BONDS: EGBs-GILTS CASH CLOSE: Late Selloff Obscures Constructive Session
Core EGB / Gilt yields erased much of their early drop late in the session Tuesday.
- An early bid stemmed in part from a strong 10Y JGB auction overnight (recall, weak long-end Japan dynamics had weighed in previous sessions), with Dutch inflation likewise on the weak side bringing down Eurozone-wide HICP, and some pointing to the OECD's global growth forecast cuts / collapse of the Netherlands Government as supportive.
- Global FI softened throughout the rest of the day, with rising equities and oil, and EUR supply weighing.
- After looking to finish with decent gains, Bunds and Gilts sold off in the minutes before the European cash close with no clear catalyst, some identifying an (apparent) rumour that US Pres Trump was scheduled to call China's Xi on Friday.
- The German curve twist steepened, with the UK's bull flattening. One takeaway from the BOE's TSC hearing was that Deputy Gov Breeden positioned herself as a little more dovish than Gov Bailey.
- Periphery / semi-core EGB spreads closed mixed, with 10Y BTPs at the tightest closing levels to Bunds since April 2021.
- Wednesday brings final Services PMIs. The ECB decision Thursday is the week's main event - MNI's preview is here. Along with the expected 25bp cut, focus will be on any clues around the willingness or lack thereof to highlight a potential pause in July.
Closing Yields / 10-Yr EGB Spreads To Germany
- Germany: The 2-Yr yield is down 0.3bps at 1.786%, 5-Yr is down 0.1bps at 2.082%, 10-Yr is up 0.1bps at 2.525%, and 30-Yr is up 0.5bps at 3.017%.
- UK: The 2-Yr yield is down 0.1bps at 4.028%, 5-Yr is down 2bps at 4.143%, 10-Yr is down 2.9bps at 4.638%, and 30-Yr is down 4.3bps at 5.367%.
- Italian BTP spread down 0.6bps at 97bps / French OAT up 0.6bps at 67bps
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USDCAD TECHS: Hits Bear Trigger, New Cycle Low
- RES 4: 1.4415 High Apr 1
- RES 3: 1.4296 High Apr 7
- RES 2: 1.4087 50-day EMA
- RES 1: 1.3906/3935 High Apr 17 / 20-day EMA
- PRICE: 1.3793 @ 17:00 BST May 2
- SUP 1: 1.3760 Low Apr 21 and the bear trigger
- SUP 2: 1.3744 76.4% retracement of Sep 25 ‘24 - Feb 3 bull run
- SUP 3: 1.3696 Low Oct 10 2024
- SUP 4: 1.3643 Low Oct 9 ‘24
The trend set-up in USDCAD deteriorated further Friday, with prices slipping through the bear trigger to narrow the gap with next support. The fresh cycle low reinforces the bear cycle and signals scope for a continuation near-term. Potential is seen for a move towards 1.3744, a Fibonacci retracement. Moving average studies are in a bear mode position, highlighting a dominant downtrend. First resistance to watch is 1.3943, the 20-day EMA.
AUDUSD TECHS: Consolidation Phase
- RES 4: 0.6550 61.8% retracement of the Sep 30 ‘24 - Apr 9 bear leg
- RES 3: 0.6528 High Nov 29 ‘24
- RES 2: 0.6471 High Dec 9 ‘24
- RES 1: 0.6470 High May 2
- PRICE: 0.6445 @ 16:59 BST May 2
- SUP 1: 0.6344/6316 Low Apr 24 / 50-day EMA
- SUP 2: 0.6181 Low Apr 11
- SUP 3: 0.6116 Low Apr 10
- SUP 4: 0.5915 Low Apr 9 and key support
AUDUSD remains inside a consolidation phase, having traded either side of the 0.6400 level for 10 consecutive sessions. The underlying trend remains bullish and the pair is trading close to recent highs. Price has recently breached a key resistance at 0.6409, the Dec 9 ‘24 high. This breach reinforces bullish conditions and signals scope for a continuation higher near-term. Sights are on 0.6471 next, the Dec 9 2024 high. Initial key support to monitor is 0.6316, the 50-day EMA. A clear break of this EMA would be a concern for bulls.
US TSYS: Rates Retreat, Sentiment Improved Though Trade Risk Remains
- Treasuries look to finish near late Friday session lows after trading firmer on the open, higher than expected Nonfarm payrolls at 177k (sa, cons 138k) of which private contributed 167k (sa, cons 125k) triggered the early reversal.
- However, two-month revisions of -58k offset the 39k beat for nonfarm payrolls, with a similar story for private (a 42k surprise vs -48k two-month revision).
- Stocks are back near four week highs - pre-"Liberation Day" levels as hopes of some trade deal being made improved sentiment.
- The Wall Street Journal reports that "Beijing is considering ways to address the Trump administration’s gripes over China’s role in the fentanyl trade... potentially offering an off-ramp from hostilities to allow for trade talks to start." The Journal notes that "discussions remain fluid" and China "would like to see some softening of stance from President Trump".
- Currently, the Jun'25 10Y contract trades -20 at 111-07.5 vs 111-02 low -- initial technical support (50-dma) followed by 110-16.5/109-08 (Low Apr 22 / 11 and the bear trigger). Curves bear flattened, 2s10s -3.480 at 48.002, 5s30s -4.911 at 86.807.
