MNI US MARKETS ANALYSIS - CHF Surge on SNB Surprise

US TSYS SUMMARY: Reversing FOMC Rally

Yields are reversing Wednesday's FOMC strength, with an unexpected 50bp rate hike from the Swiss central bank re-instigating hawkish sentiment and a Bank of England decision up shortly (0700ET).

• The curve is bear flatter: 2-Yr yield is up 17.1bps at 3.3618%, 5-Yr is up 16.8bps at 3.5347%, 10-Yr is up 14.9bps at 3.4331%, and 30-Yr is up 11.1bps at 3.4388%.
• 30Y yields have touched highest levels since July 2014 (3.466%).
• Overall it's been a risk-off session, with cyclical/tech stocks plummeting; the dollar started on the front foot but pared gains following the surprise SNB hike.
• A solid data slate ahead at 0830ET: May Housing starts/building permits, alongside Jun Philly Fed and jobless claims.
• In supply, we get details on next week's auctions (incl 20Y bonds); today sees $65B in 4-/8-week bill auctions at 1130ET.

BOE PREVIEW

The sell-side consensus unanimously looks for a 25bp hike with none of the 21 previews that we have read looking for more than 3 MPC members voting for 50bp in their base case (although some do acknowledge the risk of a 50bp move today). If we see a 25bp hike today, the focus will be on whether the forward guidance remains in its current form or is altered in any way. As of yesterday's close, markets were pricing 83bp of hikes by August (cumulatively), 125bp by September (3 meetings) and 163bp by November (4 meetings). Whether the BOE attempts to use its statement to talk down these rate expectations remains to be seen. The market thinks the BOE will be influenced by the more aggressive moves by the Fed (and potentially by the ECB) but we are not sure that MPC members themselves believe that to be the case yet given that the BOE started hiking before many of the others. For the full MNI BOE preview click here.

EUROPE ISSUANCE UPDATE

• E2.725bln 0% Feb-25 OAT, Avg yield 1.590% (Prev. 0.630%), Bid-to-cover 2.68x (Prev. 2.49x)
• E3.491bln 0.75% Feb-28 OAT, Avg yield 2.010% (Prev. 1.060%), Bid-to-cover 2.12x (Prev. 2.46x)
• E3.189bln 0.75% Nov-28 OAT, Avg yield 2.010% (Prev. -0.010%), Bid-to-cover 1.87x (Prev. 2.92x)
• E2.094bln 0.50% May-29 OAT, Avg yield 2.020% (Prev. 0.500%), Bid-to-cover 1.86x (Prev. 1.85x)

France sells I/L OATs:

• E730mln 1.85% Jul-27 OATei, Avg yield -0.79% (Prev. -2.08%), Bid-to-cover 2.56x (Prev. 3.03x)
• E270mln 0.10% Mar-36 OATi, Avg yield 0.21% (Prev. -0.85%), Bid-to-cover 3.23x (Prev. 2.81x)
• E500mln 1.80% Jul-40 OATei, Avg yield 0.38% (Prev.-1.29%), Bid-to-cover 2.78x (Prev. 2.15x)

EUROPE OPTION FLOW SUMMARY

Eurozone:
RXN2 144/143ps vs 145/146cs, bought the ps for 45 in 5.25k
RXN2 146/149/151c fly sold at 40 in 3k

ERU2 99.25/99.375/99.50/99.625c condor, trades 3 in 10k

UK:
SFIQ2 97.80/98.15 cs vs. 97.40/97.20 ps, bought the cs for 5.75 in 6k
SFIQ2 98.05/98.25 cs vs 97.50/97.40 ps, bought the cs for half in 3.5k

US:
TYN2 113/112ps, bought for 4 in 20k
FVQ2 109p, sold at 28 and 27 in 11k

FOREX: SNB Stuns Consensus With 50bps Hike

• CHF is surging against all others in G10 to be the best performing currency globally following the SNB rate decision. The Bank surprised markets by raising rates by 50bps to -0.25%, a move markets had seen the SNB waiting until September to execute. As such, market pricing has rushed higher, with SARON futures now seeing a further 50bps hike (taking rates to +0.25%) in September.
• The bank tightened policy to counter inflationary pressure in Switzerland, which is now seen above target until the second half of 2023 and also dropped their view that the CHF is "highly valued", adding considerable two-way risk to the exchange rate.
• In response, EUR/CHF has traded through 1.02 for the first time since early May, opening support at 1.0179, the 61.8% retracement of the March - May upleg as well as 1.0088 - marking the April low.
• Elsewhere, risk sentiment is fragile, evident in weakness across the SEK and NOK so far Thursday, while JPY trades well. USD/JPY has shown below the Y133.00 handle, with equity markets also heading south. The bear market in the E-mini S&P has extended, putting the index 23% off the January high.
• Focus turns to the Bank of England rate decision, at which the Bank are seen raising rates by 25bps to 1.25% - the highest rate since the financial crisis in 2008.

FX OPTIONS: Expiries for Jun16 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0540-60(E576mln), $1.0743-50(E513mln)
• EUR/GBP: Gbp0.8750(E873mln)
• NZD/USD: $0.6200(N$818mln), $0.6300(N$654mln)

Price Signal Summary - Risk-Off Driving Markets As Equities and Bonds Sell-Off

• In the equity space, S&P E-Minis remain vulnerable and have once again resumed the current bear leg. Price has traded below Tuesday’s 3708.500 low. This confirms a resumption of the primary downtrend and has resulted in a test of 3697.99, the 0.618 projection of the Mar 29 - May 20 - 31 price swing. A clear break would open 3600.00. EUROSTOXX 50 futures remain vulnerable and the contract is again facing selling pressure. The focus is on weakness towards 3400.00 and more importantly towards 3309.00, the Mar 7 low and a key bear trigger.
• In FX, the short-term EURUSD is largely unchanged but the outlook remains bearish. This follows the reversal lower from the top of its bear channel, drawn from the Feb 10 high. The focus is on 1.0350, the May 13 low and bear trigger. Initial firm resistance is at 1.0596, the 20-day EMA. Recent weakness in GBPUSD remains in a downtrend, despite yesterday’s bounce. A resumption of weakness would refocus attention on Tuesday’s 1.1934 low. A break would confirm a resumption of the downtrend. USDJPY has pulled away from its high yesterday of 135.59. The move lower is considered corrective and firm short-term support is seen at 131.63, the 20-day EMA.
• On the commodity front, Gold remains vulnerable following Monday’s sharp sell-off. This follows a failure to hold on to levels above the 50-day EMA and resulted in a sharp sell-off. The focus is on a move lower towards $1787.0, May 16 low. A break would resume the downtrend. In the Oil space, WTI futures remain in an uptrend however the contract has entered a corrective cycle. This has resulted in a move below the 20-day EMA, at 155.66. An extension lower would suggest scope for a deeper pullback and open the 50-day EMA at $108.91.
• In the FI space, Bund futures continue to weaken. The focus is on 142.00. Gilts remain in a downtrend. The focus is on 111.00 next.

EQUITIES: Tech, Cyclical Stocks Lead Broad Losses

• Asian markets closed mixed: Japan's NIKKEI closed up 105.04 pts or +0.4% at 26431.2 and the TOPIX ended 11.88 pts higher or +0.64% at 1867.81. China's SHANGHAI closed down 20.021 pts or -0.61% at 3285.385 and the HANG SENG ended 462.78 pts lower or -2.17% at 20845.43.
• European stocks are off sharply, with the German Dax down 368.86 pts or -2.74% at 13115.44, FTSE 100 down 107.63 pts or -1.48% at 7166.13, CAC 40 down 99.6 pts or -1.65% at 5929.68 and Euro Stoxx 50 down 88.29 pts or -2.5% at 3444.12.
• U.S. futures are dropping sharply with tech stocks leading lower, with the Dow Jones mini down 600 pts or -1.96% at 30061, S&P 500 mini down 94.25 pts or -2.49% at 3694.75, NASDAQ mini down 358 pts or -3.09% at 11236.

COMMODITIES: Metals Slip As Dollar Gains In Risk-Off Trade

• WTI Crude down $0.08 or -0.07% at $115.3
• Natural Gas up $0.2 or +2.68% at $7.619
• Gold spot up $0.26 or +0.01% at $1834.02
• Copper down $3 or -0.72% at $415.25
• Silver down $0.09 or -0.43% at $21.5908
• Platinum down $7.93 or -0.84% at $935.63