US TSYS: Futures Unwind Early Losses
TYU2 trades 0-04 shy of the peak of its 0-18 Asia range, last dealing +0-00+ at 116-06+, on sub-average volume of ~65K. The modest volume came about on the observance of the Juneteenth holiday in the U.S., with cash Tsys closed until Tuesday’s Asia-Pac session, while Tsy futures will be subjected to curtailed trading hours on Monday.
- Weekend news flow was headlined by Fed Governor Waller’s latest round of hawkish rhetoric (pointing to support for a 75bp rate hike at the July FOMC), confirmation that U.S. President Biden aims to speak with Chinese President Xi “soon,” as well as utterances from U.S. Tsy Sec Yellen re: high inflation being “locked in” for the remainder of ’22 & the likelihood of a roll back of some of the tariffs levied on China by the Trump admin.
- These matters, coupled with an early uptick for e-mini futures, applied pressure to U.S. Tsy futures at the re-open.
- Cross-asset correlations were at the fore thereafter, with broader gyrations in e-minis and Chinese equities in the driving seat. Tsy futures recovered from intraday lows as e-minis briefly moved into negative territory and Chinese equities struggled in early dealing, before working away from best levels as a rebound in Chinese property developer stocks (aided by another round of localised policy support), some upbeat sell-side musings re: Chinese equities and suggestions that China may pursue “extraordinary” measures to combat the divergence in upstream and downstream manufacturers’ profitability came to the fore.
- Note that Monday will see St. Louis Fed President Bullard (’22 voter) comment on inflation and interest rates.
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US TSYS: Risk Off or Forced Unwinds Run Course? Stock Rebound Late
No data Friday -- But StL Fed President did appear on Fox Business interview in the afternoon. Nothing particularly new from Bullard though he did add he does not see a recession occurring this or next year.
- Bullard said he would leave the "timing" of when to hike rates up to Powell, but sees 50bp hike as a "good plan for now" while "the more we can frontload" hikes, the "better off we'll be." Bullard said he sees economic growth accelerating in the second half of the year to appr 2.5-3.0%, while unemployment will continue to recede.
- Early focus on headline risk with buying/short cover support possibly tied to China/covid headlines (CHINA PORT CITY TIANJIN STARTS MASS TEST IN FIVE DISTRICTS, Bbg).
- Decent overall volumes tied to accelerating Jun/Sep Tsy futures rolling, 5s and 10s lead again w/ over 240k and 175k recorded after the bell.
- Investment-grade corporate credit risk had climbed to new 2Y highs after midday as equity indexes sell-off. Back to March 2021 levels SPX eminis now appr 20% off early Jan high (4778.0) at 3829.00 (-68.75) after breaching key support / bear trigger levels of 3855.00, May 12 low AND 3843.25, the Mar 25 2021 low (cont).
- Equities staged a robust rebound off lows in late equity trade, not headline driven, more program/technical while offers fade, SPX eminis nearly back to steady at 3897.75.
JGB TECHS: (M2) Correction Extends
- RES 3: 151.13 - High Mar 3
- RES 2: 150.44 - High Mar 14
- RES 1: 150.14 - High Apr 1
- PRICE: 149.80 @ 20:30 BST May 20
- SUP 1: 148.72 - Low Mar 29
- SUP 2: 148.79 - 3.0% Lower Bollinger Band
- SUP 3: 147.95 - 1.0% 10-dma envelope
The primary downtrend in JGBs remains intact although a corrective cycle is in play and the contract maintains a firmer short-term tone. Key resistance to watch is at 150.14, Apr 1 high. The breach, in March, of the 61.8% Fibonacci retracement of the 2015 - 2020 rally at 149.65 strengthened a bearish theme and opens 148.79/147.95, which marks both the 3.0% Lower Bollinger Band and the 1.0% 10-dma envelope. A break of 150.14 would alter the picture.
US STOCKS: Late Session Rebound
Equities staging a more robust rebound off lows last 20 minutes, not headline driven, more program/technical while offers fade. Current levels:
- - DJIA down 52.31 points (-0.17%) at 31197.76
- - S&P E-Mini Future down 9 points (-0.23%) at 3887.75
- - Nasdaq down 80.3 points (-0.7%) at 11306
