MNI US MARKETS ANALYSIS - Yields, USD/JPY Retreat Off Cycle Highs

US TSYS: Treasuries Bull Flatten As Longs Eyed

• Cash Tsys have bull flattened after the peak of the yesterday's sell-off in the middle of the Asia session was reversed having seen yields hit new cyclical highs across the curve and with the US 10Y getting close to 3% with 2.977%.
• Heightened levels and a view that inflation will peak this quarter saw BofA strategists go long 10Y USTs at 2.83%, targeting 2.25% with a stop at 3.10%.
• Putin saying Russia will continue its military operation in Ukraine has helped drive the day’s rally further.
• 2YY -4.3bps at 2.548%, 5YY -6.9bps at 2.848%, 10YY -7.7bps at 2.859%, 30YY -7.4bps at 2.921%.
• TYM2 is up 13 ticks at 119-16+ on solid volumes. It sits off the intraday low of 118-19+ that now forms initial support. A break there would open 118-02+ (0.618 proj of the Mar 7-28-31 price swing).
• Fedspeak: Daly (’24 voter), Evans (’23), Bostic (’23) all slated to speak with potential for non-scheduled appearances.
• Data: Existing home sales (1000ET) and Fed’s Beige Book (1400ET) likely the pick but weekly MBA mortgage apps also get a look to see the impact of mortgage rates moving higher.
• Bond issuance: US Tsy $16B 20Y Bond re-open (1300ET)
• Bill issuance: US Tsy $30B 119-Day bill auction (1130ET)

UST 2s10s and individual yieldsSource: Bloomberg

STIR FUTURES: Fed Hike Expectations Trimmed From Heady Asia Session

• Heavily tracking the move in Treasuries, implied hikes have cooled from on overnight peak of 228bp to 220bp out to year-end.
• Immediate meetings continue to be more resilient, with 49.5bps for May and 97bps for June, implying a 58% chance of 100bps and 36% chance of 125bps over the two meetings.
• Triple Fedspeak today although only Daly (’24 voter) is ‘new’. Yesterday, Evans (’23) and Bostic (’24) pushed back on 75bp hikes but envisage going at least some way above neutral. Separately, Kashkari (’24) watches Chinese lockdowns to see whether the Fed should do more than it expects.

EGB/GILT SUMMARY: Clawing Back Losses

European government bonds have rallied this morning with gilts leading the charge. Equities have pushed higher, while the US dollar is on the back foot against G10 FX.

• Gilts started on a weak footing before clawing back losses through the morning. Cash yields are now 6-9bp lower on the day with the curve bull flattening.
• Bunds have similarly been unwinding yesterday's losses. Yields are now 2-7bp lower on the day with the longer end of the curve outperforming.
• OATs have slightly outperformed bunds on the day, particularly at the longer end. Yields have pushed down 2-8bp with the 2s30s spread narrowing 6bp.
• BTPs trade broadly in line with core EGBs.
• Supply this morning came from the UK (Gilt, GBP2bn), Germany (Bund, EUR859mn allotted), Portugal (BTs, EUR1.251bn) and the Eurozone (EU Bills, EUR1.99bn).
• Later today, French President Emmanuel Macron and his challenger in the second round vote, Marine Le Pen, will go head-to-head in a crucial televised debate ahead of the Sunday ballot.

FOREX: BoJ Again Step In to Defend Yield Target

• USD/JPY remains a pair in focus, with a new cycle high of Y129.40 printed overnight, before the price action stalled and the pair reverted back below Y128.50. The move came ahead of more activity from the Bank of Japan, who again stepped in to defend their 0.25% yield target by buying JGBs to stem upside pressure on rates.
• The USD is on the backfoot headed into the NY crossover, helping put the likes of EUR/USD at the session's best levels following a few hours of European trade. Modest strength in European equities accompanies the move in the greenback, with the EuroStoxx50 hitting the best levels since Apr11.
• Lastly, antipodean currencies trade well, with AUD and NZD outperforming amid broader weakness in the Chinese currency, as the authorities set the USD/CNY midpoint at a much weaker-than-expected level - potentially a signal that a more activist approach to currency could be adopted if growth targets continue to slip away.
• Canadian inflation data takes focus going forward, with markets expecting CPI to have risen 6.1% on a Y/Y basis, to be shortly followed by US existing home sales for March. A number of central bank speakers are due, with ECB's Rehn, Nagel on the docket as well as Fed's Daly, Evans and Bostic.

FX OPTIONS: Expiries for Apr20 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0790-11(E1.5bln), $1.0875(E588mln)
• AUD/USD: $0.7400-20(A$909mln)
• USD/CAD: C$1.2600-15($681mln)

Price Signal Summary - Trend Direction In The FI Space Remains Down

• In the equity space, S&P E-Minis recovered Tuesday. Short-term gains are considered corrective though. A bearish theme remains in place following recent weakness that resulted in a move below the 50-day EMA. A resumption of weakness would open 4321.07, 61.8% retracement of the Mar 15 - Mar 29 rally. Resistance to watch is at 4519.75, Apr 8 high. EUROSTOXX 50 futures are firmer today. Short-term gains are most likely a correction. The recent pullback from 3944.00, Mar 29 high, suggests scope for an extension lower near-term. A resumption of weakness would open 3626.50, 50.0% of the Mar 7 - 29 rally. Initial resistance is at 3888.00 , the Apr 5 high.
• In FX, EURUSD remains in a downtrend and near-term gains are considered corrective. Last week’s low print of 1.0758 confirmed a resumption of the trend. Attention is on 1.0727 next, the Apr 24 2020 low and bear trigger. Resistance is seen at 1.0909, the 20-day EMA. GBPUSD remains below 1.3147, the Apr 14 high. The pullback from this high marks a bearish development. The primary trend is down and a breach of 1.2974, Apr 13 low, would confirm a resumption of the bearish activity. This would open 1.2933, the Nov 5 2020 low. USDJPY has once again delivered a fresh trend high today, of 129.40. The uptrend remains firmly intact and short-term pullbacks would be considered corrective. The focus on 129.44 next, 0.764 projection of the Feb 24 - Mar 28 - 31 price swing. The pair is also closing in on the psychological 130.00 handle.
• On the commodity front, Gold has failed to hold onto recent highs. The pullback from $1998.4, the Apr 18 high, has resulted in a move below the 20-day EMA and attention turns to the 50-day EMA at $1925.2. A break of this EMA would suggest scope for a deeper pullback and expose $1915.5, Apr 6 low and the key support. In the Oil space, WTI futures maintain a bullish tone despite yesterday’s move lower. Further gains would open $116.64, the Mar 24 high. Initial resistance is at $109.81, Monday’s high. The support to watch lies at the 50-day EMA, at $98.82.
• Trend conditions in the FI space remain bearish. Bund futures resumed the downtrend Tuesday, breaking below last week’s lows and delivering a fresh cycle low. The focus is on 153.00 next. Gilts also resumed their downtrend yesterday and traded through the 118.00 handle. The focus is on 117.04, 0.764 projection of the Mar 1 - 28 - Apr 4 price swing. Short-term gains are considered corrective.

EQUITIES: Stocks Inch Higher on Busy Day For Earnings

• Japan's NIKKEI closed up 232.76 pts or +0.86% at 27217.85 while the TOPIX finished higher by 19.45 pts or +1.03% at 1915.15. China's SHANGHAI closed down 42.979 pts or -1.35% at 3151.05 and the HANG SENG ended 83.09 pts lower or -0.4% at 20944.67.
• Germany's DAX trades higher by 114.47 pts or +0.81% at 14267.93, FTSE 100 up 30.58 pts or +0.4% at 7631.86, CAC 40 up 79.14 pts or +1.21% at 6613.93 and Euro Stoxx 50 up 49 pts or +1.28% at 3879.58.
• Dow Jones mini down 4 pts or -0.01% at 34838, S&P 500 mini down 4.25 pts or -0.1% at 4455, NASDAQ mini down 31.75 pts or -0.22% at 14185.5.

COMMODITIES: Copper Slips to New Weekly Low

• WTI Crude up $1.1 or +1.07% at $103.66
• Natural Gas down $0.08 or -1.06% at $7.1
• Gold spot down $3.4 or -0.17% at $1946.68
• Copper down $5.5 or -1.16% at $468.45
• Silver down $0.2 or -0.79% at $24.9819
• Platinum down $17.28 or -1.74% at $976.01