy.
• There's a tentative sense of risk-off evident in equity markets, with most continental indices lower by 1% or more, with continued weakness evident in French names as the polling lead for incumbent Macron narrows over his right-wing contender Marine Le Pen.
• In contrast to stocks, haven currencies are weaker so far Wednesday, putting CHF and JPY at the bottom of the G10 pile. GBP and NZD are the firmest currencies so far, but recent ranges are largely being respected.
• Data is few and far between Wednesday, with no major G10 releases outside of the Canadian Ivey PMI due at 1500BST/1000ET. This should keep the central bank speaker docket in the spotlight, with ECB's Lane and Knot due, as well as Fed's Harker and the much-watched release of the Fed minutes.

FX OPTIONS: Expiries for Apr06 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0935-55(E2.5bln), $1.1000(E1.1bln), $1.1035-41(E665mln)
• USD/JPY: Y121.00-10($670mln), Y121.75-80($752mln)
• USD/CAD: C$1.2500($598mln)
• USD/CNY: Cny6.4000($1.4bln)

Price Signal Summary - S&P E-Minis Key Support Is At The 50-Day EMA

• In the equity space, S&P E-Minis are trading lower this morning and have breached Monday’s low of 4501.25. The pullback is considered corrective and key support is unchanged at the 50-day EMA that intersects at 4452.75. A clear break of this average is needed to signal a top. The bull trigger is at 4633.44, 76.4% of the Jan 4 - Feb 24 downleg and just above the Mar 29 high. EUROSTOXX 50 futures are also lower this morning and the contract is back below its 20- and 50-day EMAs. The key short-term support to watch is 3735.00, the Mar 18 low. A break of this level would threaten the recent bullish theme and suggest scope for a deeper pullback. Key near-term resistance has been defined at 3944.00, Mar 29 high
• In FX, EURUSD traded lower Tuesday, extending the pullback from 1.1185, Mar 31 high. The recent failure at 1.1185 and more importantly, the inability to remain above the 50-day EMA, highlighted a developing bearish threat and this week’s sell-off has reinforced this theme. The break of 1.0945 signals opens 1.0806, the Mar 7 low. GBPUSD remains vulnerable and the focus is on 1.3000 next, the Mar 15 low and a bear trigger. Key resistance is unchanged at the 50-day EMA - it intersects at 1.3277 today. USDJPY remains above last week’s low of 121.28 (Mar 31). A corrective cycle is still in play despite recent gains, with resistance at 125.09 intact, the Mar 28 trend high. 121.28 is a key short-term support. A break would allow for an extension lower and open 120.95, Mar 24 low ahead of the 120.00 handle. For bulls, clearance of 125.09 would confirm a resumption of the primary uptrend.
• On the commodity front, Gold is still range bound. The yellow metal recently found support at $1890.2, on Mar 29, and this level represents the short-term bear trigger. Initial resistance is at $1966.1, Mar 24 high. In the Oil space, WTI futures continue to trade above the 50-day EMA at $97.78 - a key pivot support. Initial resistance is at $108.75, the Mar 30 high. For bears, a break of the 50-day EMA would signal potential for a deeper retracement.
• In the FI space, the Bund futures are trading lower. Key near-term resistance is seen at 159.92, the 20-day EMA. A resumption of weakness would open the 156.00 handle. Gilts have found resistance at 122.35, Monday’s high. This means key resistance at 122.72, the Mar 18 high, remains intact The broader trend direction is bearish and the bear trigger is at 119.86, Mar 28 low.

EQUITIES: European Stocks Lower With Tech, Consumer Discretionary Underperforming

• Asian markets mostly closed lower: Japan's NIKKEI closed down 437.68 pts or -1.58% at 27350.3 and the TOPIX ended 26.21 pts lower or -1.34% at 1922.91. China's SHANGHAI closed up 0.709 pts or +0.02% at 3283.426 and the HANG SENG ended 421.79 pts lower or -1.87% at 22080.52.
• European stocks are weaker, with the German Dax down 161.5 pts or -1.12% at 14236.43, FTSE 100 down 44.58 pts or -0.59% at 7570.16, CAC 40 down 82.58 pts or -1.24% at 6563.46 and Euro Stoxx 50 down 49.88 pts or -1.27% at 3862.14.
• U.S. futures are a little lower, with the Dow Jones mini down 91 pts or -0.26% at 34458, S&P 500 mini down 14.75 pts or -0.33% at 4505.5, NASDAQ mini down 83.5 pts or -0.56% at 14743.

COMMODITIES: WTI Bounces Back From Sub-$100 Overnight Low

• WTI Crude up $1.31 or +1.28% at $103.17
• Natural Gas up $0.09 or +1.51% at $6.121
• Gold spot up $3.42 or +0.18% at $1925.81
• Copper down $1.65 or -0.34% at $477.65
• Silver up $0.04 or +0.18% at $24.3345
• Platinum up $0.35 or +0.04% at $971.73