MNI US MARKETS ANALYSIS - Yields Extend Lower as Markets Shrug Off Hot CPI

US TSYS SUMMARY: Bull Flattening As Growth Fears Abound

• Yesterday’s twist flattening in cash Tsys on stronger-than-expected CPI inflation has been replaced by an outright bull flattening this morning, with largest gains in 5-10Y tenors on growth concerns.
• Some of the rally in the front-end has been unwound on Beijing denying lockdown rumours as it boosts testing in the city (fears of further exacerbating inflationary pressures) but Tsys are still firmly higher on the day.
• In yield space, 2YY -5.7bps at 2.580%, 5YY -8.5bps at 2.811%, 10YY -8.1bps at 2.833%, 30YY -6.7bps at 2.978%.
• TYM2 is 16+ ticks higher at 119-25 on strong volumes. It’s just off a session high of 119-30 as it nears initial resistance at 120-01 (Apr 28 high) after which it could open 120-18+ (Apr 27 high).
• Data: PPI inflation for April and weekly jobless claims at 0830ET
• Bill issuance: US Tsy $35B 4W, $30B 8W auctions (1130ET)
• Bond issuance: US Tsy $22B 30Y Bond auction (912810TG3) (1300ET)

US 2s10s flatten back towards previous sustained levels in the 20-25bp regionSource: Bloomberg

STIR FUTURES: What US CPI Beat?

• Hikes implied by FOMC-dated Fed Funds slid as Europe came in on broad risk-off sentiment, falling below levels prior to the US CPI upside surprise.
• There’s a lack of impetus to challenge the Fed teeing up 50bp hikes at the next couple meetings (51bps Jun, 98bps Jul) before the pace continues to slow with 137bps for Sep and 186bps for Dec.
• Helped by Bullard (’22) late yesterday saying inflation was hot but not far from expected, 50bp pace a good benchmark for now with 75bp not his base case.

Fed Funds rate implied by FOMC-dated Fed Funds futures for specific meetingsSource: Bloomberg

EGB/GILT SUMMARY: Rally Extends

European government bonds have rallied sharply this morning, extending the gains from the beginning of the week. Equities have sold off alongside weaker trading in energy and FX vs the dollar.

• UK GDP contracted in March by 0.1% M/M and the quarterly reading came in below expectations (0.8% Q/Q vs 1.0% survey), further fueling downside pressure on cable. The sharp drop in exports during the first quarter (4.9% Q/Q vs 0.0% expected) is noteworthy.
• Gilts have rallied and the curve has bull flattened. Cash yields are now down 7-11bp with the long end of the curve 4bp flatter.
• Following the UK prime minister's pledge yesterday to support Sweden and Finland in the event of a military attack, the Finnish president and prime minister have announced their backing to apply for NATO membership.
• Bund yields are down 9-12bp with the belly of the curve outperforming.
• It is a similar story for OATs where yields are down 7-12bp.
• The belly of the BTP curve has also outperformed amid the rally. Yields have pushed down 6-12bp.
• Supply this morning came from Italy (BTPs, EUR3.75bn) Ireland (IGBs, EUR1.25bn).

EUROPE ISSUANCE UPDATE

• E2bln 1.20% Aug-25 BTP, Avg yield 1.53% (Prev. 1.320%), Bid-to-cover 1.97x (Prev. 1.52x)
• E3.75bln 2.80% Jun-29 BTP, Avg yield 2.39% (Prev. 2.040%), Bid-to-cover 1.82x (Prev. 1.69x)
• E1bln 3.45% Mar-48 BTP, Avg yield 3.060%, Bid-to-cover 1.82x

• E400mln 0.35% Oct-32 IGB, Avg yield 1.50% (Prev. 0.778%), Bid-to-cover 2.84x (Prev. 3.46x)
• E850mln 2.00% Feb-45 IGB, Avg yield 1.79% (Prev. 0.716%), Bid-to-cover 1.41x (Prev. 1.23x)

EUROPE OPTION FLOW SUMMARY

Eurozone:
RXM2 158/159.5cs, bought for 9.5 in 10k

OEM2 128.75/129.75cs, bought for 11.5 in 3k
OEM2/OEN2 125.75p sold at 29 in 8.5k

UK:
SFIZ2 98.25/98.50/98.75c fly, sold at 3.5 in 2k

Eurozone:
SX7E 17th June 80 put, bought for 3.35 in 10k
SX5E 16th Dec 3500^ trades 565 in 10k vs VGM2 10k at 3500

US:
TYM2 121.50c, bought for 7 in 12k
TYM2 121.00c, bought for 11 in 10k
EDZ2 98.00c, was bought for 7 and 7.5 in 6k
EDQ2 97.8125c was bought for 5.5 and 6 in 65k total

FOREX: USD and the Yen lead in FX

• A busy start for FX during the early European session.
• The standout has been the Yen, extending decent gains throughout the session acting as a safer haven, with risk tilted to the downside.
• Similar drive for the USD, with market participants favouring the USD, the Dollar is in the green across the majors, besides the Yen.
• UK GDP miss, also Ukraine, Brexit (back in the mix), are keeping USD, and Govies bid.
• Yesterday's US CPI, saw Airfare as the big outlier, but desk still expect for inflation to soften in the coming Months.
• Despite the UK GDP miss this morning, the Pound is still mixed in G10, down 1.64% versus the Yen ( like most Currencies), while holding gains against the NOK, NZD, AUD, EUR, and the SEK.
• BITCOIN has cleared the big 28,824.32 support.
• Next psychological support is at 20,000, and below the latter, would open to 19,272.91 (76.4% retrace of the 2020/2021 rally).
• Bitcoin printed a 25,424.51 low, and has found some demand to trade at 27,480.00 at the time of typing.
• Looking ahead, on the data front, sees US PPI, and the only speaker left, will be ECB Makhlouf.

FX OPTIONS: Expiries for May12 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0400(E507mln), $1.0600(E1.3bln), $1.0625(E793mln), $1.0675-85(E1.1bln)
• GBP/USD: $1.2400(Gbp690mln)
• EUR/GBP: Gbp0.8580-00(E503mln)

Price Signal Summary - USD Resumes Its Uptrend

• In the equity space, S&P E-Minis remain vulnerable and are trading lower again today. Last week’s sharp reversal from 4303.00, the May 4 high, reinforced bearish conditions, and this week’s move lower resulted in a break of support at 4056.00, the May 2 low. The focus is on 3892.98 2.23 projection of the Mar 29 - Apr 18 - 21 price swing. EUROSTOXX 50 futures outlook remains bearish. 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 3672.10, the 20-day EMA.
• In FX, EURUSD has traded lower this morning and cleared support at 1.0472, Apr 28 low. The break lower confirms a bear flag breakout and a resumption of the primary downtrend. The focus is on 1.0390 next, the Jan 4 2017 low. Key resistance has been defined at 1.0642, the May 5 high. GBPUSD is softer as the pair trades to fresh cycle lows. This marks an extension of the sharp sell-off on May 5, that confirmed a resumption of the downtrend. The move lower opens 1.2162 next, the May 22 2020 low. Initial resistance is seen at 1.2406, high May 9. 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. Key support has been defined at 126.95, Apr 27 low. Initial support at 128.58 has been probed - S/T dips are considered corrective.
• On the commodity front, Gold remains vulnerable and this week’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.
• In the FI, Bund futures remain in a downtrend. This week’s gains are considered corrective. A fresh cycle low on Monday reinforced the bearish condition and confirmed, once again, an extension of the bearish price sequence of lower lows and lower highs. A resumption of weakness would refocus attention on 150.15, the 0.764 projection of the Mar 7 - 29 - Apr 4 price swing. Firm trend resistance is at 156.00, Apr 28 high. The broader trend condition in Gilts remains down. However, today’s move higher has resulted in a break of resistance at 119.79, the Apr 25 high. This signals potential for a stronger short-term corrective phase and opens 120.67 next, a Fibonacci retracement. On the downside, key support has been defined at 116.87, the May 9 low. This is also the bear trigger.

EQUITIES: No Relief For Tech Stocks

• Asian markets closed weaker: Japan's NIKKEI closed down 464.92 pts or -1.77% at 25748.72 and the TOPIX ended 21.97 pts lower or -1.19% at 1829.18. China's SHANGHAI closed down 3.709 pts or -0.12% at 3054.994 and the HANG SENG ended 444.23 pts lower or -2.24% at 19380.34.
• European stocks are down sharply, with the with the German Dax down 339.38 pts or -2.45% at 13556.36, FTSE 100 down 161.12 pts or -2.19% at 7205.7, CAC 40 down 135.97 pts or -2.17% at 6152.34 and Euro Stoxx 50 down 99.56 pts or -2.73% at 3564.91.
• U.S. futures continue to head lower, again led by tech stocks, with the Dow Jones mini down 186 pts or -0.59% at 31561, S&P 500 mini down 29.25 pts or -0.74% at 3901.25, NASDAQ mini down 142 pts or -1.19% at 11828.5.

COMMODITIES: Oil And Copper Down Sharply On Global Growth Concerns

• WTI Crude down $2.68 or -2.54% at $103.4
• Natural Gas down $0.37 or -4.84% at $7.418
• Gold spot down $1.9 or -0.1% at $1848.57
• Copper down $16.25 or -3.86% at $405.45
• Silver down $0.27 or -1.27% at $21.2932
• Platinum down $16.4 or -1.65% at $982.05