MNI US MARKETS ANALYSIS - USD Offered as Overbought Condition Unwinds

US TSYS SUMMARY: Sell Off Continues With Data Deluge Ahead

• A beat in Eurozone CPI inflation (partly implied by the earlier French release) gave Treasuries a reason to continue the sell-off from the previous two days.
• The curve flattens modestly as front-end yields rise faster in response to lifted Fed hike expectations, back at levels seen only fleetingly before Mester (’22 voter) poured cold water on talk of 75bp hikes.
• 2YY +6.3bps at 2.680%, 5YY +5.6bps at 2.895%, 10YY +4.3bps at 2.866% and 30YY +3.3bps at 2.926%.
• TYM2 sits 2+ ticks lower at 119-08+ having pulled off Wednesday’s high of 120-18+ but on low volumes throughout the European morning. The trend outlook remains bearish as it next eyes the bear trigger of 118-08 (Apr 22 low).
• Data: The Employment Cost Index for Q1 plus PCE deflator and incomes/spending for March all hit at 0830ET, followed by the MNI Chicago PMI for April at 0945ET and then the finalised U.Mich consumer survey for April at 1000ET.
• Consensus has another strong print for the ECI (+1.1% Q/Q after +1.0% in Q4) although the core PCE for March could see some downward revisions.

UST 2Y and 10Y yields plus 2s10s (charting mid price)Source: Bloomberg

STIR FUTURES: Fed Hike Expectations Buoyed By EA CPI

• Fed Funds implied hikes firmed after the beat in Eurozone CPI (headline +0.6% vs 0.5% M/M, core 3.5% vs 3.2% Y/Y).
• It sits with 51.5bps for next week, 110bp for June, 197bp for Sep (4 meetings, only exceeded 200bp last Fri) and 246bps to year-end (6 meetings).
• It comes despite downside risk to today’s March core PCE print after yesterday’s Q1 advanced print implied nearer to +0.15% M/M (cons. 0.3%) if there are no revisions to prior months.

Cumulative hikes at specific meetings from Fed Funds futures (%pts)Source: Bloomberg

EGB/GILT SUMMARY: Broad Selling

European government bonds have traded weaker this morning alongside modest gains for equities and G10 FX against the dollar.

• The preliminary estimate of Q1 GDP for the euro area matched the consensus estimate (0.2% Q/Q, 5.0% Y/Y). In addition, eurozone inflation in April came in at 7.5% Y/Y, inline with expectations, while the core reading printed higher (3.5% vs 3.2% expected).
• Supply this morning came from the UK (UKTBs, GBP3.5bn) and Italy (BTPs/CCTeu, EUR8.0bn).
• The bund curve has bear flattened with yields up 3-4bp across much of the curve and the 2s30s spread narrowing 4bp.
• Having initially opened higher, OATs subsequently traded lower across the curve with yields up 2-4bp on the day.
• BTPs have underperformed, particularly at the shorter end and belly. Yields are now 3-8bp higher.
• Yields sold off following a strong start, with the short-end underperforming and the curve twist flattening.

EUROPE OPTION FLOW SUMMARY

Eurozone:
0RM2 98.25/97.75ps, bought for 5.75 in 2k (also traded yesterday in 8k)

ERZ2 99.50/99.75/100p fly sold vs buying 99.62/99.37/99.12p fly, net half in 6k

SFIK2 98.70/98.80, bought for 1 in 3k

EUROPE ISSUANCE UPDATE:

• E2.5bln 1.10% Apr-27 BTP, Avg yield 1.910% (Prev. 1.460%), Bid-to-cover 1.49x (Prev. 1.38x)
• E4bln 2.50% Dec-32 BTP, Avg yield 2.780% (Prev. 2.140%), Bid-to-cover 1.34x (Prev. 1.31x)
• E1.5bln 0.75% Oct-30 CCTeu, Avg yield 0.500% (Prev. 0.780%), Bid-to-cover 1.76x

FOREX: USD Dips in Final April Trading Day

• Markets are bouncing early Friday, with this week's sharp moves in currency markets partially reversing on the final trading day of the month. The greenback is the poorest performer so far, providing some relief for the likes of EUR/USD and GBP/USD and allowing the pairs to ease their currently oversold technical conditions.
• Data out this morning gave markets a firm clue on today's higher-than-expected April Eurozone inflation release, with core CPI now reaching 3.50% - another series high and confusing further the monetary policy outlook for the ECB. Nonetheless, regional releases suggested this would be the case, keeping EUR/GBP slightly underwater and just above the 0.8400 mark.
• Oil prices hold the bulk of the Thursday rally, keeping Brent and WTI prices in the green and helping support the likes of NOK, which is the firmest currency so far Friday. A solid set of Norwegian retail sales figures (+3.3% in March) and Credit growth keep the Norges Bank on track to raise rates further this year - although a number of analysts have flagged the risk of a rate rise at next week's non-policy report meeting.
• Looking ahead, US personal income/spending data for March is the data highlight ahead of MNI Chicago PMI and the final read for April UMich confidence. Canada's February GDP also crosses.

FX OPTIONS: Expiries for Apr29 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0565-75(E2.0bln), $1.0600(E838mln), $1.0650(E288mln), $1.0700(E2.9bln), $1.0785-90(E587mln)
• USD/JPY: Y124.00($1.4bln), Y126.75($500mln)
• EUR/GBP: Gbp0.8475(E751mln)
• USD/CAD: C$1.2850($690mln)
• USD/CNY: Cny6.5400($500mln), Cny6.5500($570mln), Cny6.6500($560mln)

Price Signal Summary - USD Pullback Considered Corrective

• In the equity space, S&P E-Minis remain in a downtrend despite the recent recovery from 4136.75, Apr 26 low. This week’s lows reinforced bearish conditions and confirmed a resumption of the bear cycle. This has opened 4129.50, the Mar 15 low. Initial resistance is at 4303.50, Apr 26/28 high. A break would signal scope for a stronger corrective bounce and expose 4355.50, the Apr 18 low. EUROSTOXX 50 futures remain in bear mode and recent gains are considered corrective. A bearish theme follows a reversal from the Apr 21 high of 3883.00. A resumption of weakness would open 3551.60, a Fibonacci retracement. Key resistance is at 3883.00, Apr 21 high.
• In FX, EURUSD remains in a clear downtrend and short-term gains are considered corrective. The focus is on 1.0454, the Jan 1 2017 low. GBPUSD remains vulnerable following the recent impulsive move lower. The focus is on 1.2375, 2.382 projection of the Mar 23 - Apr 13 - 14 price swing. USDJPY resumed its uptrend on Thursday, following the breach of 129.40, Apr 20 high. Importantly, the pair has also cleared the psychological 130.00 handle, strengthening a bullish theme. This has opened 131.96, the 1.00 projection of the Feb 24 - Mar 28 - 31 price swing. DXY remains in a clear uptrend and has tested major resistance at 103.82, the Jan 3 2017 high. A clear break of this hurdle would strengthen bullish conditions.
• On the commodity front, Gold remains vulnerable despite the recovery from yesterday’s low. The recent pullback from the $1998.4 high (Apr 18), continues to highlight a bearish threat. This has been reinforced by the break this week, of support at $1890.2, the Mar 29 low. Attention is on $1848.8, 76.4% retracement of the Jan 28 - Mar 8 rally. On the upside, $1932.1, the 20-day EMA is seen as a firm short-term resistance. In the Oil space, WTI futures maintain this week’s firmer tone. A triangle formation has appeared on the daily chart and price is trading at the top of this pattern - triangle resistance intersects at 106.78. A key resistance is also seen at $109.20, the Apr 18 high. A break of these levels would be seen as a bullish development. Initial support lies at $99.80, the Apr 27 low.
• The broader trend condition in the FI space remains bearish. Bund futures are eyeing the 153.00 handle next. Recent gains are considered corrective and the resistance to watch is at 156.01 the 20-day EMA. The broader trend condition in Gilts remains bearish. This week’s breach of the 20-day EMA and a trendline resistance drawn from the Mar 1 high, appeared to be a bullish development. Price has instead failed to hold on to recent highs and resistance has been defined at 119.79, the Apr 26 high. An extension lower would expose the 117.22 bear trigger, Apr 22 low.

EQUITIES: US Futures Fading Some Of Thursday's Late Gains

• Chinese stocks closed higher: SHANGHAI closed up 71.578 pts or +2.41% at 3047.063 and the HANG SENG ended 813.22 pts higher or +4.01% at 21089.39.
• European equities are a stronger, with the German Dax up 135.78 pts or +0.97% at 13898.71, FTSE 100 up 18.87 pts or +0.25% at 7484.19, CAC 40 up 72.92 pts or +1.12% at 6448.27 and Euro Stoxx 50 up 34.2 pts or +0.91% at 3752.11.
• U.S. futures are giving up some of Thursday's gains, with the Dow Jones mini down 120 pts or -0.35% at 33708, S&P 500 mini down 30.25 pts or -0.71% at 4253.25, NASDAQ mini down 140 pts or -1.04% at 13315.5.

COMMODITIES: Precious Metals Jump As Dollar Pulls Back

• WTI Crude up $1.08 or +1.03% at $103.89
• Natural Gas up $0.02 or +0.22% at $7.122
• Gold spot up $21.4 or +1.13% at $1887.33
• Copper up $3.35 or +0.76% at $439.6
• Silver up $0.39 or +1.69% at $22.974
• Platinum up $13.46 or +1.46% at $913.67