MNI US MARKETS ANALYSIS - USD Index Touches Weekly Low Pre-CPI

US TSYS SUMMARY: Continued Bull Flattening Ahead Of US CPI, 10Y Auction

• Cash Tsys see a second day of bull flattening as growth fears remain at front-of-mind, with 5Y and 10Y tenors up most strongly.
• 10Y yields are back at pre-FOMC levels, some 27bps lower than Monday’s high, in a move that has seen 2s10s fall from just over 50bps to 35bps in two days as the curve continues to gyrate.
• 2YY -3.1bps at 2.582%, 5YY -6bps at 2.855%, 10YY -6bps at 2.930%, 30YY -4.4bps at 3.079%.
• TYM2 sits 15 ticks higher at 119-08 having earlier touched joint post-FOMC highs of 119-09+ on marginally below average volumes. Resistance is eyed nearby at the 20-day EMA of 119-11 after which it opens 120-18+ (Apr 27 high).
• Data: Dominated by CPI for April (0830ET) followed by the monthly budget statement for Apr (1400ET)
• Fedspeak: Bostic (’24 voter) is the only one scheduled but have been plenty of pop-up appearances.
• Bond issuance: US Tsy $36B 10Y Note auction (91282CEP2) – 1300ET

STIR FUTURES: Fed Seen Locked In For 2x50bp Ahead Of CPI

• Hikes implied by Fed Funds currently locked in to the growing FOMC consensus for 50bp hikes at the next couple meetings.
• 52.5bps for June, 101bps for July, 138bp for Sep and 185bp for Dec (five meetings).
• CPI at 0830ET. Preview: https://marketnews.com/mni-us-cpi-preview-strong-core-on-smaller-autos-drag
• Fedspeak: Only Bostic (’24 voter) scheduled for 1200ET. He yesterday talked of hikes being purposeful and intentional but with potential to do less if the supply-demand gap shrinks, in contrast to Mester (’22) being open to larger hikes if inflation doesn’t slow in 2H22.

Cumulative hikes implied by FOMC-dated Fed Funds futures since the FOMC Source: Bloomberg

EGB/GILT SUMMARY: ECB Gearing Up For First Hike

European government bonds have continued to rally this morning, while equities have also made ground. The dollar is on the back foot against G10 FX and commodities are broadly higher.

• There was a flurry of hawkish ECB commentary this morning. Joachim Nagel has stated that the policy rate could be hiked in July, with Francois Villeroy de Galhau and Frank Elderson similarly indicating that rates could rise gradually from the summer. President Lagarde added that rates could rise within weeks of bond purchases concluding, but also stressed that the pace of normalisation would still be gradual following the first hike.
• Focus this afternoon shifts to the US inflation report for April.
• Supply this morning came from the UK (Gilt, GBP2.5bn), Germany (Bund, EUR3.23bn allotted), Italy (BTP, EUR6.5n), Portugal (OT, EUR750mn).
• Gilts have traded firmer with the very long end of the curve slightly bull steepening.
• Bunds have outperformed gilts on the day. Cash yields are 2-6bp lower with the belly of the curve outperforming.
• OATs have rallied across the curve with yields down 3-7bp.
• BTPs have outperformed core EGBs, with the short end leaving the charge. Yields are now down 5-13bp.

EUROPE ISSUANCE UPDATE

Portugal sells E750mln 0.475% Oct-30 OT, Avg yield 1.767% (Prev. 0.127%), Bid-to-cover 1.86x (Prev. 2.29x)

Germany allots 0% Feb-32 Bund, Avg yield 0.96% (Prev. 0.83%), Bid-to-cover 1.10x (Prev. 1.03x), Buba cover 1.36x (Prev. 1.26x)

UK DMO sells GBP2.50bln 0.50% Jan-29 Gilt, Avg yield 1.636% (Prev. 1.1050%), Bid-to-cover 2.48x (Prev. 2.39x), Tail 1.2bp (Prev. 0.4bp). Relatively weak auction - NCAP a little below the pre-auction mid-price and tail of 1.2bp

NGEU syndication: New 3y / 30y tap: Final terms
3-year: New Jul-25

• Size set earlier at E6bln WNG
• Spread set at MS-41bps (guidance was MS -38bps area)
• Books in excess of E48bln (incl. E3.9bln JLM)

• Size set earlier at E3bln WNG
• Spread set at MS+22bps (guidance MS + 24bps area)
• Books in excess of E37bln (incl. E1.4bln JLM)

EUROPE OPTION FLOW SUMMARY

Eurozone:
SX7E 17th Jun 60p, trades 0.20 and 0.15 in 30k
SX7E 16th Sep 60p, trades 1.20 and 1.15 in 45k

UK:
SFIU2 98.40/98.50/98.60 call fly bought for 1.25 in 3.5k

US:
TY week 2, 119.75c, sold at 13 in 6.3k

FOREX: Greenback Softer as Markets Settle Ahead of CPI

• The greenback is taking a moderate leg lower in early Wednesday trade, with markets pre-positioning and squaring ahead of the much-watched inflation release from the US. The move lower in the dollar is providing some relief to recent underperformers, helping the likes of NZD and AUD to the top of the G10 table ahead of the NY crossover.
• In tandem, equity markets are improving off the lows, with the e-mini S&P back above 4,000 and helping risk proxy FX further. Scandi currencies also trade well for a second consecutive session as hot domestic inflation prints keep central banks on the front-foot and add to the hiking bias across both Norway and Sweden.
• The US inflation release takes focus going forward, with markets expecting a moderation in price pressures on a month-on-month basis (consensus is for 0.2% and 0.4% for the core reading). Full MNI CPI preview here: https://marketnews.com/mni-us-cpi-preview-strong-c... ). There remain a number of speakers due Wednesday, including ECB's Vasle, Centeno & Schnabel as well as Fed's Bostic.

FX OPTIONS: Expiries for May11 NY cut 1000ET (Source DTCC)

• USD/CAD: C$1.2765($1.2bln), C$1.2950($1.9bln), C$1.3000($1.4bln)

Price Signal Summary - Corrective Bounce In The Equity Space

• In the equity space, S&P E-Minis remain vulnerable and short-term gains are considered corrective. Last week’s sharp reversal from 4303.00, the May 4 high, reinforced bearish conditions, and Monday’s move lower resulted in a break of support at 4056.00, the May 2 low. This confirms a resumption of the broader 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 and the current bounce is considered corrective. 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. Initial resistance is at 3678.10, the 20-day EMA.
• In FX, EURUSD continues to consolidate. This pause in the downtrend 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 1.0657, the 20-day EMA. GBPUSD continues to trade closer to its recent lows. The pair remains vulnerable and 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 and yesterday’s move lower confirms a resumption of the current downtrend. The break of $1848.8, 76.4% of the Jan 28 - Mar 8 rally, paves the way for a move towards $1821.1 next, the Feb 11 low. Sights are also set on $1780.4, the Jan 28 low. In the Oil space, WTI futures reversed course Monday and traded lower on Tuesday. Last week’s break of triangle resistance, drawn from the Mar 15 low, highlighted a bullish development. However the recent sell-off suggests the bullish break was a false one. This threatens the recent recovery and exposes support at $95.28, Apr 25 low.
• The trend direction in the FI space remains down. The current recovery in Bund futures is considered corrective. Recent cycle lows - 150.49 on Monday - reinforces bearish conditions and 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 also considered corrective. Key resistance to watch is at 119.79, Apr 26 high. A resumption of weakness would open 116.35, the Dec 30 2015 low (cont).

EQUITIES: Cyclical Stocks Lead Early European Gains

• Asian markets closed mostly higher: Japan's NIKKEI closed up 46.54 pts or +0.18% at 26213.64 and the TOPIX ended 11.23 pts lower or -0.6% at 1851.15. China's SHANGHAI closed up 22.859 pts or +0.75% at 3058.703 and the HANG SENG ended 190.88 pts higher or +0.97% at 19824.57.
• European stocks continue to rebound, with the German Dax up 129.34 pts or +0.96% at 13611.41, FTSE 100 up 70.66 pts or +0.98% at 7243.22, CAC 40 up 88.52 pts or +1.45% at 6116.91 and Euro Stoxx 50 up 59.48 pts or +1.67% at 3588.99.
• U.S. futures are bouncing as well, with the Dow Jones mini up 273 pts or +0.85% at 32360, S&P 500 mini up 41 pts or +1.03% at 4037.75, NASDAQ mini up 154.75 pts or +1.25% at 12503.75.

COMMODITIES: Metals Bounce As Dollar Falters

• WTI Crude up $2.98 or +2.99% at $102.05
• Natural Gas up $0.06 or +0.85% at $7.385
• Gold spot up $11.31 or +0.62% at $1849.43
• Copper up $5.55 or +1.34% at $420.65
• Silver up $0.51 or +2.42% at $21.6746
• Platinum up $23.49 or +2.43% at $984.91