MNI US MARKETS ANALYSIS - Markets Sanguine as Sell-Off Moderates

US TSYS SUMMARY: Modest Belly-Led Rally Ahead Of 6xFedspeak

• Cash Tsys sit little changed at the front-end after yesterday’s surge but continue to rally further along the curve, albeit at a slower pace than yesterday.
• 2YY +0.2bps at 2.596%, 5YY -2bps at 2.928%, 10YY -1.5bps at 3.018% and 30YY -0.7bps at 3.143%.
• TYM2 trades 14+ ticks higher at 118-20+ on above average volumes. It clears yesterday’s high but initial resistance remains the 20-day EMA at 119-13, whilst support is yesterday’s cycle low of 117-08+.
• The only data of note today have already been released, with the NFIB survey showing the highest share of small businesses saying inflation was their single most important problem since 1981 at 32%.
• Drivers are more likely headlines from six different Fed speakers from across the dove-hawk spectrum ahead of tomorrow’s CPI for April.

STIR FUTURES: Fed Expectations Near Yesterday Lows Ahead Of Fedspeak

• Hike expectations sit near yesterday’s lows after they slid through the US session from a cumulative 102bps to 97bps for July.
• FOMC-dated Fed Funds futures show 51bp for Jun, 97bps for Jul, 134bp for Sep and 183bps to year-end, implying a year-end rate almost 30bps lower than shortly before last week’s FOMC.
• Six FOMC members speaking today, starting with a speech from NY Fed’s Williams (voter) at 0740ET with prepared remarks and moderated Q&A in potentially the first comments on mon pol post-FOMC.
• Mester (’22 voter) is the only other first time post-FOMC speaker at 1500ET, with the other four repeat visits from Barkin (’24), Waller (voter), Kashkari (’23) and Bostic (’24).

EUROPE ISSUANCE UPDATE:

Germany allots E2.414bln 0% Apr-27 Bobl, Avg yield 0.73% (Prev. 0.64%), Bid-to-cover 1.70x (Prev. 1.23x), Buba cover 2.11x (Prev. 1.49x)

Austria allots 6/10-year RAGBs:

• E600mln 0% Oct-28 RAGB, Avg yield 1.208% (Prev. 0.025%), Bid-to-cover 2.54x
• E600mln 0.90% Feb-32 RAGB, Avg yield 1.550% (Prev. 1.013%), Bid-to-cover 2.75x (Prev. 2.08x)

EUROPE OPTION FLOW SUMMARY:

Eurozone:
RXM2 152.50/151.00ps, sold at 63 in 4k (ref 152.29

DUM2 110.50/110.80/111.10c fly, sold at 3.25 in 2k
DUN2 109.60/109.20ps vs 110.20c, bought the ps for 2 and 2.5 in ~6.3k

0RU2 98.25/98.00/97.87 broken p fly, bought for 6 in 5k
ERU2 99.75/c fly, bought for 2.25 in 8k

UK:
SFIK2 98.65c, bought for 2.75 in 2k

CNY: Options Markets on Watch for Further CNY Weakness

• The front-end of the USD/CNY implied vol curve hit new cycle highs early in the Tuesday session, with the global equity rout, persistent lockdown pressures across Chinese cities and the commitment of the PBoC to further stimulus putting markets on watch for further weakness across offshore and onshore Chinese currencies.
• USD/CNY 1m implied vols cleared 8.00 points in overnight trade, the highest rate since the beginning of 2016 and the acute spell of local equity weakness (the Shanghai Composite fell over 25% in a fortnight).
• Realised vols will be feeding directly into the higher implied prints over the past few sessions, but the Implied/Realised vol ratio has returned to a more normal range after hitting a six year high at the end of April. While this may suggest a more benign backdrop once realised vol mean reverts, the continued run higher in risk reversals suggests a market that is still cognizant of CNY downside risks. 1m USD/CNY risk reversals topped 1.75 points in favour of calls overnight, the highest rate since the first COVID wave in 2020.
• Moves in currency markets comes ahead of a slew of Chinese data releases in the coming sessions, including money supply, CPI/PPI, industrial production and retail sales figures for April. (See more here: https://marketnews.com/mni-market-analysis-china-liquidity-to-continue-to-rise-but-global-risk-off-leaves-risky-asset-vulnerable )

FOREX: Markets More Sanguine as Equities Recover Off Lows

• Price action is more sanguine early Tuesday, with most major pairs inside the weekly range headed into the NY crossover. Risk off persisted in early Asia hours, with US futures markets sinking further alongside US yields - this prompted a spell of further USD strength and put AUD/USD at new cycle lows of 0.6911, before markets stabilised through early European hours.
• Scandi currencies trade more solidly, with NOK leading markets higher following the more solid than expected April CPI release from Norway. Y/Y underlying CPI beat median by 0.2ppts to touch 2.6% - the highest since early 2021. This prompted a reversal of EUR/NOK off the multi-month highs, and now sits below 10.20.
• GBP is the poorest performer of the day, with EUR/GBP testing last week's highs of 0.8591 ahead of the formal opening of parliament and the setting out of the government's policy agenda. Market focus will be trained on two likely areas of the speech. The first,the gov'ts efforts to boost the economy amidst rising inflation. Second is any potential legislation related to the Northern Ireland protocol within the Brexit Withdrawal Agreement.
• Tier one data releases are few and far between Tuesday, keeping focus on the central bank speaker slate. Fed's Williams, Barkin, Waller, Kashkari and Mester as well as ECB's de Cos, Nagel, Villeroy and de Guindos are due.

FX OPTIONS: Expiries for May10 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0665-75(E716mln)
• AUD/USD: $0.7200(A$506mln)
• USD/CAD: C$1.2935($3.2bln)
• USD/CNY: Cny6.6440($650mln)

Price Signal Summary - False Triangle Breakout In Oil?

• In the equity space, S&P E-Minis remain vulnerable following last week’s sharp reversal from 4303.00, the May 4 high. Monday’s move lower resulted in a break of support at 4056.00, the May 2 low. This confirms a resumption of the underlying downtrend and opens 3958.00 next, the 2.00 projection of the Mar 29 - Apr 18 - 21 price swing. 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, extending last week's sell-off. Recent weakness has resulted in a breach of support at 3608.00, Apr 27 low and of 3551.60, 61.8% retracement of the Mar 7 - 29 rally. This has exposed 3458.90 next, the 76.4% retracement. .
• In FX, EURUSD remains in a downtrend. Recent consolidation has taken on the appearance of a bear flag - a bearish continuation pattern. A resumption of the downtrend would open 1.0454, the Jan 1 2017 low. Resistance is at 1.0670, the 20-day EMA. GBPUSD continues to trade closer to its recent lows. The pair 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, was probed Monday. Attention is on 131.96, the 1.00 projection of the Feb 24 - Mar 28 - 31 price swing.
• 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 reversed course on Monday. Last week’s break of triangle resistance, drawn from the Mar 15 low, highlighted a bullish development. However the sell-off yesterday, suggests the bullish break was a false one. This threatens the recent recovery and instead exposes support at $95.28, Apr 25 low.
• The trend direction in the FI space remains down. Bund futures continue to deliver fresh cycle lows - the contract traded to a low of 150.49 on Monday. 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 short-terms gains are considered corrective. Price continues to trade below resistance at 119.79, the Apr 26 high. A resumption of weakness would open 116.35, the Dec 30 2015 low (cont).

EQUITIES: Tech Rebounds, But Still Down Sharply On The Week

• Asian markets closed mixed: Japan's NIKKEI closed down 152.24 pts or -0.58% at 26167.1 and the TOPIX ended 16.01 pts lower or -0.85% at 1862.38. China's SHANGHAI closed up 31.703 pts or +1.06% at 3035.844 and the HANG SENG ended 368.27 pts lower or -1.84% at 19633.69.
• European stocks are higher, with the German Dax up 191.74 pts or +1.43% at 13380.67, FTSE 100 up 60.99 pts or +0.85% at 7216.58, CAC 40 up 88.64 pts or +1.46% at 6086.02 and Euro Stoxx 50 up 45.43 pts or +1.29% at 3526.86.
• U.S. futures are rebounding, led by tech (after tech led losses Monday), with the Dow Jones mini up 274 pts or +0.85% at 32437, S&P 500 mini up 40.75 pts or +1.02% at 4028.25, NASDAQ mini up 191 pts or +1.57% at 12384.25.

COMMODITIES: Precious Metals Higher As Dollar Trades Sideways

• WTI Crude up $0.55 or +0.53% at $102.19
• Natural Gas up $0 or +0.01% at $7.135
• Gold spot up $8.65 or +0.47% at $1861.43
• Copper up $0.55 or +0.13% at $422.5
• Silver up $0.13 or +0.59% at $22.0106
• Platinum up $20.48 or +2.14% at $973.13