US-CHINA: Bessent Talks On Trade, Investment, Iran, AI & Energy

Yesterday, the NY Fed released its schedule for Reserve Management Purchases (RMPs) between April 14 – May 13. RMPs will total approximately $25bln in that period, a marked step down from the $40bln/month pace seen since the December FOMC decision. While it has been well signalled that RMPs would be reduced after Wednesday’s tax deadline, the pace and magnitude of the adjustment looks to have been more aggressive than expected, particularly after the FOMC’s March minutes.

• A reminder that the March minutes suggested RMPs may be tapered only from the start of May (rather than mid-April), and at a gradual pace: ”The [SOMA] manager noted that, after April, the monthly pace of RMPs was likely to be reduced significantly as swings in nonreserve liabilities were expected to moderate; the adjustment was likely to be somewhat gradual”.
• Most (but not all) analyst estimates looked for RMPs to settle around $20bln after April, but with the pace of purchases to be tapered slowly (e.g. at a $5-10bln/month pace). As such, an abrupt shift from $40bln to $25bln is notable.
• It may be that the relatively tame quarter-end (limited rise in end-March SOFR, virtually no take-up of the Fed’s standing repo facility) gave Fed officials confidence that money markets were in a good place to withstand any tax-payment related pressure this week.
• Alongside tax-related drains in reserves, we also note there are $48bln of net coupon settlements on Wednesday sandwiched between net bill paydowns of $39bln Tuesday and $14bln Thursday.

• In FX, a fresh short-term cycle high in EURUSD confirms once again an extension of a corrective cycle that started mid-March. Price has traded through both the 20- and 50-day EMAs and sights are on 1.1825 next, 61.8% retracement of the Jan 27 - Mar 13 bear leg. Note that trend signals continue to highlight a dominant downtrend. Initial key support to watch lies at 1.1505, the Apr 6 low. A break of it would signal a bear reversal. First support is 1.1617, the 20-day EMA.
• A short-term bull cycle in GBPUSD is intact and a fresh cycle high this week reinforces current conditions. A continuation higher would open 1.3597, 61.8% retracement of the Jan 27 - Mar 31 bear leg. Note that M/T trend signals are bearish - MA studies are in bear-mode position highlighting a broader dominant downtrend. This suggests that for now, gains are corrective. A reversal lower would refocus attention on the key support and bear trigger at 1.3159, Mar 31 low. Initial support is at 1.3358, the 20-day EMA.
• The primary trend set-up in USDJPY is unchanged, it remains bullish and support remains intact. Moving average studies are in a bull-mode position that highlights a dominant medium-term uptrend. The recovery from last week’s low reinforces current conditions and scope is seen for a climb towards 160.79 next, a 1.500 projection of the Jan 27 - Feb - 12 price swing. Initial firm support to watch lies at 157.99, the 50-day EMA.