MNI ASIA MARKETS ANALYSIS: Tsys & US$ Retreat, Slight CPI Miss
May-13 19:52By: Bill Sokolis
APAC+ 4
HIGHLIGHTS
Treasuries look to finish near session late Tuesday session lows, directional with the decline in the Greenback reversing most of the week opener's rally (Bbg US$ index -8.56 at 1231.47).
Stocks were mostly higher, chip makers helped the S&P & Nasdaq rally to the best levels since late February-early March, while the Dow retreated - weighed by Health Care sector shares.
Pres Trump tour of Saudi Arabia reportedly secured $600B investments to “strengthen our energy security, defense industry, technology leadership, and access to global infrastructure and critical minerals.”
Treasuries look to finish near late Tuesday session lows - holding a relatively narrow range through the second half. Tsys had extend highs after slighly lower than expected CPI inflation measures.
There is little in this report alone to suggest a meaningful gap between CPI and PCE - in other words, the slight downside miss in core CPI doesn't carry a major re-interpretation for PCE via the components. Note April core PCE consensus was 0.24% M/M coming into today, and while this may dip slightly we doubt forecasts will be radically changed (core CPI came in at 0.22% M/M).
As for broader trends, the core CPI six-month rate held at 3.0% annualized for a second month in April having moderated from 3.7% in January, although it’s still a fourth consecutive month above the Y/Y.
Treasury Jun'25 10Y futures currently trades at 109-31.5 (-5.5) -- breaching support at 110-01+, a Fibonacci retracement point as well as yesterday’s low. Clearance here strengthens a bearish theme and exposes a key support at 109-08, the Apr 24 low.
Curves bear steepened, 2s10s +1.515 at 46.949, 5s30s +1.966 at 81.118.
The greenback has weakened on Tuesday, eroding a solid portion of the prior session advance. Amid the continued bid for major equity indices, the US dollar traded in a more typical manner with risk, weakening against most G10 peers and in particular against the likes of AUD and NZD.
REFERENCE RATES (PRIOR SESSION) US TSYS: Repo Reference Rates
Daily Overnight Bank Funding Rate: 4.33% (+0.00), volume: $296B
FED Reverse Repo Operation
RRP usage recedes to $144.214B this afternoon from $147.505B yesterday, total number of counterparties at 32. 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
SOFR & Treasury option volumes gradually improved, flow still mixed, however as underlying futures scaled off early morning highs, projected rate cut pricing holds steady to mildly softer vs. late Monday levels (*) as follows: Jun'25 steady at -2.1bp, Jul'25 steady at -9.8bp, Sep'25 -24.7bp (-26.8bp), Oct'25 -37.3bp (-40.3bp).
Tuesday saw further weakness across European bonds, despite seemingly FI-benign data releases.
Following Monday's sell-off following a de-escalation of the US-China trade war, European core FI remained on the back foot as a risk-on tone persisted in equities.
Brisk supply on both the corporate and sovereign (Netherlands, Germany, Italy, EU) fronts in Europe weighed on the space.
The Gilt front-end/belly outperformed, with the latest labour market report bringing a downside surprise on the wage front (and little in market-moving commentary by BOE's Pill). And in the most closely-watched release of the day globally, US CPI came in softer than expected.
In the end, the data didn't hold sway, with cross-asset moves in a lower USD and higher equities after the US CPI release instead dragging Bunds and Gilts to/near session lows by the cash close.
The German and UK curves both bear steepened, with the UK belly/short end outperforming overall as noted.
Spreads tightened modestly on the EGB periphery/semi-core, with BTPs leading gains.
Wednesday's calendar includes some final April HICP readings, while we also get multiple ECB speakers including Villeroy and Holzmann.
Closing Yields / 10-Yr EGB Spreads To Germany
Germany: The 2-Yr yield is up 2.3bps at 1.936%, 5-Yr is up 2.3bps at 2.245%, 10-Yr is up 3.2bps at 2.68%, and 30-Yr is up 4.5bps at 3.126%.
UK: The 2-Yr yield is down 2bps at 3.98%, 5-Yr is up 0.5bps at 4.131%, 10-Yr is up 2.7bps at 4.67%, and 30-Yr is up 3.6bps at 5.427%.
Italian BTP spread down 1.1bps at 101.8bps / Spanish down 0.7bps at 61.9bps
Following the softer-than-expected US CPI, the greenback has weakened on Tuesday, eroding a solid portion of the prior session advance. Amid the continued bid for major equity indices, the US dollar traded in a more typical manner with risk, weakening against most G10 peers and in particular against the likes of AUD and NZD.
NZDUSD (+1.4%) has risen back above a short-term pivot at 0.5900, and trades within close proximity of Monday’s highs at 0.5941. The pair has made multiple attempts above the 0.60 handle in recent weeks, but has failed to breach the US election related highs at 0.6038. This will remain a key barrier to a more protracted recovery.
For AUDUSD (+1.60%), Monday’s move down is considered corrective and spot currently stands at the best levels of the week. This keeps trend conditions firmly in bullish territory, and further strength would open 0.6528, the Nov 29 ‘24 high.
The likes of EURUSD and GBPUSD are also notably higher, though gains are just under the 1% mark. From a trend perspective, recent EURUSD weakness appears corrective as key signals remain bullish. The 50-day EMA has been pierced but today’s reversal higher keeps this support level intact. A resumption of strength would place the topside focus on 1.1381, the May 2 - 6 high. Clearance of this level would signal the end of the correction. Various sell-side analysts had flagged that levels between 1.10/11 should offer an attractive entry point for dip buyers.
The risk-on theme sees the Japanese yen underperform, with USDJPY only half a percent lower today, holding on to the bulk of the surge through the 50-day EMA on Monday, as easing trade tensions between the US & China spur renewed optimism for the pair.
Australia Wage Price Index data and China new loans figures will be highlights on the Wednesday calendar, before the focus turns to Thursday’s release of US retail sales and PPI.
Stocks remained mixed late Tuesday, weaker DJIA vs. continued gains in SPX eminis and Nasdaq indexes. Currently, the DJIA trades down 203.9 points (-0.48%) at 42207.72, S&P E-Minis up 48.75 points (0.83%) at 5914, Nasdaq up 315.1 points (1.7%) at 19023.13.
Information Technology and Communication Services sectors continued to underpin the tech heavy Nasdaq and SPX eminis in late trade while health care and pharmaceutical stocks weighed heavily on the Dow after UnitedHealth announced it's CEO stepped down in addition to suspending its 2025 guidance, UNH shares falling over 15.75% earlier.
As noted, health care stocks underperformed in late trade: UnitedHealth -16.44%, Elevance Health -8.28%, Humana -7.06%, CVS Health -5.22% and Molina Healthcare -4.14%. Meanwhile, the Consumer Staples sector was weighed by Hershey -2.40%, Kimberly-Clark -2.30%, Kroger -2.10%, Costco -1.88% and Target -1.82%.
On the positive side chip stocks soared after the Trump administration said it was "considering a deal to allow the UAE to import over 1 million advanced Nvidia chips, exceeding limits under Biden-era AI chip regulations" Bbg reported. Leading gainers included: First Solar +20.41%, Super Micro Computer +15.48%, Palantir Technologies +8.80%, NVIDIA +5.74%, Western Digital +5.39%, Micron Technology +5.06% and Broadcom +4.47%.
Oil and gas stocks supported the Energy sector as crude prices gained (WTI +1.75 at 63.70) after Pres Trump’s remarks in Riyadh that the US would drive Iranian oil exports to zero if they can’t come to an agreement. Leading gainers included Phillips 66 +5.79%, Valero Energy +4.25%, APA +4.04%, Targa Resources +3.67% and Marathon Petroleum +3.31%.
A bullish trend condition in S&P E-Minis remains intact and Monday’s strong gains reinforce bullish conditions. The contract has pierced 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 5896.25, a Fibonacci retracement. Initial firm support to watch lies at 5637.82, the 50-day EMA.
Crude has climbed to its highest level since April 22, supported by further US threats against Iran’s energy industry. Earlier support came from optimism on trade war de-escalation.
WTI Jun 25 is up by 2.9% at $63.7/bbl.
The US State Department announced further sanctions targeting Iran’s oil trade, days after Iran and the US concluded a fourth round of nuclear talks in Iran.
Today’s move has pierced key resistance at $63.56, the 50-day EMA. A clear break of this level would highlight a stronger reversal, opening $66.41, the Apr 4 high.
Meanwhile, spot gold has edged up by 0.3% to $3,247/oz, aided by the weaker dollar, following softer-than-expected US CPI data.
In the very short-term, analysts at Saxo Bank say that gold will trade in a consolidation mode due to the major de-escalation in trade tensions between the US and China.
Key short-term support to watch is $3,202.0, the May 1 low. A clear break of this level would undermine the short-term bullish theme and signal scope for a deeper retracement. This would open $3,164.3, 61.8% of the Apr 7 - Apr 22 upleg.
Elsewhere, copper has rallied by 2.1% to $472/lb, buoyed by the weakness in the dollar.
Key short-term resistance has been defined at $498.25, the Apr 23 high. A break of this is required to reinstate a bullish theme.
A resumption of weakness would expose $436.00, the Apr 10 low, ahead of $407.40, the Apr 7 low and key support.