MNI ASIA OPEN - Treasuries Hold On After Ratings Downgrade

MNI (NEW YORK) - EXECUTIVE SUMMARY:

• Oil Dips As Trump Announces "Immediate" Russia-Ukraine Talks
• Trump Plans to Rally Fractious House Republicans on Tax Cut Bill
• FED: Fed's Jefferson- Need To Wait And See On Rates
• CHINA: China’s State Banks Will Cut Deposit Rates on Tuesday: Reuters
• EUROZONE: EC Downgrades Euro Area Growth, Inflation Outlook

NEWS:

US/RUSSIA/UKRAINE (MNI/TRUTH SOCIAL): President Trump announces that after a call with Russia President Putin, "Russia and Ukraine will immediately start negotiations toward a Ceasefire and, more importantly, an END to the War." Front Brent crude dipped nearly $0.50 to $65.27/bbl but remained within the session's ranges; equities and the dollar were unmoved. A portion of Trump's Truth Social post:"@realDonaldTrump: "Just completed my two hour call with President Vladimir Putin of Russia. I believe it went very well. Russia and Ukraine will immediately start negotiations toward a Ceasefire and, more importantly, an END to the War. The conditions for that will be negotiated between the two parties, as it can only be, because they know details of a negotiation that nobody else would be aware of. The tone and spirit of the conversation were excellent. If it wasn’t, I would say so now, rather than later."

US FISCAL (BBG): President Donald Trump plans to go to the Capitol on Tuesday to urge fractious House Republicans to overcome divisions and unite behind his signature tax-cut legislation. Despite broad agreement on the levy reductions at the core of the package, lawmakers have been mired in conflict over how deeply to cut safety-net programs, such as Medicaid and food stamps, how quickly to end green energy credits and how high to increase a limit on deductions for state and local taxes.

US (BBG): Nippon Steel to Invest $14b in US Steel if Trump OKs Deal: Rtrs
Nippon Steel plans to invest $14b in US Steel, including up to $4b in a new mill, if the Trump administration approves its bid, Reuters reports, citing a document and two people familiar with the matter. Company would put $11b into US Steel’s infrastructure through 2028, according to the document. Includes $1b in a green field site, which is expected to grow by $3b over the following years.

CHINA (BBG): China’s State Banks Will Cut Deposit Rates on Tuesday: Reuters
China’s major state banks will cut their deposit rates from Tuesday, Reuters reports, citing three unidentified people with knowledge of the matter. Banks including Industrial and Commercial Bank of China, China Construction Bank and Bank of China, will cut rates on some fixed-term deposits. The people familiar did not detail the scale of the rate cuts to Reuters.

FED (MNI): Fed's Jefferson- Need To Wait And See On Rates
Federal Reserve Vice Chair Philip Jefferson said Monday monetary policy is "in a good place" and policymakers need to wait to see the cumulative impact of tariffs, budget decisions and immigration policies before making a move on interest rates.

EUROPE (MNI): ROMANIA - Relief For EU & NATO As Liberal Dan Secures Presidency
The win for liberal, pro-EU Mayor of Bucharest Nicosur Dan in the Romanian presidential election run-off on 18 May will come as a major relief for both the EU and NATO. There had been concerns in Brussels that a win for right-wing nationalist candidate George Simion could see Romania, one of the few NATO members that shares a border with Ukraine and host to what will become the alliance's largest air base in Europe, weaken its ties with and commitment to both the EU and NATO.

EUROZONE (MNI): EC Downgrades Euro Area Growth, Inflation Outlook
The European Commission has significantly downgraded its Euro Area's growth and inflation outlook due to the weaker global trade environment as well as the continuing uncertainty surrounding US tariff policy.  The EC revised EA growth for the year down to 0.9% for this year and to 1.4% for next year from the 1.3% and 1.6% forecast in the autumn. Inflation was also revised down to 2.1% and 1.7% in 2025 and 2026 from the 2.4% and 2.0% estimates made in the autumn forecast.

UK (MNI): BOE Staff Forecast Echoes Riksbank - Lombardelli
Bank of England Deputy Governor Clare Lombardelli has said moving away from basing its central forecast on the 'best collective judgement' of the Monetary Policy Committee to making it staff-led it was echoing the Scandinavian central banks, Norges Bank and the Riksbank and freeing up MPC members to focus on policy.

EU-UK (NYT): Britain and E.U. Strike Landmark Post-Brexit ‘Reset’ Deal
The agreement includes a new defense partnership and reduced checks on food and drink, removing some trade barriers after months of negotiations. Britain and the European Union on Monday struck a landmark deal, outlining broad ambitions though less detail about plans to boost security cooperation while removing some of the barriers to trade introduced by Brexit.

US TSYS: 30Y Holds 5% Level Amid Broad Post-Downgrade Rally

Treasuries recovered from early weakness to close flat/stronger Monday, with bull steepening in the curve. 

• Following on from Friday's post-close surprise downgrade of the US's AAA credit rating by Moody's, yields rose sharply in the early going.
• While over the weekend White House officials shrugged off Moody's decision, there was significant attention on the apparently deteriorating fiscal trajectory overnight as House Republicans cleared a procedural hurdle to get the "Big, Beautiful" tax bill closer to completion.
• 30Y yields notably touched their highest since Nov 1 2023 (5.0353%) - up 13.5bp from Friday's ratings downgrade announcement - before an impressive reversal lower on the day (just 1+bp up from pre-downgrade).
• Despite little in the way of headline catalysts - China expressed displeasure with the US's guidance against the use of some Huawei chips, bringing a brief risk-off reaction - Treasuries rallied alongside equities for the rest of the session (the TY upturn started with the equity cash open).
• We heard from multiple Fed speakers, including Bostic, Jefferson, Williams, and Kashkari, all of whom reiterated the FOMC's patient approach on cuts amid economic uncertainty, and Williams and Bostic in particular suggesting that the next cut wouldn't seriously be contemplated until after the summer. Reaction was limited however given the market's already-low implied probability of a cut before September.
• Data was relatively thin - Conference Board leading economic index had its sharpest drop since 2023 but avoided an outright recession signal.
• Latest levels: the 2-Yr yield is down 3.1bps at 3.9681%, 5-Yr is down 3.2bps at 4.0611%, 10-Yr is down 2.2bps at 4.4553%, and 30-Yr is down 2.6bps at 4.9183%.
• Jun 10-Yr futures (TY) down 2.5/32  at 110-08 (L: 109-20 / H: 110-09)
• Tuesday's schedule includes the Philly Fed nonmanufacturing survey along with another slew of Fed speakers, including Collins, Barkin, Musalem, Kugler, Hammack and Daly.

MARKET SNAPSHOT: Below gives key levels of markets in afternoon  NY trade:
- DJIA up 68.91 points (0.16%) at 42726.47
- S&P E-Mini Future  down 7 points (-0.12%) at 5969.25
- Nasdaq  down 50.9 points (-0.3%) at 19162.29
- US  10-Yr yield is down 2 bps at 4.4572%
- US Jun 10-Yr futures (TY) are down 2.5/32 at 110-8    
- EURUSD up 0.0072 (0.65%) at 1.1235
- USDJPY  down 0.8 (-0.55%) at 144.9
- WTI Crude Oil (front-month) up $0.05 (0.08%) at $62.54
- Gold is up $29.51 (0.92%) at $3233.33

Prior European bourses closing levels:
- EuroStoxx 50  down 0.3 points (-0.01%) at 5427.23
- FTSE 100 up 14.75 points (0.17%) at 8699.31
- German DAX up 167.55 points (0.71%) at 23934.98
- French CAC 40  down 3.06 points (-0.04%) at 7883.63
 

DATA:

MNI: EUROZONE APR FINAL CORE HICP +1% M/M, +2.7% Y/Y

US DATA: Leading Index Sees Sharpest Drop Since 2023 But Avoids Recession Signal

• The Conference Board’s Leading Economic Index (LEI) fell -1.0% M/M as expected in April after a downward revised -0.8% (initial -0.7) in March.
• The press release notes this is the “largest monthly decline since March 2023, when many feared the US was headed into recession, which did not ultimately materialize”.
• “Most components of the index deteriorated. Notably, consumers’ expectations have become continuously more pessimistic each month since January 2025, while the contribution of building permits and average working hours in manufacturing turned negative in April.”
• “Widespread weaknesses were also present when looking at six-month trends among the LEI’s components, resulting in a warning signal for growth. However, while the six-month growth rate of the LEI went deeper into negative territory, it did not fall enough to trigger the recession signal.”
• The Conference Board currently forecasts US real GDP growth of 1.6% in 2025 after 2.8% in 2024, “with the bulk of the impact of tariffs likely to hit the economy in Q3.”

US INFLATION: Manheim Used Vehicle Index Down M/M, Potential CPI Pullback Ahead

Manheim Auctions's gauge of US used vehicle prices fell by the most in 13 months at-1.1% in May (after +2.8% the prior month), more or less returning the index level to where it was at the start of the year.

• On an individual month-to-month percentage change basis the series hasn't corresponded particularly well with CPI used vehicles, with Manheim instead working with a very rough 2-month lead. The last two months, used vehicle prices in CPI have dropped 0.5% M/M and 0.7% M/M.
• Manheim points to a potential uptick in May/June CPI before pulling back, but it's unknown how much of the price effect is tariff- and tariff-front-running related.

US TSYS/OVERNIGHT REPO: Secured Rates Tick Lower

Secured rates softened slightly Friday, with SOFR dipping 1bp to 4.30%, partially reversing Thursday's 2bp uptick (related to mid-month Treasury auction settlements) to 4.31%. 

• The pullback came on the usual monthly cash flows from Government Sponsored Enterprises (GSEs). These are set to reverse toward the end of this week on GSE outflows going into the Memorial Day Weekend and thus putting some renewed upside pressure on SOFR.
• Fed funds printed 4.33% as usual.

REPO REFERENCE RATES (rate, change from prev. day, volume):
* Secured Overnight Financing Rate (SOFR): 4.30%, -0.01%, $2617B
* Broad General Collateral Rate (BGCR): 4.29%, -0.01%, $1062B
* Tri-Party General Collateral Rate (TGCR): 4.29%, -0.01%, $1024B

New York Fed EFFR for prior session (rate, chg from prev day):
* Daily Effective Fed Funds Rate: 4.33%, no change, volume:  $117B
* Daily Overnight Bank Funding Rate: 4.33%, no change, volume:  $302B

US TSYS/OVERNIGHT REPO: ON RRP Takeup Continues Rebound From Mid-Month Lows

Overnight reverse repo facility takeup jumped $43.6B to $180.4B Monday. That was the biggest single-day rise of May so far, to the highest level of the month (ie post-April month-end dynamics). 

• This continues the move off last week's lows ($109B) on mid-month Treasury settlements (Friday takeup rose $27.3B).
• Takeup should hold roughly around this level for the rest of the week, before ramping up toward month end.

EGBs-GILTS CASH CLOSE: Bunds Outperform In Broader Intraday Recovery

European curve steepened Monday, with Bunds outperforming Gilts.

• Global core FI was under some pressure coming out of the weekend, catching up to Friday's post-close downgrade of the US's AAA credit rating by Moody's.
• With headline and data flow relatively light for the most part Monday, the recovery in Treasuries that started roughly with the US equity open led a rally in Europe.
• One flashpoint that saw yields continue lower was China's statement that the recent U.S. guidance warning against the use of Huawei’s chips undermines the recent trade entente.
• The EC lowered growth projections, while final HICP pointed to the April uptick in services inflation as being largely a calendar effect.
• The German curve bull steepened, with the UK's bear steepening.
• Periphery spreads were mixed. PGBs closed flat to Bunds after the centre-right AD-PSD/CDS Coalition of PM Luis Montenegro, in line with expectations, emerged as the largest party following the 18 May legislative election.
• Tuesday's data schedule includes eurozone consumer confidence. BoE hawkish dissenter Pill is due to deliver comments on his monetary policy views, while ECB speakers include Wunsch, Knot and Cipollone.

Closing Yields / 10-Yr EGB Spreads To Germany

• Germany: The 2-Yr yield is down 1.2bps at 1.843%, 5-Yr is down 0.6bps at 2.149%, 10-Yr is down 0.2bps at 2.588%, and 30-Yr is down 0.2bps at 3.038%.
• UK: The 2-Yr yield is up 0.2bps at 4.007%, 5-Yr is up 1.1bps at 4.157%, 10-Yr is up 1.5bps at 4.664%, and 30-Yr is up 2.5bps at 5.419%.
• Italian BTP spread up 0.3bps at 100.9bps / Portuguese PGB spread down 0.1bps at 50.3bps

EUROPE OPTIONS: Plenty Of Call Structure Trade In Sonia Ahead Of UK CPI This Week

Monday's Europe rates/bond options flow included:

• OEM5 116.00/117.75/117.25/118.75 put condor vs. 120.00/121.50 call spread, paper sells the put condor, buys the call spread for 32 on 13.5K.
• RXN5 132.00/133.50 call spread paper paid 20 on 3K
• SFIM5 95.90/96.00/96.10 call fly, paper pays 1 for 5k
• SFIU5 96.15/96.35/96.55 call fly paper paid 2.75 on 5K
• SFIU5 96.00/96.10 call spread sold at 5 in 8k
• SFIZ5 96.20/96.30 call spread vs. SFIZ5 95.75 puts, paper bought the call spread to sell the puts, paying 0.5 on 4K.
   

FOREX: USD Dip Stabilises, RBA Policy Statement Key

• Headed through the European close, the greenback is holding the bulk of the day's losses having backtracked around 0.5% on the back of the Moody's downgrade late on Friday. Through APAC hours, JPY and CHF were the original outperformers, but a notable step higher in EGB/Gilt yields, a general steepening of the curve hindered progress and outperformance switched to EUR and GBP into the NY crossover.
• The RBA rate decision is a focus Tuesday. The Bank are expected to cut rates a further 25bps to 3.85%, but AUD/USD's range trade since the beginning of the month signals a market with little concern over easier policy. The policy statement will be watched carefully as markets priced a further 2 x 25bps cuts beyond assumed easing tomorrow, despite tariff uncertainty and the prospect of further stimulus from China.
• Canadian CPI for April is due Tuesday, ahead of which USD/CAD remains in a consolidation pattern after correcting higher to trade either side of 1.40. 1.4022 marks notable resistance ahead, the 200-dma, above which markets trade the best levels since mid-April. The 50-dma will imminently form a death cross, indicating strong short-term downward momentum.
• GBP/USD traded as high as 1.3404 through the initial phase of USD sales this morning, but has backtracked to clock only a ~75 pip gain on the day. CPI stats on Wednesday should prove pivotal here as the BoE's MPC remain divided on near-term rates strategy without hard data on wages through April.

Date	GMT/Local	Impact	Country	Event
20/05/2025	0430/1430	***	AU	RBA Rate Decision
20/05/2025	0600/0800	**	DE	PPI
20/05/2025	0800/1000	**	EU	EZ Current Account
20/05/2025	0800/0900		GB	BOE's Pill At Barclays Briefing
20/05/2025	0900/1100	**	EU	Construction Production
20/05/2025	1000/1200		EU	ECB's Cipollone pre-rec video at Sustainability Festival
20/05/2025	-		EU	ECB's Lagarde and Cipollone at G7 Meeting
20/05/2025	1230/0830	***	CA	CPI
20/05/2025	1230/0830	**	US	Philadelphia Fed Nonmanufacturing Index
20/05/2025	1255/0855	**	US	Redbook Retail Sales Index
20/05/2025	1300/0900		US	Richmond Fed's Tom Barkin
20/05/2025	1400/1600	**	EU	Consumer Confidence Indicator (p)
20/05/2025	2100/1700		US	Fed Governor Adriana Kugler