MNI US MARKETS ANALYSIS - GBP Crumbles as Retail Sales Paint Bleak Picture

US TSYS SUMMARY: Bear Flattening As 10Y Struggles To Break 3%

• A more front-loaded rate path, exemplified by Nomura now calling for consecutive 75bp hikes, has seen an acceleration on yesterday’s bear flattening in cash Tsys.
• With taper plans seen largely baked in at least for now, the curve has flattened as longer-term growth concerns are considered and 10Y yields struggle to break 3%, driving 2s10s to 18bps from a recent high of 43bps on Tuesday.
• 2YY +6.7bps at 2.749%, 5YY +3.7bps at 3.011%, 10YY +2.4bps at 2.934% and 30YY +2.0bps at 2.948%.
• The move sees TYM2 reinforce the underlying bearish condition. It sits down 6+ ticks at 118-17+ having pulled back from an earlier low of 118-08 that now forms initial support, with volumes above average through the European morning but levelling off.
• Data: Only the sweep of preliminary S&P Global PMIs for April at 0945ET.
• No issuance or scheduled Fedspeak.

Source: Bloomberg

STIR FUTURES: Approaching 4 Consecutive 50bp Fed Hikes

• Hikes implied by Fed Funds futures stepped higher overnight and through the London morning having initially been largely stable on Powell’s IMF panel comments yesterday.
• There is now close to 4x50bp hikes followed by 2x25bp hikes fully priced for the six meetings left this year. Specifically, 52-53bp priced for the May meeting, 110bp for Jun, 157bp for Jul, 197bp for Sep (four meetings) and 250bp to year-end.
• Powell officially put 50bp on the table for May and when asked if it’s reasonable for the market to price 3x50bps he said the markets are reacting appropriately generally. The Fed no longer counts on help from supply-side healing to bring inflation down, hence wanting to move expeditiously to neutral and see if need to above that once there.
• No Fedspeak set for today but potential for unscheduled appearances ahead of media blackout at midnight.

Cumulative hikes implied by FOMC-dated Fed Funds futures (%pts)Source: Bloomberg

EGB/Gilt: Policy Rate Repricing Underpins Curve Flattening

European government bond curves have flattened this morning on the back of short-end policy rate repricing, while equities are broadly lower.

• Preliminary European PMI data for April show broad expansion across Europe with services performing strongly.
• UK retail sales data missed to the downside for March (ex Auto Fuel -0.6% Y/Y vs 0.8% expected) fueling pressure on the pound which has traded down to 1.2896 against the dollar.
• The gilt curve has twist flattened with the 2s30s spread narrowing 4bp.
• Further adding to the recent slew of hawkish ECB commentary, Robert Holzmann stated that asset purchases should end as soon as possible and that visible rate increases hsould follow.
• The bund curve has sold off sharply at the short end with the 2s30s spread trading down 8bp.
• The OAT curve has twist flattened with the 2s30s spread narrowing 10bp.
• It is a similar story for BTPs where the very long end of the curve has flattened ~12bp.
• Supply this morning came from the UK (UKTBs, GBP3.5bn).

FOREX: GBP Crumbles Through Support as Retail Sales Paint Bleak Picture

• GBP is comfortably the poorest performer so far on Friday, with March retail sales painting a particularly bleak picture for the consumer. Both figures including and excluding auto fuel were well below forecast, compounding the dire consumption outlook outlined by the drop in GfK Consumer Confidence overnight.
• The release triggered an aggressive sell-off in GBP, with GBP/USD breaching support and the bear trigger at 1.2974, Apr 13 low. The break of this level confirms a resumption of bearish activity and an extension of the primary downtrend. 1.2933, the Nov 5 2020 low, also gave way, opening losses toward 1.2901 and below. Moving average studies also point south, highlighting current market sentiment.
• The greenback trades more favourably, putting the USD Index through the week's best levels for the strongest dollar since late March 2020.
• AUD and NZD sit lower alongside GBP, with market sentiment pointing to risk-off. Equities are uniformly lower across Europe, with US futures similarly in the red and indicating a negative open on Wall Street later today.
• Preliminary April PMI data from the US is the data focus Friday, with Canadian retail sales also on the docket. The speaker slate could be of more interest, with ECB's Lagarde and BoE's Bailey both scheduled to speak.

Price Signal Summary - Cable Cracks Support To Resume In Primary Downtrend

• In the equity space, S&P E-Minis failed to hold on to Thursday’s gains and reversed lower. This once again highlights the current bearish threat and attention is on support and the bear trigger, at 4355.50, the Apr 18 low. A break would open 4321.07, 61.8% retracement of the Mar 15 - Mar 29 rally. EUROSTOXX 50 futures traded higher Thursday, however, the contract has failed to hold onto this week’s highs. A continuation lower would refocus attention on key short-term support at 3684.00, the Apr 12 low and bear trigger. For bulls, a break above yesterday’s high of 3883.00 would open the 3944.00 key resistance point - the Mar 29 high.
• In FX, EURUSD traded higher Thursday but failed to hold on to its gains. A break of 1.0936, yesterday’s high, is needed to signal scope for a continuation higher, potentially towards the 50-day EMA, at 1.1018. The bear trigger is unchanged at 1.0758, the Apr 14 low. The broader trend direction remains down. GBPUSD is under pressure this morning as it continues to slide. The break of former support at 1.2974, Apr 13 low, confirms a resumption of the primary downtrend. This has opened 1.2855, the Nov 2 2020 low and 1.2830, 50.0% of the Mar ‘20 - Jun ‘21 uptrend. USDJPY is unchanged and trend conditions remain bullish. This is despite the extreme overbought condition. The focus is on 129.44 next, 0.764 projection of the Feb 24 - Mar 28 - 31 price swing. Sights are also set on the psychological 130.00 handle.
• On the commodity front, Gold remains below Monday’s high of $1998.4. The pullback from this level has resulted in a breach of the 20-day EMA and attention is on the 50-day EMA at $1927.5. A break of this EMA would suggest scope for a deeper pullback and expose $1890.2, the Mar 29 low and the key support. In the Oil space, WTI futures maintain a bullish tone despite this week’s retracement. Further gains would open $113.51, the Mar 24 high. Initial resistance is at $109.20, Apr 18 high. The support to watch lies at the 50-day EMA, at $97.62.
• The trend condition in the FI space remains bearish. Bund futures have delivered another fresh cycle low. The focus is on 153.00 next. Gilts have also traded to a fresh cycle low, confirming a resumption of the downtrend. Sights are on 117.04, 0.764 projection of the Mar 1 - 28 - Apr 4 price swing.

FX OPTIONS: Expiries for Apr22 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0700(E814mln), $1.0850(E640mln), $1.0900(E1.4bln), $1.0925-30(E554mln)
• GBP/USD: $1.2900(Gbp1.1bln), $1.3000(Gbp1.2bln)
• USD/CAD: C$1.2500($514mln), C$1.2540-60($1.2bln)
• USD/CNY: Cny6.4000($529mln)

EQUITIES: Risk-off mood to equity markets this morning

• Japan's NIKKEI down 447.8 pts or -1.63% at 27105.26 and the TOPIX down 22.85 pts or -1.19% at 1905.15.
• China's SHANGHAI closed up 7.111 pts or +0.23% at 3086.919 and the HANG SENG ended 43.7 pts lower or -0.21% at 20638.52.
• German Dax down 184.41 pts or -1.27% at 14306.63, FTSE 100 down 35.14 pts or -0.46% at 7594.25, CAC 40 down 88.86 pts or -1.32% at 6623.82 and Euro Stoxx 50 down 51.35 pts or -1.31% at 3873.28.
• Dow Jones mini down 73 pts or -0.21% at 34647, S&P 500 mini down 5.75 pts or -0.13% at 4384, NASDAQ mini down 10 pts or -0.07% at 13716.5.

COMMODITIES: Commodities lower as USD strengthens and risk aversion rises

• WTI Crude down $2.00 or -1.93% at $101.81
• Natural Gas (NYM) down $0.03 or -0.4% at $6.922
• Natural Gas (ICE Dutch TTF) down $0.31 or -0.31% at $99.805
• Gold spot down $9.21 or -0.47% at $1942.26
• Copper down $4.1 or -0.87% at $468.1
• Silver down $0.48 or -1.93% at $24.1575
• Platinum down $10.87 or -1.12% at $959.17