MNI US MARKETS ANALYSIS - Risk-Off Pervades, JPY Outperforms

US TSYS SUMMARY: A More Tentative Rally, 2Y Auction Later

• Cash Tsys have continued yesterday’s rally since Europe came in, albeit at a slower pace, having sold off through Asia hours with the PBOC pledging a more proactive approach to supporting domestic economy via monetary policy tools.
• With the rally broadly across the curve, 2s10s keeps to new flatter level seen late yesterday at 19bps, having retraced around half of the Apr 1 – Apr 19 steepening.
• 2YY -2.5bps at 2.601%, 5YY -2.9bps at 2.830%, 10YY -3.0bps at 2.789% and 30YY -2.3bps at 2.865%.
• TYM2 is up 7+ ticks at 119-27 towards the higher end of yesterday’s wide range. Resistance is eyed at yesterday’s high of 120-06 whilst support is seen at 118-08 (Apr 22 low).
• Data: Solid docket, preliminary durable goods for March should be the pick but also have Conference Board consumer sentiment for April plus three different housing releases (important with shelter inflation growing so strongly).
• Bond issuance: US Tsy $48B 2Y Note auction (91282CEK3) – 1300ET

STIR FUTURES: Fed Hike Expectations Holding Steady

• Little change in Fed Funds implied hikes, with 51bp priced for the May meeting and a cumulative 107bp for June, where it fell to late Fri after Mester leant against 75bp hikes.
• Similar story with 195bp for Sep (4 meetings) and 239bp for Dec (6 meetings).
• With the Fed media blackout, drivers come from headlines and data, the pick of which is likely preliminary durable goods for March.

Cumulative hikes in Fed Funds rate from FOMC-dated FF futures (%pts)Source: Bloomberg

EGB/GILT SUMMARY: Recouping Earlier Losses

European government bonds had a weak start to the session before starting to recover losses through the morning. Equities are broadly higher alongside gains in the commodities space and a mixed performance in G10 FX.

• UK Parliamentary Under-Secretary of State for the Armed Forces James Heappey has stated that it was legitimate for Ukraine to use Western weapons to attack targets on Russian soil, while Russian Defence Minister Sergeĭ Lavrov has stated that the West is engaged in a proxy war with his country.
• UK public sector borrowing data came in lower than expected for March.
• Gilts have gained ground through the morning, although much of the curve still trades below yesterday's close. The very long end of the curve is 2bp steeper.
• The bund curve has bull flattened with the 2s30s spread narrowing 2bp.
• OATs have recovered through the morning and now trade close to flat on the day.
• Supply this morning came from Italy (BTP/BTPei, EUR3.75bn) and Austria (ATBs, EUR1.855bn)
• Preliminary US durable goods data for March, new home sales for for March and the Richmond Fed Manufacturing index data will be published later today.

EUROPE ISSUANCE UPDATE:

Italy sells BTP-ST / BTPei:

• E2.75bln 0% Nov-23 BTP, Avg yield 0.480% (Prev. 0.140%), Bid-to-cover 1.60x (Prev. 1.73x)
• E1bln Short Term 0.65% May-26 BTPei, Avg yield -1.520% (Prev. -1.180%), Bid-to-cover 1.44x (Prev. 2.12x)

UK DMO: CGNCR for FY21/22 GBP20.0bln higher than DMO had assumed

• CGNCR (ex-NRAM, BB & NR) for FY21/22 was GBP20.0bln higher than assumed in the DMO's calculation for the the current year's gilt remit.
• It's not the only input into the gilt remit change due most likely at 7:30BST, but it is the main one, so we'll likely see the remit revised higher than the GBP124.7bln that was previously announced (although some of this adujustment could come through T-bills too).

FOREX: Corrective Bounce in AUD/USD

• Despite a late rally on Wall Street Monday, a broad risk-off feel remains present in markets, with US 10y yields only briefly rising back above 2.80%, before fading into the NY crossover. The price action in bond and equity markets is working in favour of the JPY and greenback, which hold the majority of the week's gains, although AUD is the outperformer so far.
• Having fallen near 7% from the monthly high, AUD/USD was approaching technically oversold levels, prompting a minor corrective bounce back to the $0.7200 handle. Nonetheless, the pair remains below the week's best levels which hold as first resistance at $0.7261.
• Elsewhere, the spectre of a potentially extended lockdown across a number of Chinese cities is continuing to work against commodities prices and perceived demand. WTI and Brent crude futures remain in negative territory, keeping oil-tied FX on the backfoot. As a result, NOK is the poorest performer in G10 at present, with USD/CAD similarly not far off yesterday's high at 1.2777.
• Preliminary US durable goods orders are the data highlight Tuesday ahead of consumer confidence (seen rising for a second month) and new home sales. There are no Fed speakers as the FOMC remain inside the pre-meeting media blackout period, which keeps focus on the ECB. de Cos and Villeroy are both due to speak today.

FX OPTIONS: Expiries for Apr26 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0700-10(E802mln), $1.0725-50(E2.1bln), $1.0785-05(E2.6bln), $1.0800-05(E1.0bln), $1.0900-10(E560mln)
• USD/JPY: Y125.00($1.2bln), Y126.00-20($1.2bln), Y126.75-80($850mln), Y128.00($575mln)
• AUD/USD: $0.7150-70(A$771mln), $0.7220(A$1.2bln), $0.7350-70(A$1.1bln)
• USD/CAD: C$1.2675($655mln), C$1.2785($575mln)

Price Signal Summary - Gold Sell-Off Exposes Key Short-Term Support

• In the equity space, S&P E-Minis traded sharply lower Friday and again yesterday. Price has however recovered from yesterday’s low of 4195.25. Recent weakness has confirmed a resumption of the current downtrend and has opened 4129.50, the Mar 15 low. A near-term concern for bears is a hammer candle formation yesterday. If correct, it suggests scope for a stronger corrective bounce. Initial resistance to watch is 4355.50, low Apr 18. EUROSTOXX 50 futures remain vulnerable. This follows a failure last week to hold on to the week’s high of 3883.00 (Apr 18). Support at 3684.00, Apr 12 low, has been breached and this opens 3626.50, the 50.0% retracement of the Mar 7 - 29 rally.
• In FX,EURUSD remains in a clear downtrend. Recent weakness has resulted in a break of 1.0758, the Apr 14 low and a short-term bear trigger. This has confirmed a resumption of the downtrend and signals scope for a move towards 1.0636 next, Mar 23 2020 low. GBPUSD remains vulnerable. The breach of former support at 1.2974, Apr 13 low, has confirmed a resumption of the primary downtrend. The focus is on 1.2676, Sep 23, 2020 low. USDJPY is unchanged and trend conditions remain bullish. The recent period of consolidation appears to be a bull flag formation, reinforcing current bullish trend conditions. The focus is on 129.44 next, 0.764 projection of the Feb 24 - Mar 28 - 31 price swing. Sights are also on the psychological 130.00 handle.
• On the commodity front, Gold traded lower Monday and the yellow metal has traded below its 50-day EMA. The pullback from last week’s high of $1998.4 (Apr 18), highlights a bearish threat and attention is on key support that lies at $1890.2, the Mar 29 low. This level also represents an important bear trigger. In the Oil space, WTI futures continue to challenge the 50-day EMA, which intersects at $97.83 today. A clear break of the average would strengthen the bearish threat and open $90.37, the Mar 15 low.
• The trend condition in the FI space is unchanged and remains bearish. Bund futures potential is for a test, and break, of the 153.00 handle next. Short-term gains in Gilts are considered corrective. A resumption of weakness would open 117.04, 0.764 projection of the Mar 1 - 28 - Apr 4 price swing. Resistance to watch today is at 119.54, the 20-day EMA.

EQUITIES: Steadying Ahead Of Busy Earnings Slate

• Asian stocks closed mixed: Japan's NIKKEI closed up 109.33 pts or +0.41% at 26700.11 and the TOPIX ended 1.99 pts higher or +0.11% at 1878.51. China's SHANGHAI closed down 42.086 pts or -1.44% at 2886.426 and the HANG SENG ended 65.37 pts higher or +0.33% at 19934.71
• European equities are a little higher, with the German Dax up 162.61 pts or +1.17% at 14046.13, FTSE 100 up 44.46 pts or +0.6% at 7410.23, CAC 40 up 41.11 pts or +0.64% at 6454.95 and Euro Stoxx 50 up 40.03 pts or +1.07% at 3785.1.
• U.S. futures are a little lower but off overnight's worst levels, with the Dow Jones mini down 80 pts or -0.24% at 33883, S&P 500 mini down 7.5 pts or -0.17% at 4285.25, NASDAQ mini down 15.5 pts or -0.11% at 13520.25.

COMMODITIES: WTI Fades Overnight Gains, Still Below $100

• WTI Crude down $0.53 or -0.54% at $98.58
• Natural Gas up $0.25 or +3.81% at $6.812
• Gold spot up $4.88 or +0.26% at $1897.72
• Copper up $1.6 or +0.36% at $447.45
• Silver up $0.06 or +0.27% at $23.6195
• Platinum down $0.35 or -0.04% at $919.99