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MNI US MARKETS ANALYSIS - Equities Off Lows Amid Holiday-Thinned Session

Highlights:
  • Equities off the mat, with futures pointing to higher Wall Street open
  • Exchanges investigate price action as Scandi equities flash crash
  • ISM manufacturing the first key release of the week

US TSYS SUMMARY: US FI Kicks Off May Weaker

US FI futures trading weaker on light volume (TYZ2<190k) Monday, no follow through with Europe and Asia closed for spring holidays. Yield curves mildly flatter/off lows (2s10s -.346 at 20.938, 5s30s -.664 at -3.143). US$ rebounds after paring climb to 5Y highs last Friday (DXY +.423 at 103.382).
  • Midmorning economic data on tap:
    • S&P Global US Manufacturing PMI (59.7, 59.7) at 0945ET followed by:
    • Construction Spending MoM (0.5%, 0.8%) at 1000ET
    • ISM Manufacturing (57.1, 57.6), Prices Paid (87.1, 87.4), New Orders (53.8, 54.1)
    • Main focus on Wed's FOMC, 50bp hike anticipated, more to follow
  • Treasury supply resumes: $45B 13W, $42B 26W bill auctions at 1130ET
  • Stocks firmer (ESM2 +19.0 at 4146.5), earnings cycle resumes with handful announcing ahead the NY open, lion's share after the close: Expedia (EXPE), Williams Cos (WMB), Devon Energy (DVN), Diamondback Energy (FANG).
  • Geopol risk:Market remains alert for developments on Russia war in Ukraine, knock-on effect to markets.
  • Cross-Asset: Crude weaker (WTI -3.35 at 101.34) as China covid curbs choke demand. Gold broadly weaker -16.49 at

MARKET ANALYSIS: USD, Still Smiling

  • The USD has outperformed since the first Fed hike of the current tightening cycle, bucking the historical ‘norm’ whereby the USD typically peaks shortly after the first hike in the cycle, before depreciating.
  • So why haven't we seen the 'sell the fact' scenario unfold? Well, firstly, yield differentials have continued to move in favour of the USD.
  • A big part of the recent widening in the USD’s yield advantage is derived from a shift higher in Fed hike expectations, as the central bank looks to fight off inflation. This has been amplified by immediate recessionary fears in the Eurozone, while the ultra-dovish BoJ has also played a part in keeping G3 yields anchored at lower levels.
  • In many respects the USD is benefiting from the dollar smile theory at present.

FOREX: Scandi FX Underperforms on Local Equity Volatility

  • The greenback trades well early Monday, with the USD Index recouping a small part of the Friday pullback, although the bounce has stopped short of taking out either 103.665 or 103.928.
  • Liquidity and price action has generally been subpar, with a UK market holiday keeping many traders on the sidelines ahead of key risk events later this week - most notably the Fed rate decision Wednesday as well as Friday's Nonfarm Payrolls release.
  • Equity markets have been more volatile, with flash crash-type price action triggered in Scandinavian stock markets - supposedly triggered by an incorrectly sized basket order at the open - which saw Sweden's OMX Index drop 7% in seconds, before swiftly paring the losses in the subsequent few minutes.
  • Euronext Oslo stated that there was no news in the market that could explain the rapid decline, adding that they are investigating the sharp fall "as a matter of routine". In response, SEK and NOK are underperforming in G10 - the weakest currencies so far this week.
  • ISM manufacturing for April is the data highlight Monday, with markets expecting an improvement in the headline to 57.6 from March's 57.1.

FX OPTIONS: Expiries for May02 NY cut 1000ET (Source DTCC)

  • EUR/USD: $1.0600(E684mln), $1.0700-15(E1.1bln), $1.0800(E1.6bln)

Price Signal Summary - USD Trend Needle Still Points North

  • In the equity space, S&P E-Minis remain in a downtrend. This was reinforced Friday, as price traded to a fresh trend low. Support at 4129.50, the Mar 15 low, has been breached. This opens 4094.25 next, the Feb 25 low and a key support. Resistance has been defined at 4303.50, the Apr 26/28 low. EUROSTOXX 50 futures remain in bear mode. This follows a reversal from the Apr 21 high of 3883.00. 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 focus is on 1.0454, the Jan 1 2017 low. GBPUSD remains vulnerable too, 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 resumed its uptrend last week, following the breach of 129.40, Apr 20 high. Importantly, the pair also cleared the psychological 130.00 handle, strengthening the current bullish theme. This has opened 131.96, the 1.00 projection of the Feb 24 - Mar 28 - 31 price swing. DXY remains in a clear uptrend and last week probed major resistance at 103.82, the Jan 3 2017 high. A clear break of this hurdle would strengthen bullish conditions. Note that the strong monthly close in the index for April is a bullish signal. In Japanese candle terms, April is a standard line pattern and this is a continuation signal.
  • On the commodity front, Gold remains vulnerable. The recent pullback from the $1998.4 high (Apr 18), continues to highlight a bearish threat. This has been reinforced by the break last week, of $1890.2, the Mar 29 low. Attention is on $1848.8, 76.4% retracement of the Jan 28 - Mar 8 rally. On the upside, $1932.1, the 20-day EMA is seen as a firm short-term resistance. In the Oil space, WTI futures are trading inside a triangle formation that has appeared on the daily chart. The pattern is a bearish signal and suggests potential for a test and break of support at $95.28, the Apr 25 low. Resistance is at $106.51/107.99, triangle resistance and the Apr 29 high. The triangle is drawn from the Mar 15 low.
  • The broader trend condition in the FI space remains bearish. Bund futures are eyeing the 153.00 handle next. Short-term gains are considered corrective and the resistance to watch is at 156.17, the Apr 14 high.

EQUITIES: Scandi Equity Volatility Feeds Into EuroStoxx, E-mini S&P

  • Just taking a closer look at that equity price action through the open - noticeable across most markets but particularly in the Scandi sphere: Sweden's OMX dropped close to 7% before recouping the loss over the next 4 or 5 minutes, while Norway's OBX dropped ~4% before bouncing over the same period. Note that both indices remain negative on the day, but well off the worst levels.
  • Moves across Nordic equities feeding into EuroStoxx and S&P futures, but losses appear brief for now.
  • No specific headline or piece of news to pin the move on, with no specific company or stock leading markets - suggesting potential disorderly sell orders prompting acute volatility and flash crash-type price action.

COMMODITIES: LEVELS UPDATE: Oil down $3/bbl

  • WTI Crude down $3.23 or -3.09% at $101.06
  • Natural Gas (NYM) up $0.14 or +1.91% at $7.363
  • Natural Gas (ICE Dutch TTF) down $1.7 or -1.7% at $97.25
  • Gold spot down $15.08 or -0.8% at $1881.23
  • Copper down $11.9 or -2.7% at $428.7
  • Silver down $0.13 or -0.59% at $22.6162
  • Platinum down $0.31 or -0.03% at $937.85

DateGMT/LocalImpactFlagCountryEvent
02/05/20221345/0945***USIHS Markit Manufacturing Index (final)
02/05/20221400/1000***USISM Manufacturing Index
02/05/20221400/1000*USConstruction Spending
02/05/20221530/1130*USUS Treasury Auction Result for 13 Week Bill
02/05/20221530/1130*USUS Treasury Auction Result for 26 Week Bill
03/05/20220430/1430***AURBA Rate Decision
03/05/20220755/0955**DEunemployment
03/05/20220830/0930**UKIHS Markit/CIPS Manufacturing PMI (Final)
03/05/20220900/1100**EUPPI
03/05/20220900/1100**EUunemployment
03/05/2022-***USDomestic-Made Vehicle Sales
03/05/2022-EUECB Lagarde & Panetta in Eurogroup Meeting
03/05/20221255/0855**USRedbook Retail Sales Index
03/05/20221400/1000**USfactory new orders
03/05/20221400/1000**USJOLTS jobs opening level
03/05/20221400/1000**USJOLTS quits Rate
03/05/20221515/1615UKBOE Mutton Panellist at Bankers Association
03/05/20221630/1230CABOC Sr Deputy Rogers speaks on operational independence

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