BONDS: EGBs-GILTS CASH CLOSE: Weakness Persists

• RES 4: 151.30 High Mar 3   
• RES 3: 149.60/151.21 50-day EMA / High Mar 28 and reversal trigger 
• RES 2: 147.80 20-day EMA
• RES 1: 144.64/146.54 High Apr 11 / Low Mar 11 recent breakout point   
• PRICE: 143.35 @ 15:51 BST Apr 14
• SUP 1: 142.07 Low Apr 11    
• SUP 2: 141.65 Low Sep 30 ‘24
• SUP 3: 141.00 1.236 proj of the Feb 12 - Mar 11 - 28 price swing
• SUP 4: 140.32 Low Sep 17 ‘24

The trend condition in USDJPY remains bearish and Friday’s fresh cycle low reinforces this theme. The move down confirms a resumption of the downtrend and maintains the price sequence of lower lows and lower highs. Note too that moving average studies are in a bear-mode position highlighting a dominant downtrend. Sights are on 141.65 next, the Sep 30 ‘24 low. Initial firm resistance to watch is 147.80, the 20-day EMA.        

A few other items of note from Gov Waller's speech:

• It would appear that the FOMC's marked-to-market core PCE expectation for March is in-line with analysts' after last week's CPI and PPI reading - he says "Core PCE prices are estimated to have risen less than 0.1 percent for the month...leaving core PCE inflation at 2.7 percent over the previous 12 months". As we noted in our US Inflation Insight out earlier today, analyst estimates for core PCE appear to have coalesced around a ‘low’ rounded 0.1% M/M in March (released Apr 30).
• Unlike some other FOMC members, Waller is clearly emphasizing market-based inflation expectations as a better guide compared to their survey-based counterparts: "I tend to discount survey-based measures of inflation and prefer those based on the spread between nominal and inflation-indexed securities, since investors have more skin in the game than survey respondents. These market-based measures have not increased significantly, which implies market participants view tariffs as a one-time change to the price level. So I don't think expectations have become unanchored."
• On policy restrictiveness: "I continue to believe that monetary policy is meaningfully restricting economic activity and hope that underlying inflation may moderate over the course of the year, separate from the tariff effects."
• He sees the economy as having been in "good shape in the first quarter". He expects GDP grew modestly in Q1, noting "special" factors weighing on growth that are unlikely to continue (including an import spike and harsh weather hurting consumer spending) and saying that "soft" data "hinted at a substantial slowdown" but "hard" data "have tended to show that the economy grew modestly".

European bonds strengthened across the board to start the week, with Gilts outperforming Bunds.

• Price action was indicative of a relief rally, with mixed messages over the weekend on sectoral US tariff exemptions seen as a moderate positive development.
• That helped Treasuries stabilize from their recent sell-off, spilling over into the European space.
• A stabilization in US consumer's long-term inflation expectations evident in a New York Fed survey helped trigger another leg of gains, with Bund / Gilt futures finding new session highs into the cash close.
• The UK curve bull flattened substantially, with Germany leaning likewise.
• BTPs outperformed on the EGB periphery, benefiting from Friday's S&P ratings upgrade to BBB+ (stable) from BBB.
• Focus for the week remains on UK Feb/Mar Labour Market *Tuesday) and Mar Inflation (Wednesday) data, and the ECB meeting Thursday.

Closing Yields / 10-Yr EGB Spreads To Germany

• Germany: The 2-Yr yield is down 3bps at 1.759%, 5-Yr is down 5.8bps at 2.074%, 10-Yr is down 5.8bps at 2.512%, and 30-Yr is down 1.4bps at 2.877%.
• UK: The 2-Yr yield is down 3bps at 4.018%, 5-Yr is down 5.7bps at 4.153%, 10-Yr is down 9.3bps at 4.66%, and 30-Yr is down 13.2bps at 5.384%.
• Italian BTP spread down 7.7bps at 116.5bps / French OAT down 4.6bps at 75.4bps