MNI ASIA MARKETS ANALYSIS: Cautious Risk-On Ahead Senate Vote
Mar-14 19:35By: Bill Sokolis
APAC+ 3
HIGHLIGHTS
Treasuries look to finish lower Friday, ironically near steady to last Friday's close after a volatile week buffeted by global trade uncertainty tied to Trump's on/off tariff policies.
Treasuries ticked lower with Bunds earlier after German budget deal headlines, extending lows after lower than expected UofM Sentiment (57.9 vs. 63.0) and projected inflations 1Y 4.9% vs. 4.3, 5-10Y 3.9% vs. 3.4%.
Cautious risk sentiment gained late Friday as markets await Senate vote on GOP spending bill "H.R. 1968" to keep government open through September.
Treasuries look to finish near session lows amid cautious rise in risk sentiment as markets awaited Senate vote on GOP spending bill "H.R. 1968" to keep government open through September.
Sentiment measured by UofM another matter altogether: notably lower than expected as it slid to 57.9 (cons 63.0) in the preliminary March release after 64.7 in February, for the lowest since Nov 2022. It came with a sharp climb in inflation expectations, with the 1Y surprisingly jumping to 4.9% (cons 4.3) after 4.3 and the 5-10Y jumping to 3.9% (cons 3.4) after 3.5% for a thirty-two year high.
Jun'25 Tsy 10Y futures trade -11 at 110-19, above initial technical support at 110-12.5/110-00 (Low Mar 6 / High Feb 7). Tsy 10Y yield 4.3121% last, curves flattening late: 2s10s -1.813 at 28.876, 5s30s -3.010 at 52.774.
Stocks bounced off yesterday's six-month lows after NY Senator Schumer (D) said he would not block the GOP spending bill in order to avoid an imminent government shutdown.
Strong rally for the Euro, as headlines suggested Germany have found a solution to the debt brake passage. EURUSD rose from around 1.0850 to 1.0912 following the news, falling short of most recent cycle highs which reside at 1.0947.
Fed remains in Blackout until after next Wednesday's FOMC policy annc. Monday data focus on Retail Sales, Empire Manufacturing and NAHB Housing Market Index measures.
Daily Overnight Bank Funding Rate: 4.33% (+0.00), volume: $287B
FED Reverse Repo Operation
RRP usage climbs to $126.234B this afternoon from $113.435B Thursday. Compares to $58.770B (lowest level since mid-April 2021) on February 14. The number of counterparties at 29.
US SOFR/TREASURY OPTION SUMMARY
Option desks reported robust two-way volumes in SOFR and Treasury option wings Friday, implied vol pressed by steady/varied straddle & strangle selling. Underlying futures remain weaker, near lows while projected rate cuts through mid-2025 are cooler vs. morning levels (*) as follows: Mar'25 at -.2bp (-1bp), May'25 at -8bp (-8.8bp), Jun'25 at -24bp (-25.2bp), Jul'25 at -33.2bp (-35bp).
A below-consensus UK GDP reading saw core FI get off on the front foot.
Bunds led a sell-off off in early afternoon European trade after the Greens, CDU/CSU and SPD reached an agreement on proposed fiscal expansion (there was little net reaction after the German constitutional court later rejected opposition attempts to block debt brake reforms).
However yields would close the gap, descending steadilyl for the remainder of the session headed into the cash close - no discernable trigger.
The German curve bear steepened on the day, with the UK's shifting lower mostly in parallel (slight outperformance in the belly).
For the week, the German curve twist steepened (2Y -6bp, 10Y +4bp); the UK's likewise but to a lesser extent (2Y -2bp, 10Y +3bp).
OATs lagged a broader fall in periphery/semi-core spreads (in which BTPs/GGBs outperformed). Fitch is scheduled to review France's sovereign rating after hours, with some expectations of a downgrade (current rating: AA-; Outlook Negative).
The UK dominates next week's European events calendar with both the BOE decision (likely on hold, 0bp change is priced) and labour market data due on Thursday.
Closing Yields / 10-Yr EGB Spreads To Germany
Germany: The 2-Yr yield is up 0.2bps at 2.185%, 5-Yr is up 1.6bps at 2.502%, 10-Yr is up 2.1bps at 2.876%, and 30-Yr is up 2.7bps at 3.202%.
UK: The 2-Yr yield is down 1bps at 4.182%, 5-Yr is down 1.3bps at 4.287%, 10-Yr is down 1.1bps at 4.666%, and 30-Yr is down 1.2bps at 5.269%.
Italian BTP spread down 2.5bps at 112.3bps / French OAT down 1.1bps at 69.2bps
Friday’s session was characterised by a strong rally for the Euro, as headlines suggested Germany have found a solution to the debt brake passage. EURUSD rose from around 1.0850 to 1.0912 following the news, falling short of most recent cycle highs which reside at 1.0947.
With the associated move higher for European yields, it is the low yielding JPY and CHF which have really felt the pinch, with EURJPY and EURCHF rising 0.7% and 0.55% respectively.
Overall, there was considerably more optimism across global markets, as major equity indices rose around 1.5% on both sides of the Atlantic. This allowed the likes of AUD and NZD to outperform G10 peers. UK economic data out this morning surprised to the downside, with GDP surprisingly contracting in January while industrial and manufacturing production data came in well below forecast. GBP is notably softer as a result.
Rengo pay tallies in Japan have again proved market moving - while unions are set to demand a faster pace of pay rises this year (5.46% from 5.28%), the final demand may turn out lower than many surveys had estimated - undermining the JPY. The firmer risk sentiment has seen the likes of AUDJPY and NZDJPY surge over 1%, entirely reversing yesterday’s misfortunes.
Following the breach of key support on Thursday around 20.13, USDMXN has continued to grind lower during today’s session, and the clean break highlights the growing potential for a stronger reversal lower. The pair is 1% lower on the session as we approach the close, trading at the lowest level for four months, around 19.88. Below here, attention turns to the lows seen in the aftermath of the election results at 19.7618, while resistance moves down to 20.3851, the 50-day EMA.
Activity data in China is scheduled on Monday’s, before US retail sales headlines the economic data calendar. Next week, will see a plethora of central bank decisions, including the Fed and BOJ.
Stocks are drifting near midday highs late Friday, awaiting word from the Senate as they vote on "H.R. 1968" -- Full-Year Continuing Appropriations and Extensions Act, 2025. Stocks had bounced off yesterday's six-month lows after NY Senator Schumer (D) said he would not block the GOP spending bill in order to avoid an imminent government shutdown.
Currently, the DJIA trades up 625.95 points (1.53%) at 41444.63, S&P E-Minis up 104.5 points (1.89%) at 5632.25, Nasdaq up 416.9 points (2.4%) at 17720.3.
Information Technology and Energy sectors continued to lead gainers in late trade, AI-tied demand helping semiconductor makers rally: Palantir Technologies +8.18%, Western Digital +6.19%, Micron Technology +5.55%, Super Micro Computer +5.22%, Adobe +4.45% and NVIDIA +4.08%.
A broad based rally in the Energy sector led by oil and gas stocks: Targa Resources +4.15%, Coterra Energy +3.59%, Phillips 66 +3.28%, Schlumberger +3.08% and Diamondback Energy +2.99%.
Broadline retailers weighed on the Consumer Staples sector in late trade: Kroger -2.03%, Kenvue -1.77%, Dollar Tree -1.50% and Dollar General -0.91%. Meanwhile, biotech and pharmaceuticals weighed on the Health Care Sector: Abbott Laboratories -2.69%, Bristol-Myers Squibb -2.45%, Regeneron Pharmaceuticals -2.21% and Gilead Sciences -1.91%.
SUP 3: 5444.55 76.4% retracement of the Aug 5 - Dec 6 ‘24 bull leg
SUP 4: 54000.00 Round number support
The trend condition in S&P E-Minis remains bearish and fresh cycle lows this week have reinforced current conditions. Moving average studies are in a bear-mode set-up highlighting a dominant downtrend Sights are on the next important support at 5499.25, the Sep 9 2024 low. Note that the short-term trend condition is oversold, a corrective bounce would allow this set-up to unwind. Firm resistance to watch is 5932.70, the 50-day EMA.