Recession Worry & ECB Induced Rally

TYU2 operates around its late NY highs shortly after the re-open, with a NASDAQ 100-led downtick in e-minis (on the back of tech name Snapchat providing a disappointing earnings update) providing some background support.

• To recap, Thursday saw the major cash Tsy benchmarks richen by 12-18bp come the close, with the belly leading the bid. Domestic data dynamics (recession-related worry), punctuated by another uptick in the weekly initial jobless claims reading and a notable downside miss in the latest Philly Fed survey (resulting in a negative print), fed into the bid, while the initial knee-jerk lower in the wake of the ECB’s 50bp rate hike faded, aided by the loose outlining of its new anti-fragmentation tool (10-Year BTP/Bund spread finished off wides, but was still comfortably wider on the day, with the well-documented Italian political unrest feeding into that dynamic) and ECB President Lagarde flagging no changes to the Bank’s terminal rate assumption.
• Notable flow also favoured longs on the day, punctuated by a sizable block buy of FV futures (+40K) during the NY morning, while a late block buy in TY futures (+5K) kept the space underpinned into the close. Block steepener positions in FV/UXY futures were also observed.
• Flash PMI data from across the globe could set the tone ahead of the final NY session of the week, while the U.S. flash PMIs will provide the highlight of the NY docket.