MNI US MARKETS ANALYSIS - ECB Members Tilt Hawkish

US TSYS SUMMARY: Treasuries Revert To Selling Off, Powell Later

• Cash Tsys revert to selling off after yesterday’s rally amidst broader risk-on moves with equity futures firming and the dollar weakening, marginally lagging moves seen in Europe following hawkish ECB commentary.
• Fed hike expectations largely keep to yesterday’s gains and a result see a largely parallel shift in the curve rather than a continuation of yesterday’s sizeable flattening, maintaining 2s10s at 25bps having been ~40bps after Easter.
• 2YY +4.2bps at 2.617%, 5YY +4.3bps at 2.905%, 10YY +3.9bps at 2.871% and 30YY +3.4bps at 2.906%, with the curve inverted between 7Y and 10Y tenors before rising again thereafter.
• TYM2 is down 10 ticks but remains well within yesterday’s range with average volumes. Initial support is yesterday’s early low of 118-19+ whilst resistance remains 120-00+ (Apr 18 high).
• Fedspeak: Powell speaks at 1100ET and 1300ET with the latter likely the main event as part of an IMF panel with ECB’s Lagarde.
• Data: Philly Fed and usual weekly jobless claims at 0830ET
• Bond issuance: US Tsy $20B 5Y TIPS auction (91282CEJ6) at 1300ET
• Bill issuance: US Tsy $35B 4W, $30B 8W bill auctions at 1130ET

STIR FUTURES: Fed Hikes Consolidate Rise Ahead Of Powell

• Hikes implied by FOMC-dated Fed Funds futures consolidate yesterday’s increase, with 228bps to year-end and closing in on 250bps for Jan’23.
• A cumulative 100bps is now fully priced for June whilst July has cranked back to highs of 143bps, in part supported by more hawkish ECB commentary.
• Powell technically speaks twice today but the first at 1100ET is only to give opening remarks at an event hosted by the Volcker Alliance and Penn Institute for Urban Research. The main one is from 1300ET as part of an IMF panel with ECB's Lagarde on the global economy.
• This is the last scheduled Fedspeak before the media blackout starts Friday at midnight.

EGB/GILT SUMMARY: Hawkish ECB Rhetoric Underpins EGB Selling

European government bonds have sold off this morning, underpinned by hawkish commentary from ECB policymakers which has fueled expectations of a rate rise in the coming months.

• Gilts opened lower and have sold off across most of the curve, although there has been some marginal twist flattening at the long end where bonds have inched above yesterday's close. Cash yields at <10y maturity are 3-5bp higher, while yields at longer maturity are close to flat on the day.
• Bunds have sold off across the curve with yields 3-9bp higher and with the short-end underperforming.
• OATs have traced out a similar path with yields now up 1-9bp.
• BTPs have slightly lagged the sell-off in core EGBs. Yields across most of the curve are higher on the day by 1-7bp, while the very long-end has firmed.
• Luis de Guindos earlier suggested that a rate hike was possible in July, depending on the data, while President Lagarde indicated that inflationary risks are tilted to the upside in the short run.
• The final estimate of Eurozone CPI in March was revised slightly lower compared to the initial reading (Headline: 7.4% Y/Y vs 7.5% previously; Core: 2.9% vs 3.0%).
• Supply this morning came from France (OATs, EUR10.989bn; OATi/OATei, EUR1.498bn), Spain (Bono/Oblis, EUR5.541bn), and Ireland (IRTBs, EUR750mn)
• Focus this afternoon shifts to US initial jobless claims data and the Philly Fed survey.

EUROPE ISSUANCE UPDATE:

• E3.645bln 0% Feb-25 OAT, Avg yield 0.58% (Prev. -0.08%), Bid-to-cover 3.83x (Prev. 2.52x)
• E4.45bln 0% Feb-27 OAT, Avg yield 0.88% (Prev. 0.32%), Bid-to-cover 2.49x (Prev. 2.44x)
• E2.894bln 2.50% May-30 OAT, Avg yield 1.12% (Prev. -0.19%), Bid-to-cover 2.12x (Prev. 2.66x)

10/30-year OATei / 15-year OATi results:

• E732mln 0.10% Jul-31 OATei, Avg yield -1.63% (Prev. -1.59%), Bid-to-cover 2.47x (Prev. 2.10x)
• E507mln 0.10% Mar-36 OATi, Avg yield -1.06% (Prev. -0.87%), Bid-to-cover 2.55x (Prev. 3.98x)
• E259mln 0.10% Jul-53 OATei, Avg yield -0.83% (Prev. -0.98%), Bid-to-cover 2.50x (Prev. 2.76x)

EUROPE OPTION FLOW:

The main trend prevalent in markets Thursday has been trades targeting July, September and December ECB meetings, with possible rate hikes a focus.

ERQ2 99.87/99.75/99.62p fly, bought for 1.75 in 6k
ERU2 100/99.75/99.50p fly, bought for 5.5 in 8k
ERU2 100/99.75/99.375p fly, bought for 4.75 in 2k
ERZ2 99.75/99.50/99.125p fly, bought for 1.5 in 10k

SX5E (20th May) 3700/3475ps 1x2, bought for 13.5 in 5k

FOREX: ECB VP Puts EUR/USD North of 1.09

• The single currency is outperforming ahead of Thursday's US hours, with ECB Vice President de Guindos this morning outlining his view that QE will conclude in July, at which point a rate hike is possible - data depending. The resultant jostling of rates markets puts implied rates above 0% by year-end, helping boost EUR/USD back above the 1.09 handle.
• Price action has traded through resistance at 1.0904, the 20-day EMA. This is a positive short-term development and suggests potential for an extension higher near-term, potentially towards the 50-day EMA, at 1.1026. Short-term gains are still considered corrective and the 50-day EMA represents the next key resistance point.
• Yesterday's corrective JPY rally has faded into Thursday NY hours, with the Japanese currency the weakest performer so far. Nonetheless, USD/JPY remains well below the cycle high printed Wednesday at Y129.40.
• Antipodean currencies are moderately softer as markets take profits on Wednesday's China-inspired gains. AUD and NZD sit just above JPY in the G10 table.
• Weekly jobless claims data and the April Philly Fed release are the highlights due Thursday as well as an appearance from Fed's Powell, who joins an IMF panel with ECB's Lagarde. BoE's Mann and Bailey are also due to speak.

FX OPTIONS: Expiries for Apr21 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0700(E920mln), $1.0800(E871mln), $1.0900-05(E3.2bln), $1.0925-35(E578mln), $1.1000(E1.3bln)
• USD/JPY: Y124.85-00($1.4bln)
• GBP/USD: $1.3050(Gbp860mln)
• AUD/USD: $0.7400-20(A$954mln)
• USD/CAD: C$1.2500($770mln), C$1.2650($565mln)

Price Signal Summary - S&P E-Minis Extend This Week's Recovery

• In the equity space, S&P E-Minis are firmer today as the contract extends this week’s gains. The move higher refocuses attention on initial resistance at 4519.75, the Apr 8 high. Clearance of this level would suggest potential for a stronger recovery. Current gains are still considered corrective. The bear trigger is at 4355.50, Apr 18 low. EUROSTOXX 50 futures are also trading higher today. The contract is once again above the 50-day EMA and this has exposed initial resistance at 3888.00, the Apr 5 high. Clearance of this level would open the key resistance and bull trigger at 3944.00, the Mar 29 high. Key short-term support has been defined at 3684.00, Apr 12 low. A break would resume recent bearish activity.
• In FX, EURUSD is firmer this morning. Price action has traded through resistance at 1.0904, the 20-day EMA. This is a positive short-term development and suggests potential for an extension higher near-term, potentially towards the 50-day EMA, at 1.1026. GBPUSD is slightly firmer but remains below 1.3147, the Apr 14 high. The pullback from this high is a bearish development. The primary trend remains down and a breach of 1.2974, Apr 13 low, would confirm a resumption of the downtrend. This would open 1.2933, the Nov 5 2020 low. Clearance of 1.3147 would alter the picture. USDJPY traded higher Wednesday, to a fresh cycle high of 129.40. Conditions remain bullish, despite still being in overbought territory. The focus is on 129.44 next, 0.764 projection of the Feb 24 - Mar 28 - 31 price swing. Sights are also set on the psychological 130.00 handle.
• On the commodity front, Gold has this week failed to hold onto recent highs. The pullback from $1998.4, Apr 18 high, has resulted in a breach of the 20-day EMA and attention is on the 50-day EMA at $1926.5. A break of this EMA would suggest scope for a deeper pullback and expose $1890.2, the Mar 29 low and the key support. In the Oil space, WTI futures maintain a bullish tone despite this week’s retracement. Further gains would open $113.51, the Mar 24 high. Initial resistance is at $109.20, Apr 18 high. The support to watch lies at the 50-day EMA, at $97.37.
• The trend condition in the FI space remains 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 Tuesday 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 outside of China generally higher

• Japan's NIKKEI up 335.21 pts or +1.23% at 27553.06 and the TOPIX up 12.85 pts or +0.67% at 1928
• China's SHANGHAI closed down 71.242 pts or -2.26% at 3079.808 and the HANG SENG ended 262.45 pts lower or -1.25% at 20682.22
• German Dax up 139.11 pts or +0.97% at 14503.28, FTSE 100 down 5.37 pts or -0.07% at 7623.2, CAC 40 up 94.32 pts or +1.42% at 6719.7 and Euro Stoxx 50 up 34.66 pts or +0.89% at 3931.77.
• Dow Jones mini up 211 pts or +0.6% at 35287, S&P 500 mini up 31.75 pts or +0.71% at 4487.5, NASDAQ mini up 151.25 pts or +1.08% at 14157.

COMMODITIES: Mixed morning

• WTI Crude up $0.97 or +0.95% at $103.14
• Natural Gas (NYM) down $0.1 or -1.41% at $6.833
• Natural Gas (ICE Dutch TTF) up $2.47 or +2.62% at $97
• Gold spot down $11.62 or -0.59% at $1946.23
• Copper up $2.9 or +0.62% at $470.45
• Silver down $0.27 or -1.07% at $24.948
• Platinum down $9.8 or -0.99% at $979.92