MNI US MARKETS ANALYSIS - Markets Primed 50bps From the Fed

US TSYS SUMMARY: Modest Bull Flattening Ahead Of FOMC

• Cash Tsys see a limited bull flattening through early trade. It comes as front-end yields more heavily resist the rally having earlier touched new highs for the cycle at 2.8134% as pricing of hike expectations through 2022 firms ahead of the FOMC decision.
• 2YY -0.2bps at 2.781%, 5YY -1.9bps at 3.003%, 10YY -1.7bps at 2.954%, 30YY -1.5bps at 2.994%.
• TYM2 sits half a tick higher at 118-18 on below average volumes in a continuation from yesterday’s US session. The outlook is seen as bearish, but it currently doesn’t trouble support at 118-04+ (May 3 low) or resistance at 119-30+ (20-day EMA).
• FOMC: Policy announcement at 1400ET, presser 1430ET
• Data: ADP employment for April (cons 383k after 455k), the trade balance for Mar, and S&P Global PMIs/ISM surveys for April plus weekly MBA mortgage apps and interest rate.
• Issuance: US Tsy $30B 119D bill auction (1130ET).

STIR FUTURES: New Highs For Fed Hike Expectations

• Implied hikes have cranked higher through the London session, touching a cumulative 259bp to year-end for a 10bp increase from yesterday mid-morning ET ahead of today’s FOMC decision.
• Near-term meetings are back at recent highs (52.5bp May, 112bp June) whilst meetings further out move to new highs (e.g. 208bp over the four meetings to Sep).
• ADP and final S&P Global PMIs ahead will likely have to be significantly out to materially change pricing so close to the decision. The Eurozone PMIs were unrevised for both services and composite from their flashes.

Source: Bloomberg

EGB/Gilt: Waiting On The Fed

European government bonds broadly opened lower this morning before starting to recover losses. Regional equities and lower while performance in FX has been mixed on the day.

• Focus today will be on the FOMC, with the market expecting officials to ramp up the fight against inflation with a 50bp policy rate hike.
• European Commission President Ursula von der Leyen proposed an EU-wide import ban on Russian oil.
• Spanish Services and Composite PMIs for April were a touch better than expected, as was the case for the Italian Services PMI.
• Supply this morning came from Germany (Green Bund, EUR1.464bn allotted), Greece (GTBs, EUR625mn) and the Eurozone (Bills, EUR2.491bn).
• Gilt yields have started to recover lost ground, albeit with cash yields across most of the curve still 1-2bp above yesterday's close.
• Bunds have reversed sharply having initially opened lower. Yields are now 1-2bp higher on the day.
• The OAT curve has twist flattened on the day with the 2s30s spread narrowing 3bp.
• It is a similar story for BTPs where the curve is now 6bp flatter

EUROPE ISSUANCE UPDATE

Germany allots E1.464bln 0% Aug-31 Green Bund, Avg yield 0.93% (Prev. -0.16%), Bid-to-cover 1.58x (Prev. 0.59x), Buba cover 1.62x (Prev. 1.08x)

EUROPE OPTION FLOW SUMMARY

Eurozone:
ERM2 100.25/100.375/100.50c fly, bought for 3.5 in 2k
ERU2 9975/100cs, sold at 9.5 in 2.5k
ERU2 99.87^ vs 99.75p, sold at 15.25 in 1.8k
ERZ2 98.75/98.37ps 1x1.15, bought for 5.25 in 15k x 17.25k

SX7E (16th Sep) 87.5/100cs, bought for 3.8 in 15k vs CAM2 at 84.70

FOREX: All eyes are on the FOMC

• A mixed start for the USD, with the currency paring some of its overnight gains during the European start.
• The Dollar trades in the red against all G10s, with DXY unwinding some of the gains, after the index reached its highest level since 2002 last week.
• Nonetheless, ranges have been fairly limited, with the street waiting on the FOMC and presser later today.
• Best performer is the AUD, after the overnight retails sales beat, but upside momentum have lacked traction.
• The CAD also trade on the front foot, helped by the rally in Oil, after comment from EC VDL, that the EU proposed to ban Russian crude oil over the next six months and refined fuels by the end of the year.
• A fix trade at 09.00BST has helped Cable back above 1.2500, but most of the price action has been more a function of the Dollar.
• Looking ahead, US ADP is scheduled, but very little correlation for the NFP on Friday.
• Other data include the US ISM services and Services PMI, but final reading for the latter.
• For earnings, Moderna, Marathon Oil corp, and after markets, EBay.

Price Signal Summary - FI Futures Remain Vulnerable

• In the equity space, S&P E-Minis remain in a downtrend, despite the recovery from Monday’s low. Fresh lows have reinforced underlying bearish conditions and Monday’s move lower resulted in a probe of key support at 4094.25, the Feb 25 low. A clear break of this level would reinforce bearish conditions. 4056.00, Monday’s low, has also been defined as an important bear trigger. EUROSTOXX 50 futures are consolidating but remain vulnerable. The moving average set-up continues to highlight a bear mode condition. A resumption of weakness would open 3551.60, the 61.8% retracement of the Mar 7 - 29 rally. Key resistance is unchanged at 3883.00, Apr 21 high.
• In FX, EURUSD is trading near its recent lows and remains in a clear downtrend. The recent consolidation appears to be a bear flag. A resumption of the downtrend would open 1.0454, the Jan 1 2017 low. The {GB} GBPUSD outlook remains bearish, following the recent impulsive selling pressure. The focus is on 1.2375, the 2.382 projection of the Mar 23 - Apr 13 - 14 price swing. USDJPY bulls have paused for breath. Last week’s resumption of the primary uptrend and the break of 130.00 suggests scope for further upside. The focus is on 131.96, the 1.00 projection of the Feb 24 - Mar 28 - 31 price swing.
• On the commodity front, Gold remains weak. The recent pullback from the $1998.4 high (Apr 18), and the breach last week of $1890.2, the Mar 29 low, continues to highlight a bearish threat. Attention is on $1848.8, 76.4% retracement of the Jan 28 - Mar 8 rally. On the upside, $1917.3 the 20-day EMA is seen as a firm short-term resistance. In the Oil space, WTI futures continue to trade inside a triangle formation that has appeared on the daily chart and is drawn from the Mar 15 low. The pattern is a bearish signal and suggests potential for a test and break of support at $95.28, Apr 25 low. Resistance is at $105.97/107.99, triangle resistance and the Apr 29 high. The triangle resistance has been probed, a clear break of this level is required to instead highlight a bullish breakout.
• The trend condition in the FI space remains bearish. Bund futures have traded lower today. This once again reinforces bearish conditions and an extension lower would open 151.99, the 0.618 projection of the Mar 7 - 29 - Apr 4 price swing. The broader trend condition in Gilts remains bearish. Resistance has been defined at 119.79, the Apr 26 high. Attention is on the bear trigger at 117.22 bear trigger, Apr 22 low.

FX OPTIONS: Expiries for May04 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0550-70(E820mln), $1.0600(E1.9bln), $1.0700(E1.1bln)
• USD/JPY: Y130.30-50($656mln)

EQUITIES: LEVELS UPDATE: Mixed with US futures higher, but lower in Europe

• The HANG SENG ended 232.37 pts lower or -1.1% at 20869.52
• German Dax down 28.25 pts or -0.2% at 14016.46, FTSE 100 down 26.37 pts or -0.35% at 7532.02, CAC 40 down 18.68 pts or -0.29% at 6458.21 and Euro Stoxx 50 down 11.96 pts or -0.32% at 3752.54.
• Dow Jones mini up 85 pts or +0.26% at 33114, S&P 500 mini up 10.5 pts or +0.25% at 4181.5, NASDAQ mini up 22 pts or +0.17% at 13115.75.
  

COMMODITIES: LEVELS UPDATE: European natgas and oil move higher

• WTI Crude up $3.61 or +3.53% at $105.98
• Natural Gas (NYM) down $0.03 or -0.36% at $7.926
• Natural Gas (ICE Dutch TTF) up $5.4 or +5.44% at $104.925
• Gold spot down $0.06 or 0% at $1868.7
• Copper up $3.95 or +0.92% at $432.15
• Silver up $0.06 or +0.26% at $22.6641
• Platinum up $11.46 or +1.19% at $978.9

LOOK AHEAD

Date	GMT/Local	Impact	Flag	Country	Event
04/05/2022	1100/0700	**		US	MBA Weekly Applications Index
04/05/2022	1215/0815	***		US	ADP Employment Report
04/05/2022	1230/0830	**		CA	International Merchandise Trade (Trade Balance)
04/05/2022	1230/0830	**		US	Trade Balance
04/05/2022	1345/0945	***		US	IHS Markit Services Index (final)
04/05/2022	1400/1000	***		US	ISM Non-Manufacturing Index
04/05/2022	1430/1030	**		US	DOE weekly crude oil stocks
04/05/2022	1800/1400	***		US	FOMC Statement
05/05/2022	0130/1130	*		AU	Building Approvals
05/05/2022	0130/1130	**		AU	Trade Balance
05/05/2022	0145/0945	**		CN	IHS Markit Final China Services PMI
05/05/2022	0600/0800	**		DE	manufacturing orders
05/05/2022	0630/0830	***		CH	CPI
05/05/2022	0645/0845	*		FR	industrial production
05/05/2022	0700/0300	*		TR	Turkey CPI
05/05/2022	0730/0930	**		EU	IHS Markit Final Eurozone Construction PMI
05/05/2022	0800/1000	***		NO	Norges Bank Rate Decision
05/05/2022	0830/0930	**		UK	IHS Markit/CIPS Services PMI (Final)
05/05/2022	1000/1200			EU	ECB Lane Speech on Euro Area Outlook
05/05/2022	1100/1200	***		UK	Bank Of England Interest Rate
05/05/2022	1130/1230			UK	BOE post-MPC press conference
05/05/2022	1230/0830	**		US	Jobless Claims
05/05/2022	1230/0830	**		US	Preliminary Non-Farm Productivity
05/05/2022	1230/0830	**		US	WASDE Weekly Import/Export
05/05/2022	1300/1400			UK	Bank of England DMP Survey
05/05/2022	1340/0940			CA	BOC Deputy Schembri speech to Indigenous group.
05/05/2022	1430/1030	**		US	Natural Gas Stocks