MNI US MARKETS ANALYSIS - Yields Extend Run Higher

US TSYS SUMMARY: Sizeable Twist Steepening With Few Scheduled Drivers Ahead

• Cash Tsys see a sizeable steepening as the front-end rallies with Fed hike expectations further out being trimmed but the belly to long-end selling off in a similar move to European FI albeit with some outperformance from haven demand.
• 2YY -3.7bps at 2.694%, 5YY unch at 3.078%, 10YY +5.4bps at 3.181% and 30YY +6.4bps at 3.290%, with 5Y yields of note having touched new highs since Sep-2008 and 2s10s of 49bps the highest since mid-Feb.
• TYM2 sits 11+ ticks lower at 117-14+ having recently moved off new cycle lows of 117-08+ (which form initial resistance) on above average volumes. Another clearance here would open 116-28 (0.764 proj of the Mar 7-28-31 price swing) whilst resistance is materially higher at the 20-day EMA of 118-17.
• Data: Wholesale Inventories/Sales (100ET)
• Fedspeak: None scheduled but can’t rule out pop-up interviews
• Bill issuance: US Tsy $45B 13-W bills, US Tsy $45B 26-W bills (1130ET)

STIR FUTURES: Fed Hike Expectations Stabilise After Barkin Boost

• Hike expectations have been relatively stable overnight after bouncing late Friday as Barkin (’24 voter) told MNI he would prefer not to pre-commit to hiking by 50bps at every meeting.
• Viewed towards the centre of the dove-hawk spectrum prior to the latest FOMC, he wouldn’t rule out a 75bp hike if inflation expectations were becoming unanchored although doesn’t see that as currently the case.
• Pricing remains consistent with Powell’s guidance of 50bps on table for next couple meetings -- 54bp for June, 101bp for Jul and 141bp for Sep.
• No scheduled Fedspeak today before Williams (voter) kicks off a flurry tomorrow with a speech including Q&A.

EGB/GILT SUMMARY: Sovereign Curves Steepen

European government bond curves have steepened at the start of week, driven largely by the longer end selling off. Equities have sold off, commodities are broadly lower and the dollar has gained against G10 FX.

• The Fed's progressive tightening, Covid lockdowns in China, the ongoing push by Western states to weaken the Russian economy and the BoE's warning last week of a potential UK recession, have all contributed to the deteriorating global economic outlook. Meanwhile, concerns over the persistence of inflation are keeping fixed income under pressure.
• Gilts have sold off sharply, particularly at the longer end. The 2s30s spread has widened 8bp.
• The bund curve has twist steepened 9bp.
• The OAT curve has traded in a similar manner with the 2s30s spread pushing up 7bp.
• BTP yields are now up 5-9bp on the day with the belly of the curve underperforming.
• Supply this morning came from Germany (Bubills, EUR1.445bn allotted). Later today France will offer EUR1.6-2.8bn of BTFs.

EUROPE OPTION FLOW SUMMARY

Eurozone:
ERZ2 99.62/99.75/99.875c fly, was sold at 0.75 in 3k

UK:
SFIM2 98.55/98.70/98.85c fly, sold at 5.75 in 1k

FOREX: USD Remains Stronger as Equities Extend YTD Pullback to 15%

• Equity markets sit lower in early Europe, reinforcing the underlying risk-off tone as concerns continue to swirl over the direction of global monetary policy and the implications of a wave of stagflation across developed markets in H2 this year. Yields in the US continue to surge, with the 5yr yield now north of 2018 highs and briefly clearing 3.10%.
• There have been further notable moves in Chinese currency markets, with USD/CNH surging to new cycle highs following downbeat comments from Chinese Premier Li on the domestic labour market. The uncharacteristically candid speech reverberated across Asia, with the offshore yuan offered, even as the PBOC continued to lean against its depreciation via the daily fixing of USD/CNY mid-point.
• Russian President Putin spoke to mark his country's Victory Day parade, and staunchly defended his army's approach to their invasion of Ukraine. His persistent combative stance
• The greenback remains comfortably the firmest performer as markets continue to play catch-up with the hawkish Fedspeak during NY hours on Friday, as MNI interviewed Fed's Barkin - who stated "anything would be on the table," including an outsized 75bps rate hike.
• Canadian building permits and US wholesale inventories / trade sales numbers cross, but the central bank speaker slate is quiet, with no notable speeches due. Elsewhere, France's Macron meets his counterpart Scholz in the first foreign trip for the President since his re-election a few weeks ago.

FX OPTIONS: Expiries for May09 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0500-20(E929mln), $1.0680-95(E1.5bln)
• AUD/USD: $0.7100(A$1.3bln), $0.7125(A$658mln)
• USD/CAD: C$1.2805-20($1.4bln)

Price Signal Summary - USD Path Of Least Resistance Remains Up

• In the equity space, S&P E-Minis remain vulnerable following last week’s sharp reversal from 4303.00, the May 4 high. Today’s move lower has resulted in a probe of support at 4056.00, the May 2 low. A clear breach of this support would confirm a resumption of the underlying downtrend and open 4029.25, the May 13 2021 high. On the upside, key resistance has been defined at 4303.50, the Apr 26/28 high. EUROSTOXX 50 futures remain in a bear mode. The contract has traded lower today, extending last week's sell-off. This has resulted in a breach support at 3608.00, Apr 27 low and of 3551.60, 61.8% retracement of the Mar 7 - 29 rally. The move lower has exposed 3523.00 next, the Mar 11 low.
• In FX, EURUSD remains in a downtrend. Recent price action highlights a bear flag and a resumption of the downtrend would open 1.0454, the Jan 1 2017 low. Resistance is at 1.0681, the 20-day EMA. GBPUSD remains vulnerable following last Thursday’s sharp sell-off that confirmed a resumption of the primary downtrend. The focus is on 1.2252 next, the Jun 29 2020 low. The USDJPY primary uptrend remains intact and resistance at 131.25, the Apr 28 high, has been probed. Attention is on 131.96, the 1.00 projection of the Feb 24 - Mar 28 - 31 price swing. The USD has strengthened today against the AUD and CAD. Key support in AUDUSD is at 0.6968, the Jan 28 low and a bear trigger. Key resistance in USDCAD is at 1.2964, the Dec 20 2021 high and a key medium-term bull trigger.
• On the commodity front, Gold remains vulnerable. Attention is on $1848.8, 76.4% of the Jan 28 - Mar 8 rally. On the upside, $1909.8, the May 5 high is first resistance. In the Oil space, WTI futures breached its triangle resistance last week. This strengthens the short-term condition for bulls and attention is on resistance at $113.51, the Apr 18 high, that has been probed. The 20-day EMA at $104.05, is the first support to watch.
• The trend direction in the FI space remains down. Bund futures continue to deliver fresh cycle lows, as the downtrend extends. This signals scope for weakness towards 150.15 next, the 0.764 projection of the Mar 7 - 29 - Apr 4 price swing. The broader trend condition in Gilts remains bearish and price continues to trade below resistance at 119.79, the Apr 26 high. Attention is on the bear trigger at 117.22, Apr 22 low. This level has been probed. A clear break would confirm a resumption of the downtrend and open 116.35, Dec 30 2015 low (cont).

EQUITIES: Losses Resume, With Tech Underperforming

• Asian markets closed lower: Japan's NIKKEI closed down 684.22 pts or -2.53% at 26319.34 and the TOPIX ended 37.52 pts lower or -1.96% at 1878.39. China's SHANGHAI closed up 2.58 pts or +0.09% at 3004.141.
• European stocks are under pressure and many indices at multi-month lows, with the German Dax down 131.05 pts or -0.96% at 13680.38, FTSE 100 down 80.87 pts or -1.09% at 7387.94, CAC 40 down 94.71 pts or -1.51% at 6258.36 and Euro Stoxx 50 down 46.04 pts or -1.27% at 3624.5.
• U.S. futures are down sharply, led by tech stocks, with the Dow Jones mini down 389 pts or -1.19% at 32420, S&P 500 mini down 58.75 pts or -1.43% at 4060.75, NASDAQ mini down 210.5 pts or -1.66% at 12485.25.

COMMODITIES: Broad Losses On Risk-Off, Dollar Gains

• WTI Crude down $1.45 or -1.32% at $108.86
• Natural Gas up $0.11 or +1.32% at $8.158
• Gold spot down $18.88 or -1% at $1871.11
• Copper down $11.4 or -2.67% at $419.05
• Silver down $0.24 or -1.08% at $22.1513
• Platinum down $13.66 or -1.42% at $954.88