STIR: Just 7.5bp Of Cuts Priced For June FOMC Prior Today's Decision
May-07 16:47
- Fed Funds implied rates are at the high end of the week’s range for the next few meetings heading towards today’s FOMC decision, whilst meetings nearer year-end are more within range.
- We don’t anticipate any meaningful changes in the statement, though any signal that the Fed is looking seriously at “soft” survey data to assess the outlook could be significant. MNI Fed Preview here.
- Cumulative cuts from 4.33% effective: 0.5bp for today, 7.5bp Jun, 23bp Jul, 42bp Sep and 77bp Dec.
- The 42bp of cuts priced with the Sept meeting is close to pricing for July prior to Thursday’s ISM manufacturing report, to highlight the recent hawkish re-adjustment.
- SOFR futures point to an implied terminal yield of 3.15%, where it was at the NY crossover first thing. It has nudged out to SFRZ6 after months in the U6 (although recently with a few days with both U6 and Z6 yields equal). It’s technically the furthest out for the terminal since fleetingly on Feb 26 and before that mid-Dec prior to the Fed’s hawkish pivot.
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FOREX: Higher US Yields Spark USDJPY Rebound, AUDUSD Extends Slide
Apr-07 16:47
- The gap lower for major equity benchmarks at the open provided an extension of Friday themes in FX markets, that of weakness for the higher beta currencies, and a firm bid for the low-yielders such as JPY and CHF. Notably, the 3-day slide for AUDCHF reached as much as 8.7% at its lowest point.
- However, equity indices are well off their worst levels in an extremely choppy session, providing a boost to the likes of USDJPY and USDCHF. Specifically, USDJPY now trades 0.65% higher as we approach the APAC crossover, with the pair benefitting from the bear steepening move for US treasuries. 30-year US yields have risen as much as 17bps on the session.
- This dynamic in US fixed income has supported the greenback, with the USD index around 0.4% higher Monday as markets also assess the potential inflationary impacts of the tariff related action. Regarding this, uncertainty has risen Monday as Trump threatened to implement an additional 50% import tax on China, as retaliatory rhetoric persists between US and Chinese administrations.
- China related concerns have kept AUD and NZD under pressure, with AUDUSD extending below 0.6000 to the lowest level since the early onset of the pandemic. GBPUSD also slides back below 1.2750 to a fresh 5-week low. Additionally, ongoing weakness for crude futures has placed the Norwegian Krone under considerable pressure, with USDNOK rising 2.3% at typing, around 11.01. Notably NOKSEK extended this year’s decline to around 6%, below 0.9150.
- In emerging markets, high beta ZAR and COP underperform, falling comfortably over 2%. Domestic political concerns continue to underpin the latest ZAR weakness, however, the additional slide for the commodity complex will be impacting both these currencies in tandem.
- The economic calendar remains lighter this week, as markets await US inflation on Thursday.
FED: US TSY 14D AUCTION: NON-COMP BIDS $92 MLN FROM $50.000 BLN TOTAL
Apr-07 16:45
- US TSY 14D AUCTION: NON-COMP BIDS $92 MLN FROM $50.000 BLN TOTAL
OPTIONS: Larger FX Option Pipeline
Apr-07 16:32
- EUR/USD: Apr10 $1.0900-10(E2.6bln), $1.0935-50(E2.4bln)
- USD/JPY: Apr09 Y147.40-50($1.1bln); Apr10 Y143.00($1.3bln)
- EUR/GBP: Apr09 Gbp0.8405-20(E1.1bln)
- AUD/USD: Apr10 $0.6400(A$1.3bln)
- USD/CAD: Apr10 C$1.4395-00($1.5bln)
- USD/CNY: Apr10 Cny7.4000($1.4bln)
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