MNI ASIA OPEN: Tsy Ylds Slip Ahead FOMC, No Change Expected

EXECUTIVE SUMMARY

• MNI TARIFFS: Trump & Carney Strike Conciliatory Tone In Oval Office
• MNI UK: India FTA Provides PM With Notable Policy 'Win'
• MNI US DATA: March Trade Deficit Blowout On Pharma Front-Running
• MNI US OUTLOOK/OPINION: Macro Since Last FOMC: Inflation - Firm Core PCE Trend

US

MNI US OUTLOOK/OPINION: Macro Since Last FOMC: Inflation - Firm Core PCE Trend

• Realized inflation data had seen a renewed wedge between core CPI and core PCE in recent months although they shared a similar trait in March with a particularly soft print.
• One notable driver here was a sharp -3.5% M/M decline in lodging away from home prices, the largest since Jan 2022. It’s a noisy series and so should be treated with caution, but considering it comes against a backdrop of reduced foreign arrivals at US airports as a consequence of a broad array of Trump administration policies, it offers an interesting partial counterbalance of expected price increases on large tariff increases.
• With that in mind, core PCE inflation came in at just 0.03% M/M in March after a booming 0.50% M/M in February and a solid 0.34% M/M in January.
• This recent trend strength means that whilst the year-ago rate fell three tenths to 2.65% Y/Y in March, both three- and six-month rates continue to run firmer at 3.5% and 3.0% annualized respectively.
• Some residual seasonality concerns around the start of the year may still be at play but this marks a still notable acceleration in the six-month rate from the 2.3% in Sep 2024 having come close to the 2% inflation target.
• For context, this recent trend strength along with some FOMC members starting to factor in tariff assumptions saw a marked increase in near-term median inflation expectations back in the March SEP. The median participant increased their 4Q25 forecast from 2.5% in the Dec SEP to 2.8% (central tendency 2.7-3.0%) but kept to the same 2.2% for 4Q26 albeit with both legs of the central tendency drifting a tenth higher to 2.1-2.4%. That is to say, most expected the uptick in inflation to be temporary but these forecasts of course came before much more wide-ranging reciprocal tariffs in early April.

NEWS

MNI TARIFFS: Trump & Carney Strike Conciliatory Tone In Oval Office

US President Donald Trump has greeted Canadian Prime Minister Mark Carney in the Oval Office with a lighter tone than expressed on social media ahead of the meeting. Trump told reporters, when asked if the USMCA is dead: “No, its been very effective but people have to follow it.” He adds that USMCA was a “transitional deal”, says: “We will start to possibly renegotiate it.” Carney concedes that “some things about USMCA will have to change.”

MNI GERMANY: Merz Confirmed As Chancellor After Winning Required Absolute Majority

Friedrich Merz will be sworn in as chancellor later today after winning an absolute majority in the Bundestag at the second attempt. Merz secured the backing of 325 lawmakers, above the 316 absolute majority threshold, and 15 more than voted for him in this morning's first round that resulted in his shock defeat. The figure approving Merz is three short of the full seat total for his centre-right Christian Democratic Union/Christian Social Union (CDU/CSU) and the centre-left Social Democrats (SPD) that will form the next gov't. 

MNI UK: India FTA Provides PM With Notable Policy 'Win'

The confirmation from both sides that a UK-India trade deal has been finalised could provide something of a boost to British PM Sir Keir Starmer's gov't. While the signing of a trade pact is unlikely to be reflected in opinion polling, it will allow the gov't to argue that its trade policy is working amid an increasingly fragmented global trading landscape. The agreement is the most sizeable trade deal entered into by the UK since it left the European Union, with one of the reasons touted for leaving the Union by pro-Brexiteers in 2016 being the ability for the UK to negotiate trade deals on a bilateral basis, rather than as part of a slow Brussels-directed process. 

Bloomberg: PAKISTAN, INDIA CLASH IS `IMMINENT': PAKISTAN DEFENSE MINISTER

US TSYS

MNI US TSYS: Near Late Highs, Curves Off Highs As Bonds Gain Ahead Wednesday FOMC

• Treasuries look to finish near late Tuesday session highs, early curve steepening consolidating as 30Y Bonds pulled higher late. Main focus on Wednesday's FOMC policy annc.
• Steady rate and no meaningful changes in the Statement expected, though any signal that the Fed is looking seriously at “soft” survey data to assess the outlook could be significant.
• Final March trade data confirmed a new record (-$140.5B nominal) deficit and the largest on a relative basis since 2005/06 in the imbalances ahead of the Great Financial Crisis. However, pharmaceutical tariff front-running and continued heavy imports of gold are greatly clouding interpretation of underlying trends.
• Early short end support after latest tariff-related headlines: EU to target E100B of US goods if trade negotiations fail. Meanwhile, decent $42B 10Y Note auction stops 1.3bp through: drawing 4.342% high yield vs. 4.355% WI.
• Tsy Jun'25 10Y futures currently +7.5 at 111-09.5 vs. 111-11.5 high, initial technical resistance well above at 112-01.5 (High May 2). For bulls, price needs to trade above key short-term resistance at 112-20+, the May 1 high, to reinstate a bullish theme.
• Cross asset roundup: Bbg US$ index near late lows (BBDXY -3.49 at 1217.28), Gold plowing higher late (3416.95 - not for off April 22 all-time high of 3494.52), Crude rebounding (WTI +1.87 at 59.0.

OVERNIGHT DATA

MNI US DATA: March Trade Deficit Blowout On Pharma Front-Running

Final March trade data confirmed a new record (nominal) deficit and the largest on a relative basis since 2005/06 in the imbalances ahead of the Great Financial Crisis. However, pharmaceutical tariff front-running and continued heavy imports of gold are greatly clouding interpretation of underlying trends. 

• The goods & services trade deficit was larger than expected in final March data, at $140.5bn (cons 137.2bn) after a slightly upward revised $123.2bn (initial $122.7bn) in Feb. It exceeds the $130.7bn in Jan.
• It came as the goods deficit confirmed a new record high of $163.5bn (larger again than the $162.0bn in the advance release) whilst the new data on the services surplus fell from $23.8bn in Feb to $23.0bn in Mar for the smallest surplus since Apr 2023.
• Of course, these are nominal figures whereas a better historical comparison is in % GDP terms. Here, and looking on a 3mth basis to smooth the data out, the goods deficit confirmed its widening to 6.2% GDP (last larger, and only just, in the 2005/06 imbalances before the GFC) whilst the services surplus held at 1.0% GDP as has broadly been the case since mid-2021.
• Pharmaceutical products, a point of contention for the Trump administration, were behind the 28% surge in consumer goods imports, attributing $20.9bn of the $22.5bn monthly increase.
• Specifically, pharma imports increased from $29.5bn to $50.4bn (71% M/M, and vs an average $20.5bn in 2024). That mostly tallied to a $15.5bn increase in imports from Ireland at $30.7bn – see the below chart for just how unprecedented this is in likely front-running ahead of previously touted pharmaceutical tariffs.
• Imports of monetary gold were off highs from Jan & Feb but still unsurprisingly had an outsized impact, with imports of finished metal shapes worth $21.3bn in March. That’s compared to $31.7bn in Feb and $34.2bn in Jan but an average of just $4bn in 2024. Comex inventories imply a significant moderation in this category in April. 

MNI: Canada Exports To U.S. Fall Fastest Since 2020 On Tariffs

Canada's exports to the U.S. dropped the most in March since April 2020 during pandemic shutdowns as the tariff war escalated, shrinking the trade surplus again from the record high set in January when firms stockpiled goods in anticipation of souring relations.

Shipments of merchandise south of the border fell 6.6% in March according to Statistics Canada's report Tuesday, giving back some gains of a similar magnitude in the run-up to penalties on products such as autos and crude oil. Exports to the U.S. remained 2.5% greater than November. 

Canada's bilateral trade surplus with the U.S. narrowed to CAD8.4 billion from CAD10.8 billion in February and the record CAD13.8 billion in January. The trade balance globally narrowed to a deficit of CAD506 million from CAD1.4 billion as imports fell 1.5% and exports by just 0.2%. 

MARKETS SNAPSHOT

Key market levels of markets in late NY trade:
DJIA down 317.28 points (-0.77%) at 40900.26
S&P E-Mini Future down 30 points (-0.53%) at 5641.5
Nasdaq down 95.9 points (-0.5%) at 17747.4
US 10-Yr yield is down 3.9 bps at 4.3043%
US Jun 10-Yr futures are up 8/32 at 111-10
EURUSD up 0.0063 (0.56%) at 1.1378
USDJPY down 1.28 (-0.89%) at 142.41
WTI Crude Oil (front-month) up $1.86 (3.26%) at $58.99
Gold is up $86.49 (2.59%) at $3420.66

European bourses closing levels:
EuroStoxx 50 down 19.67 points (-0.37%) at 5263.38
FTSE 100 up 1.07 points (0.01%) at 8597.42
German DAX down 94.89 points (-0.41%) at 23249.65
French CAC 40 down 31.01 points (-0.4%) at 7696.92

US TREASURY FUTURES CLOSE

3M10Y -3.435, -1.32 (L: -1.514 / H: 4.596)
2Y10Y +0.637, 51.332 (L: 50.931 / H: 56.184)
2Y30Y +1.899, 101.72 (L: 101.056 / H: 107.021)
5Y30Y +1.542, 90.895 (L: 89.353 / H: 93.788)
Current futures levels:
Jun 2-Yr futures up 3/32 at 103-23.25 (L: 103-19.75 / H: 103-23.75)
Jun 5-Yr futures up 6/32 at 108-16.5 (L: 108-07.75 / H: 108-17.5)
Jun 10-Yr futures up 8/32 at 111-10 (L: 110-27.5 / H: 111-11.5)
Jun 30-Yr futures up 10/32 at 114-26 (L: 113-31 / H: 114-29)
Jun Ultra futures up 11/32 at 118-19 (L: 117-14 / H: 118-20)

MNI US 10YR FUTURE TECHS: (M5) Pierces Support At The 50-Day EMA

• RES 4: 113-22   1.382 proj of the Apr 11 - 16 - 22 price swing
• RES 3: 113-04   76.4% retracement of the Apr 7 - 11 bear leg
• RES 2: 112-20+ High May 1 and key new-term resistance
• RES 1: 112-01+ High May 2
• PRICE:‌‌ 111-10 @ 1525 ET May 6
• SUP 1: 110-27+ Intraday low 
• SUP 2: 110-16+/109-08 Low Apr 22 / 11 and the bear trigger
• SUP 3: 110-00    100-dma
• SUP 4: 108-26+ 76.4% retracement of the Jan 13 - Apr 7 bull cycle

The latest pullback in Treasury futures undermines the recent bull cycle. The contract has breached the 20-day EMA, and pierced support at the 50-day EMA, at 110-30+. A clear breach of this average would strengthen a bearish threat and expose 110-16+, the Apr 22 low. For bulls, price needs to trade above key short-term resistance at 112-20+, the May 1 high, to reinstate a bullish theme.

SOFR FUTURES CLOSE

Jun 25 +0.015 at 95.795
Sep 25 +0.040 at 96.160
Dec 25 +0.050 at 96.465
Mar 26 +0.055 at 96.675
Red Pack (Jun 26-Mar 27) +0.055 to +0.065
Green Pack (Jun 27-Mar 28) +0.045 to +0.050
Blue Pack (Jun 28-Mar 29) +0.035 to +0.040
Gold Pack (Jun 29-Mar 30) +0.025 to +0.030

REFERENCE RATES (PRIOR SESSION)

• Secured Overnight Financing Rate (SOFR): 4.33% (-0.03), volume: $2.632T
• Broad General Collateral Rate (BGCR): 4.31% (-0.02), volume: $1.072T
• Tri-Party General Collateral Rate (TCR): 4.31% (-0.02), volume: $1.026T
• (rate, volume levels reflect prior session)

STIR: FRBNY EFFR for prior session:

• Daily Effective Fed Funds Rate: 4.33% (+0.00), volume: $117B
• Daily Overnight Bank Funding Rate: 4.33% (+0.00), volume: $293B​​​​​​

FED Reverse Repo Operation

RRP usage inches up to $129.858B this afternoon from $124.690B yesterday, total number of counterparties at 34. 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.

MNI PIPELINE: Corporate Bond Update: $5B BoA 3Pt Launched

$24.9B Corporate issuance to price Tuesday

• Date $MM Issuer (Priced *, Launch #)
• 05/06 $5B #Bank of America $2.25B 4NC3 +85, $750M 4NC3 SOFR+111, $2B 11NC10 +115
• 05/06 $2.5B #PNC $1.25B 2NC1 +75, $1B 6NC5 +100
• 05/06 $2B #Grupo Nutresa $1B 5Y 8%, $1B 10Y 9%
• 05/06 $2B #Cummins Inc $300M +50, $700M +5Y +80, $1B 10Y +100
• 05/06 $1.75B #Starbucks $750M 3Y +77, $500M 5Y +90, $500M 10Y+110
• 05/06 $1.75B #Standard Chartered $1B 6NC5 +135, $750M 6NC5 SOFR+168
• 05/06 $1.75B #Biogen $400M +5Y +115, $650M 10Y +145, $700M 30Y +165
• 05/06 $1.75B #UBS 11NC10 +128
• 05/06 $1.5B #Deutsche Bank 6NC5 +140
• 05/06 $1B #Dominion Energy 3Y +87.5
• 05/06 $750B #Gold Fields 7Y +175
• 05/06 $650M #American Homes 4 Rent 5Y +117
• 05/06 $500M #Host Hotels & Resorts 7Y +180
• 05/06 $500M #SURA Asset Mgt 7Y +230
• 05/06 $500M *Shinhan Bank 5Y +72
• 05/06 $500M #LYB Int 10Y +187
• 05/06 $500M #Eaton WNG 5Y +65

MNI FOREX: Trump’s Big Imminent Announcement Unable to Curtail USD Weakness

• US yields have moved lower on Tuesday, which alongside some downward pressure on equity benchmarks, have enabled the underlying trend of a weakening dollar to prevail through the session. Having respected its 20-day exponential moving average well, the USD index is now back below 99.50, highlighting that the recent move above 100 in early May appears to be technically corrective.
• This dynamic sees the Japanese Yen as the best performer, with USDJPY comfortably back below the 143.00 mark, having entirely eroded the post-BOJ upswing from last week. Even the late rhetoric from President Trump suggesting there will be a “very big” positive announcement in the coming days was quickly brushed aside. The trend direction in USDJPY remains bearish and gains since Apr 22 are considered corrective. This refocuses short-term attention on initial support at 141.97, the Apr 29 low.
• Divergence between the low yielders is also notable today, as CHFJPY weakens around 0.85%. 176.00 has provided an important pivot point this year for that cross, and this week’s selloff bolsters the short-term significance of that resistance level. Moves have been underpinned by a more concerned tone regarding Swiss Franc strength from SNB President Schlegel, potentially highlighting that the risk reward for further Franc gains may be diminishing at this juncture.
• Elsewhere, gains for G10 currencies have largely mirrored the adjustment for the DXY, with the likes of EUR, GBP, AUD, NZD and CAD all rising around half a percent.
• Notably, USDCAD printed fresh cycle lows as President Trump made comments on the USMCA being still very effective and potentially not needing to be renegotiated. A dominant downtrend is in place for USDCAD, signalling scope for a move towards 1.3643, the Oct 9 ’24 low.

WEDNESDAY DATA CALENDAR

Date	GMT/Local	Impact	Country	Event
07/05/2025	0600/0800	**	DE	Manufacturing Orders
07/05/2025	0600/0800	***	SE	Flash Inflation Report
07/05/2025	0645/0845	*	FR	Foreign Trade
07/05/2025	0730/0930	**	EU	S&P Global Final Eurozone Construction PMI
07/05/2025	0800/1000	*	IT	Retail Sales
07/05/2025	0830/0930	**	GB	S&P Global/CIPS Construction PMI
07/05/2025	0900/1100	**	EU	Retail Sales
07/05/2025	0900/1000	**	GB	Gilt Outright Auction Result
07/05/2025	1100/0700	**	US	MBA Weekly Applications Index
07/05/2025	1400/1000		US	Treasury Secretary Scott Bessent
07/05/2025	1430/1030	**	US	DOE Weekly Crude Oil Stocks
07/05/2025	1800/1400	***	US	FOMC Statement
07/05/2025	1900/1500	*	US	Consumer Credit
08/05/2025	-		NO	NorgesBank Meeting