MNI ASIA MARKETS ANALYSIS: Inflation Expectations Rising

HIGHLIGHTS

• Treasuries look to finish mostly higher Friday, paring early gains after lower than expected UofM sentiment and expectations data, while 1Y &5-10Y inflation exp rise - higher than expected.
• Projected rate cut pricing consolidated in longer dates vs. this morning levels (*) as follows: Sep'25 at -21.8bp (-24.6bp), Oct'25 at -34.9bp (-38.3bp), Dec'25 at -51.2bp (-55.3bp).
• The House Budget Committee has voted 16-21 on the Republican 'One Big Beautiful' reconciliation bill, with five hardline Republican conservatives joining Democrats to vote against advancing the package.

US TSYS

MNI US TSYS: Narrow Range, Flatter Curves After Post-Data Retreat

• Treasuries look to finish mostly higher late Friday, off early highs post data, curves flatter (2s10s -1.767 at 44.884) as short end underperforms.
• Treasury futures dipped briefly after Import/Export prices come out slightly higher than expected, Housing Starts & Building Permits data mixed - the former higher but slightly less than estimated, build permits decline and are lower than estimated.
• Rates continued to pare gains after lower than expected UofM sentiment and expectations data, while 1Y &5-10Y inflation exp rise - higher than expected.
• Consumer sentiment fell to the 2nd-lowest ever reading of 50.8 (53.4 survey, 52.2 prior), as both current conditions (57.6 vs 59.9 survey, 59.8 prior) expectations receded further (46.5 vs 48.6 survey, 47.3 prior).
• Inflation expectations soared in the preliminary UMichigan survey for May, with the 1-year measure up to 7.3% from 6.5% prior, and long-run up to 4.6% from 4.4% prior. Those were respectively the highest since 1981 and 1991 and well above consensus expectations that those measures would remain steady (at 6.5% / 4.4%).
• Tsy Jun25 10Y futures currently trade +3.5 at 110-11.5 vs. 110-21.5 high, initial technical resistance at 110-27 (20-day EMA). Key near-term resistance has been defined at 111-22, the May 7 high. A move above this level is required to signal a potential reversal.
• Cross asset roundup: Bbg US$ index off midday highs to 1231.97 (+1.95), Gold weaker but off lows at 3194.90, crude firmer (WTI +.77 at 62.39).

REFERENCE RATES (PRIOR SESSION)
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US TSYS: Repo Reference Rates

• Secured Overnight Financing Rate (SOFR): 4.31% (+0.02), volume: $2.686T
• Broad General Collateral Rate (BGCR): 4.30% (+0.02), volume: $1.075T
• Tri-Party General Collateral Rate (TCR): 4.30% (+0.02), volume: $1.040T
• (rate, volume levels reflect prior session)

STIR: FRBNY EFFR for prior session:

• Daily Effective Fed Funds Rate: 4.33% (+0.00), volume: $120B
• Daily Overnight Bank Funding Rate: 4.33% (+0.00), volume: $294B

FED Reverse Repo Operation

RRP usage rebounds to $136.799B this afternoon from $109.436B yesterday, total number of counterparties at 30. Usage had fallen to $54.772B last Wednesday, April 16 -- lowest level since April 2021. Conversely, usage had surged to the highest level since December 31, 2024 on Monday, March 31: $399.167B.

US SOFR/TREASURY OPTION SUMMARY

Option desks reported better SOFR call volumes carried over from overnight (particularly a large midcurve ratio call spread in Jun'25 exp and conditional curve flattener in Reds vs. Greens). Treasury options near paired but leaning towards puts. Underlying futures look to finish mixed, off highs with the short end weaker. As such, projected rate cut pricing holds steady to lower in longer dates vs. this morning levels (*) as follows: Jun'25 steady at -2.1bp, Jul'25 at -8.9bp (-9.8bp), Sep'25 at -21.8bp (-24.6bp), Oct'25 at -34.9bp (-38.3bp), Dec'25 at -51.2bp (-55.3bp).

SOFR Options:
+10,000 SFRM5 97.25 calls, cab ref 95.69
+4,000 SFRN5 95.68/95.81 put spds, 3.75 ref 95.91
-1,000 SFRM5 95.68/95.75 strangles, 4.25 ref 95.695
+16,000 SFRN5 96.06/96.25/96.50 call flys, 1.125
+6,000 SFRN5 95.75/95.81 put spds 3.5 vs. 95.92/0.10%
Block, 16,000 SFRU5 95.68/95.81 put spds, 6.0 ref 95.925
+20,000 SFRZ5 96.75/97.50 call spds, 8.0-8.25
+3,500 SFRM5 95.62/96.00 call over risk reversals, 0.75 vs. 95.705/0.18%
4,000 SFRZ5 94.87/95.37 2x1 put spds, 0.0
appr +40,000 0QM5 96.56/96.75 1x2 call spds, 0.0-0.5 ref 96.58 to -.57
over -10,200 0QM5/2QM5 96.87 call spds, 1.0, flattener
Block/screen, 7,500 SFRU5 95.75/96.00 call spds, 10.0 ref 95.945 to -.95
4,000 2QU5 96.00 puts ref 96.535
appr 10,000 0QM5 96.75 calls ref 96.58
3,000 SFRZ5 96.75/97.25 call spds ref 96.245
2,500 SFRZ5 95.25/95.50 put spds ref 96.25

Treasury Options:
3,000 TYM5 109.25/109.75/110.25 put flys
1,800 TYM5 110.25/111.25 strangles, 23 ref 110-17.5
1,500 TYN5 111/113 call spds vs. 109 puts
Block, 4,000 FVM5 108 calls 12 ref 107-28.5
+1,600 USN5 107/109 put spds, 14 vs. 113-26/0.06%
-2,000 TYM5 109.25 puts, 3
-1,750 USM5 114 calls, 39 ref 113-23/0.45%
+1,500 TYM5 112/113.5 1x2 call spds, 2
3,600 FVN5 109.5 calls ref 108-00 to 107-31.75
-1,200 FVN5 108.5/109.5/110.5 call flys, 8.5 
3,500 TYM5 109.5/110.25 put spds vs. 111 calls, 0.0
+8,000 TYN5 107.5/109.5 put spds vs. 111.5 calls, 8-9
-3,500 TYM5 109.75/110/111/111.25 put condor, 8 vs 113-10.5/0.08%

MNI BONDS: EGBs-GILTS CASH CLOSE: Week Of Two Halves Concludes With Gains

European FI concluded a week of two halves with a modest rally Friday, the second consecutive session of gains after three days of losses.

• Gains were concentrated in the morning session, with some follow through from Thursday's softly-perceived US data and a key rejection of the 2.70% level in 10Y Bund boosting sentiment.
• Global core FI traded heavier in the European afternoon however, with the University of Michigan survey showing US consumer inflation expectations soaring.
• In data, the Eurozone posted a record trade surplus in March (largely on US tariff front-running), while final Italian HICP was revised down.
• Bunds outperformed Gilts, with the German curve leaning bull steeper from the 5-30Y segment; the UK saw twist flattening. In both cases, the short end underperformed on the curve.
• The week saw bear flattening in both the UK (2Y +9.7bp, 10Y +8.2bp) and Germany (2Y+7.0bp, 10Y +2.8bp).
• Periphery EGBs traded mixed. Iberian instruments underperformed, with Spanish and Portuguese spreads around 1bp wider to Bunds on the day.
• Next week's schedule includes May flash PMI data, UK CPI, and the European Commission's latest economic forecasts.

Closing Yields / 10-Yr EGB Spreads To Germany

• Germany: The 2-Yr yield is down 2.5bps at 1.855%, 5-Yr is down 3.5bps at 2.155%, 10-Yr is down 3.2bps at 2.59%, and 30-Yr is down 2.6bps at 3.04%.
• UK: The 2-Yr yield is up 1.7bps at 4.005%, 5-Yr is up 0.5bps at 4.146%, 10-Yr is down 1.1bps at 4.649%, and 30-Yr is down 1.6bps at 5.394%.
• Italian BTP spread up 0.1bps at 100.6bps / Spanish bond spread up 0.9bps at 62.4bps  

MNI EGB OPTIONS: Put Spread Buying In Bund, Selling In Sonia Friday

Friday's Europe rates/bond options flow included:

• RXM5 130/129.5ps, bought for 14.5 and 14.75 in 8.5k
• RXM5 131/132/134 broken c fly, bought for 3 in 1k
• SFIM5 95.95/95.85ps sold at 6.75 in 6.75k vs ~2.5k at 95.87

MNI FOREX: EURUSD Slides into the Close, 50-Day EMA Remains Key

• Late pressure on treasuries saw the US dollar firm into the close, prompting the USD index to rise back above the 101 handle. The DXY looks to close the week roughly 0.75% in the green.
• While USDJPY has had a notable 100 pip bump higher from the overnight lows, it’s EURUSD that has seen a more meaningful adjustment on the session, falling 0.4% to levels around 1.1140 as we approach the close. This leaves the pair within close proximity of its 50-day EMA again, an increasingly significant technical reference of support.
• Recent weakness appears corrective and key trend signals continue to highlight an uptrend. A clean break of the 50-day (intersecting at 1.1094) would undermine the uptrend. In similar vein, GBPUSD has slipped back below 1.33 and will look to 1.3140, the May 12 low, as the next notable support.
• The Swedish krona is the weakest in G10, falling 0.6% against the dollar. As noted, we haven't seen an obvious driver of today's SEK weakness against the broader G10 basket, although major equity benchmarks falling off the best levels may have weighed at the margin. Riksbank Governor Thedeen reaffirmed his cautious stance on current monetary policy in comments this morning.
• On the economic calendar next week, we have China activity data due Monday, before the May RBA decision and Canadian inflation on Tuesday. Later in the week, the focus will turn to flash PMI data from the Eurozone.

MNI US STOCKS: Late Equities Roundup: New Two Month Highs

• So much for earlier cautionary profit taking ahead of the weekend - stocks have rebounded to the highest levels since early March in late Friday trade. Currently, the DJIA trades up 286.71 points (0.68%) at 42608.61, S&P E-Minis up 33.25 points (0.56%) at 5966.75, the Nasdaq up 67.5 points (0.4%) at 19179.75.
• In the first half - investors appeared unwilling to extend the week's equity rally after massive investment pledges from United Arab Emirates, not to mention the sweeping 90-day US/China tariff reductions stemming from negotiations in Switzerland last weekend.
• Health Care and Utility sectors continued to outperform in late trade, pharmaceutical and services related stocks buoyed the former with Moderna +7.23%, Humana +4.11%, Cigna Group +3.39%. Special mention for UnitedHealth Group up 5.00% after falling over 16% Wednesday after the WSJ reported UNH was under investigation for Medicare fraud.
• Leading gainers in the Utility sector included: PG&E +3.26%, Vistra +2.18%, Consolidated Edison +1.77% and NRG Energy +1.52%.
• Conversely, Energy and Information Technology sectors continued to underperform late Friday, profit taking after a week of strong performance in Tech stocks has Applied Materials -5.77%, First Solar -4.28%, KLA -2.08% and Cisco Systems -1.87%.
• Meanwhile oil and gas shares weaker despite a rise in crude prices (WTI +.90 at 62.52): Marathon Petroleum -0.94%, APA -0.82%, Diamondback Energy -0.73% and Occidental Petroleum -0.67%

MNI EQUITY TECHS: E-MINI S&P: (M5) Northbound 

• RES 4: 6080.75 High Feb 26   
• RES 3: 6057.00 High Mar 3 
• RES 2: 6000.00 Round number resistance     
• RES 1: 5958.00 Intraday high                                   
• PRICE: 5949.25 @ 14:19 BST May 16
• SUP 1: 5669.26 50-day EMA                       
• SUP 2: 5455.50 Low Apr 30
• SUP 3: 5355.25 Low Apr 24
• SUP 4: 5127.25 Low Apr 21 and a key support 

A bullish trend condition in S&P E-Minis remains intact and this week’s appreciation reinforces current conditions. The contract has cleared an important resistance at 5837.25, the Mar 25 high and a bull trigger. This strengthens the bullish theme, paving the way for a continuation near-term. Sights are on the 6000.00 handle next. Initial firm support to watch lies at 5669.26, the 50-day EMA.

COMMODITIES

MNI AMERICAS OIL: WTI crude is slightly higher today after recovering from yesterday

Americas End-of-Day Oil Summary: WTI crude is slightly higher today after recovering from yesterday’s low as the market weighs progress in US-Iran talks, though sentiment from Trump has been markedly more optimistic than Iranian rhetoric so far. Front month crude prices are still on track for a net gain on the week after earlier support from easing of trade tensions following temporarily lower US-China tariffs.

• President Trump said that the US and Iran are edging closer to a deal which some analysts suggest could potentially see an increase in Iranian exports by 200k to 400kb/d.
• Iran Foreign Minister Araghchi said they are hearing many contradictory positions from the US negotiators.
• Direct negotiations between delegations from Russia and Ukraine took place today, with limited signs of progress towards a ceasefire deal.
• OPEC+ is expected to maintain oil production increases in July to discipline nations exceeding their quotas and to show support for President Trump’s appeals for lower oil prices, according to Macquarie Group cited by Bloomberg.
  • WTI June futures were up 1.4% at $62.48
  • WTI July futures were up 1.3% at $61.96

MONDAY DATA CALENDAR

Date	GMT/Local	Impact	Country	Event
19/05/2025	0900/1100	***	EU	HICP (f)
19/05/2025	1245/0845		US	New York Fed's John Williams
19/05/2025	1245/0845		US	Fed Vice Chair Philip Jefferson
19/05/2025	1530/1130	*	US	US Treasury Auction Result for 13 Week Bill
19/05/2025	1530/1130	*	US	US Treasury Auction Result for 26 Week Bill
19/05/2025	1715/1315		US	Dallas Fed's Lorie Logan
19/05/2025	1730/1330		US	Minneapolis Fed's Neel Kashkari
20/05/2025	0430/1430	***	AU	RBA Rate Decision