MNI ASIA OPEN: Fed Gov Kugler on Public Inflation Sensitivity

EXECUTIVE SUMMARY

• MNI FED: Gov Kugler Concerned About Public Inflation Sensitivity And Goods Prices
• MNI US Intel Report Identifies China As "Most Capable Strategic Competitor"
• MNI US DATA: Increasingly Pronounced Stagflation Signals In Philly Fed Services
• MNI US DATA: Richmond Fed Manufacturers Expect Inflation To Soar

US

MNI FED: Gov Kugler Concerned About Public Inflation Sensitivity And Goods Prices

Gov Kugler (permanent FOMC voter)'s overall view on rates is unsurprisingly very similar to pre-FOMC and the Committee's overall signalling of a wait-and-see stance on rate moves, per a speech Tuesday (text here) - consistent with a Fed that is not looking to ease until later in the year. "Given the economy’s overall solid position and the heightened level of uncertainty, I supported the Federal Open Market Committee’s decision last week to maintain the policy rate at its current level...I see current policy as continuing to be restrictive and I judge that FOMC policy is well positioned. The committee can react to new developments by holding at the current rate for some time as we closely monitor incoming data and the cumulative effects of new policies."

NEWS

MNI US Intel Report Identifies China As "Most Capable Strategic Competitor"

MNI London: Reuters reporting key items from the 2025 US Annual Threat Assessment report. The report identifies China as "the most comprehensive and robust military threat to US national security," noting that China's "dominance in critical materials mining and processing is a particular threat." It warns that Russia is developing a new nuclear-armed satellite that could have "devastating consequences" for the US and the world. The report concludes that Iran is "not building a nuclear weapon" but Gabbard notes that a decades-long taboo in Iran on discussing nuclear weapons has eroded in the past year.

MNI UKRAINE: Zelenskyy Backs Partial Ceasefire; Kremlin: Only After Sanctions Relief

Following statements from the White House regarding talks held between US officials and counterparts from Russia and Ukraine, respectively, Ukrainian President Volodymyr Zelenskyy has said that, as far as Ukraine understands it the partial ceasefire in the Black Sea is effective immediately as of the release of the US announcement. Says the agreement does not specify what actions would follow a Russian breach of the ceasefire, but that Ukraine would appeal to the US directly in such a case, and that this would include requests for weapons and sanctions on Russia. 

MNI UKRAINE: US-Ukraine Talks End; Speculation Joint US-Russia Statement Cancelled

Comments from Kremlin spox Dmitry Peskov are being reported by state media following the conclusion of talks in Saudi Arabia between Russian and US teams. Peskov says that contacts between the two sides will continue and that the content of the 'technical consultations' will not be disclosed to the public. Says that the 'results of the talks are being analysed', but there are unverified reports on social media claiming that the joint statement that was due to have been released nearly two hours ago has been cancelled. 

• These unverified reports claim that Russian diplomat, Senator Grigory Karasin, said "We discussed everything - it was a tense discussion. But very useful for both sides. We are far from a full-fledged solution or agreement on all points, but it seems that such a discussion is timely." Peskov says that there are no plans for further talks between Presidents Vladimir Putin and Donald Trump, but "it can be organised promptly if needed".

MNI DENMARK: PM-US Pressure & Officials' Greenland Visit 'Unacceptable'

Speaking to TV2, Prime Minister Mette Frederiksen says that the US is putting "unacceptable pressure" on Denmark and Greenland regarding the sovereignty of the Danish autonomous territory, adding that it is pressure "we will resist." Frederiksen's comments come after the US announced that Second Lady Usha Vance will visit Greenland from Thursday at the head of a delegation including Energy Secretary Chris Wright and National Security Adviser Mike Waltz. White House spox Brian Hughes has said that the visit is not an official one, and has the intention of allowing the delegation to "learn about Greenland, its culture, history and people." Wright and Waltz are also set to visit a US military base in Greenland. 

MNI US TSYS: Tsys Consolidate, Consumer Confidence Dips, Fed Gov Kugler Wait & See

• Treasuries look to finish modestly higher, holding a narrow range since midday after gradually recovering from this morning's opening lows.
• Tsy futures pared losses after Philly Fed non-mfg index comes out much lower than prior -32.5 vs. -13.1. Futures extended gains after Conf. Board Consumer Confidence came out lower than expected, New Home Sales dipped but up-revision of prior more than made up for the move.
• Fed Gov Kugler (permanent FOMC voter)'s overall view on rates is unsurprisingly very similar to pre-FOMC and the Committee's overall signaling of a wait-and-see stance on rate moves
• Little react to this afternoon's $69B 2Y note auction (91282CMV0), in-line with 3.984% high yield vs. 3.985% WI.
• Tsy Jun'25 10Y futures trade 110-23.5 (+6) vs. 110-26 high, initial technical resistance well above at 111-17.5/25 (High Mar 20 / 11). Curves still steeper but off earlier highs: 2s10s +.296 at 29.876 (31.698 high), 5s30s +2.459 at 59.074 (59.800 high).
• Cross asset roundup: Bbg US$ index receded (-1.21 at 1270.55), Gold trades +8.0 at 3019.04, stocks near steady (SPX Eminis) to mildly mixed, the tech-heavy Nasdaq mildly higher.
• Wednesday focus on Durables/Cap Goods at 0830ET, Tsy 5Y Sale at 1300ET, Fed Speak: MN Fed Kashkari Fed listens event (no text, Q&A) at 1000ET, StL Fed Musalem on economy/policy (text, Q&A) at 1310ET.

OVERNIGHT DATA

MNI US DATA: Richmond Fed Manufacturers Expect Inflation To Soar

The Richmond Fed's manufacturing survey for March fully reversed February's improvement, with forward-looking survey components pulling back sharply, but inflation expectations soaring.

• March's composite index registered -4 (positive 1 was expected), down from positive 6 in February and as such back to the same -4 level seen in January. These figures remain well above the double-digit negative levels seen in 2H 2024, though the latter may have been influenced by various idiosyncratic factors including hurricanes and a work stoppage/order cancellations at Virginia-headquartered Boeing.
• As with the headline figure, New Orders reverted back in March, to -4 (0 prior, -4 in January), while 6-month expectations dropped to a 29-month low -22.0 (positive 2.0 prior). Employment fell to -1 from 9, while shipments dropped to -7 from 12.
• Regional manufacturers saw a huge increase in the level of inflation over the next 12 months - expected price changes jumped to 7.2% from 4.6% prior, with expected prices received up to 4.0% from 3.2% (actual prices paid/received also jumped, respectively by 1.5pp to 3.75% / 0.7pp to 2.3%).
• Expected price pressures are as high as they've been in the 20+ year survey, equalling the pandemic jump.
• That's unsurprising given tariff concerns but offers a further suggestion that manufacturers are bracing for both softer demand and higher input prices (which may not be fully passed on to consumers, as suggested by the gap between expected prices paid/received).

MNI US DATA: Redbook Retail Sales Remain Solid, But Some End-March Caution

Johnson Redbook Retail Sales are up 5.5% Y/Y in March-to-date, following a 5.6% Y/Y rise in the week ending March 22. That's short of retailers' targeted 6.1% gain but is another solid reading in a series that tracks roughly 80% of the "official" Census Bureau series.

• It indicates continued Y/Y growth in the latter (was +3.1% on an adjusted basis in February) in March, defying a sharp deterioration in consumer sentiment per multiple surveys.
• However there were perhaps some cautionary signs to watch for end-month (March is a 5-week month for retailers, ending April 5), per the report: "Over the weekend, early indications showed that some retailers faced unfavorable comparisons in Easter sales. Next week, comparisons related to the Easter shift will become more challenging as stores compete against last year’s pre-Easter shopping week."
• On that note, Easter arrives three weeks later than last year.

MNI US DATA: Increasingly Pronounced Stagflation Signals In Philly Fed Services

The Philadelphia Fed's Nonmanufacturing Business Outlook Survey showed a continued deterioration in regional services activity after a brief period of exuberance, mirroring the drop in the neighboring Empire State (NY Fed) survey. The regional general activity index dropped 24 points to -32.5, marking the lowest level since the start of the Covid pandemic. New orders fell to a 23-month low (-19.5) and the 6-month outlook for activity fell to a post-2020 low (-24.0).

• Per the Philadelphia Fed, "The indexes for general activity, new orders, and sales/revenues remained negative, with the former two declining further. On balance, the firms reported a decrease in full-time employment. Both price indexes rose and indicate overall increases in prices. The respondents expect declines in growth overall over the next six months both for their firms and in the region."
• This survey only has data back to 2011 but the currently depressed level of business activity has only been matched in periods of extreme weather (2011) and the Covid pandemic (2020).
• This is a very different story than being told by the flash March S&P PMI which rose to a 3-month high 54.3 in March, so the state of the services sector amid broader government policy uncertainty and possible deterioration in domestic demand remains obscured.
• One clearly consistent theme across these surveys though is inflation: prices paid rose to a 16-month high (36.0), with prices received up to just a 3-month high (8.4), potentially suggesting margin pressures at services firms (the March flash PMI noted an 18-month high in service sector prices paid).
• With manufacturing surveys including the Philly Fed's showing similar price pressures, it is hard not to get a sense of ongoing "stagflation" in the economy, in the soft/survey data at least so far.

MARKETS SNAPSHOT

Key market levels of markets in late NY trade:
DJIA down 15.63 points (-0.04%) at 42570.65
S&P E-Mini Future up 10 points (0.17%) at 5825
Nasdaq up 79.3 points (0.4%) at 18266.43
US 10-Yr yield is down 2.3 bps at 4.3114%
US Jun 10-Yr futures are up 5/32 at 110-22.5
EURUSD down 0.0003 (-0.03%) at 1.0798
USDJPY down 0.77 (-0.51%) at 149.92
WTI Crude Oil (front-month) down $0 (0%) at $69.11
Gold is up $9.34 (0.31%) at $3020.49

European bourses closing levels:
EuroStoxx 50 up 59.29 points (1.09%) at 5475.08
FTSE 100 up 25.79 points (0.3%) at 8663.8
German DAX up 257.13 points (1.13%) at 23109.79
French CAC 40 up 86.26 points (1.08%) at 8108.59

US TREASURY FUTURES CLOSE

3M10Y -1.799, 2.496 (L: 0.87 / H: 6.938) 
2Y10Y +0.238, 29.818 (L: 28.547 / H:31.698)
2Y30Y +1.779, 64.17 (L: 61.656 / H: 65.716)
5Y30Y +2.222, 58.837 (L: 56.498 / H: 59.8)
Current futures levels:
Jun 2-Yr futures up 1.375/32 at 103-13.5 (L: 103-10.75 / H: 103-14.5)
Jun 5-Yr futures up 4.25/32 at 107-24.25 (L: 107-16.25 / H: 107-26.25)
Jun 10-Yr futures up 5.5/32 at 110-23 (L: 110-10 / H: 110-26)
Jun 30-Yr futures up 5/32 at 116-18 (L: 115-27 / H: 116-25)
Jun Ultra futures steady at 121-11 (L: 120-13 / H: 121-22)

MNI US 10YR FUTURE TECHS: (M5) Trend Structure Remains Bullish

• RES 4: 113-01+ 2.0% 10-dma envelope
• RES 3: 112-13   1.500 proj of the Jan 13 - Feb 7 - Feb 12 price swing
• RES 2: 112-01/02 High Mar 4 / 1.382 proj of Jan 13-Feb 7-12 swing
• RES 1: 111-17+/25   High Mar 20 / 11 
• PRICE:‌‌ 110-12+ @ 10:19 GMT Mar 25
• SUP 1: 110-05+ 50-day EMA
• SUP 2: 110-00   High Feb 7 and a key support
• SUP 3: 109-13+ Low Feb 24
• SUP 4: 109-03   Low Feb 21     

Treasury futures are trading at the lower end of a broad range. This  consolidation phase appears to be a pause in the uptrend. Moving average studie  continue to highlight a dominant uptrend - they remain in a bull-mode position. Recent gains have resulted in a print above 111-22+, the Dec 3 ‘24 high. A clear breach of this level would open 112-02 and 112-13, Fibonacci projections. Firm support is unchanged at 110-00, the Feb 7 high.

SOFR FUTURES CLOSE

Jun 25 steady at 95.875
Sep 25 +0.005 at 96.10
Dec 25 +0.010 at 96.265
Mar 26 +0.020 at 96.380
Red Pack (Jun 26-Mar 27) +0.025 to +0.030
Green Pack (Jun 27-Mar 28) +0.035 to +0.040
Blue Pack (Jun 28-Mar 29) +0.035 to +0.040
Gold Pack (Jun 29-Mar 30) +0.020 to +0.030

SOFR FIXES AND PRIOR SESSION REFERENCE RATES
​​​​​​​
SOFR Benchmark Settlements:

• 1M -0.00003 to 4.32163 (+0.00152/wk)
• 3M +0.00697 to 4.30281 (+0.00498/wk)
• 6M +0.02118 to 4.21567 (+0.01101/wk)
• 12M +0.05253 to 4.05632 (+0.03294/wk)

US TSYS: Repo Reference Rates

• Secured Overnight Financing Rate (SOFR): 4.30% (+0.01), volume: $2.444T
• Broad General Collateral Rate (BGCR): 4.29% (+0.01), volume: $954B
• Tri-Party General Collateral Rate (TCR): 4.29% (+0.01), volume: $933B
• (rate, volume levels reflect prior session)

STIR: FRBNY EFFR for prior session:

• Daily Effective Fed Funds Rate: 4.33% (+0.00), volume: $106B
• Daily Overnight Bank Funding Rate: 4.33% (+0.00), volume: $296B

FED Reverse Repo Operation

RRP usage rebounds to $214.786B this afternoon from $196.565B Monday. Compares to $58.770B (lowest level since mid-April 2021) on February 14. The number of counterparties at 48.

MNI PIPELINE: Late Corporate Bond Update

$15.25B to price Tuesday:

• Date $MM Issuer (Priced *, Launch #)
• 03/25 $4.4B #Bausch Health 7NC3 10%
• 03/25 $3B *MTR $500M 5Y +40, $1B 10Y +58. $1.5B 30Y +70
• 03/25 $2B #LG Energy $400M 3Y +135, $600M 5Y +145, $300M 5Y SOFR+170, $700M 10Y +170
• 03/25 $1.75B #Côte d'Ivoire 10y WAL 8.45%
• 03/25 $1.25B #NWB 3Y SOFR+36
• 03/25 $1.25B #NDB 3Y SOFR +65
• 03/25 $1B *MuniFin WNG 5Y SOFR+46
• 03/25 $1B *JFM 5Y SOFR+64
• 03/25 $1B #IDB 5Y SOFR+49
• 03/25 $500M #AerCap WNG +30NC5 6.5%
• Expected Wednesday:
• 03/26 $Benchmark Kingdom of Belgium 10Y SOFR+67a

MNI BONDS: EGBs-GILTS CASH CLOSE: Gilts Underperform Ahead Of Remit

Gilts underperformed Bunds Tuesday ahead of Wednesday's Gilt remit announcement and UK inflation data.

• Core EGBs and Gilts softened in morning trade, with EGBs in particular weighed by some renewed optimism over US tariffs, as well as heavier corporate issuance.
• Bunds regained ground in afternoon trade, helped by a pullback in energy prices as Ukraine and Russia announced a US-brokered ceasefire. Gilts failed to participate in the rally, hence the underperformance for the day.
• March German IFO was more solid than expected overall, with the expectations component picking up noticeably.
• The German curve bear steepened on the day through the 10Y segment; in the UK, the belly and 30Y segments underperformed.
• Periphery EGBs benefited from a broader risk-on tone with equities gaining: spreads tightened on the day, though closed off the session's tightest levels.
• Wednesday's focus will be the UK Spring fiscal statement and Gilt remit, which could include the largest gross issuance target since 2020/21. MNI's preview is here. Also bearing attention as usual is UK CPI (MNI preview here).

Closing Yields / 10-Yr EGB Spreads To Germany

• Germany: The 2-Yr yield is up 1.6bps at 2.137%, 5-Yr is up 2.3bps at 2.427%, 10-Yr is up 2.7bps at 2.798%, and 30-Yr is up 2bps at 3.131%.
• UK: The 2-Yr yield is up 4bps at 4.301%, 5-Yr is up 4.5bps at 4.386%, 10-Yr is up 4bps at 4.753%, and 30-Yr is up 4.7bps at 5.369%.
• Italian BTP spread down 0.5bps at 109.6bps / Spanish down 0.7bps at 62.3bps 

MNI FOREX: USDJPY Reverses South, Focus Shifts to GBP as CPI/Spring Statement Awaits

• In stark contrast to yesterday’s price dynamics in G10 FX markets, USDJPY is now the worst performing major pair, reflective of the pull lower for US yields. While the pair is 0.6% lower on Tuesday, and 120 pips off the overnight highs, spot still remains higher on the week.
• Today’s peak print of 150.94 closely matched a firm resistance for the pair, respecting both the Feb 07 low and the 50-day EMA. A clear break of this area would signal scope for a stronger rally.
• Overall, the primary trend direction is down, and recent gains are considered corrective. A resumption of weakness would refocus sights on initial support at 148.18, the Mar 20 low. Further out, key support and the bear trigger remain at 146.54, the Mar 11 low, of which clearance would resume the technical downtrend.
• GBPUSD remains a touch firmer this week, just above 1.2950, ahead of the plethora of short-term risk events for the UK. Standing out here are the Spring Statement and UK inflation data which are due on Wednesday.
  • Please see the attached report for the latest analyst views on GBP, as well as a full technical update for a number of GBP crosses: https://mni.marketnews.com/4c0UAhX
• EURUSD has exhibited a 53pip range on the session, broadly consolidating just above the 1.0800 handle. The pair’s pullback from the 1.0955 highs has so far fallen just shy of initial targets/support, with the bullish trend outlook remaining unchanged for now.
  • However, a corrective technical phase remains in play. First support to watch remains a touch below the overnight lows at 1.0765, the 20-day EMA. Below here, 1.0624 represents a more significant support, the 50-day EMA and a short-term pivot level.
• In emerging markets, the Brazilian real is the best performing currency following a hawkish tilt to the latest set of central bank minutes. USDBRL has fallen 1.25% to levels around 5.69 as we approach the close.

WEDNESDAY DATA CALENDAR

Date	GMT/Local	Impact	Country	Event
26/03/2025	0700/0700	***	GB	Consumer inflation report
26/03/2025	0700/1500	**	CN	MNI China Money Market Index (MMI)
26/03/2025	0745/0845	**	FR	Consumer Sentiment
26/03/2025	0800/0900	**	SE	Economic Tendency Indicator
26/03/2025	0800/0900	***	ES	GDP (f)
26/03/2025	1000/1000	**	GB	Gilt Outright Auction Result
26/03/2025	1100/0700	**	US	MBA Weekly Applications Index
26/03/2025	-		GB	OBR Spring Forecasts
26/03/2025	1230/0830	**	US	Durable Goods New Orders
26/03/2025	1230/1230		GB	Chancellor Reeves to deliver Spring Statement
26/03/2025	1330/1330		GB	DMO to announce FY25/26 financing remit (approx time)
26/03/2025	1400/1000		US	Minneapolis Fed's Neel Kashkari
26/03/2025	1430/1030	**	US	DOE Weekly Crude Oil Stocks
26/03/2025	1530/1530		GB	DMO agenda for quarterly consultation
26/03/2025	1530/1130	**	US	US Treasury Auction Result for 2 Year Floating Rate Note
26/03/2025	1700/1300	*	US	US Treasury Auction Result for 5 Year Note
26/03/2025	1710/1310		US	St. Louis Fed's Alberto Musalem
26/03/2025	1730/1330		CA	BOC Meeting Minutes
26/03/2025	1800/1900		EU	ECB's Cipollone in panel on Digital Finance
27/03/2025	-		NO	NorgesBank Meeting