MNI US MARKETS ANALYSIS - Curve Flatter Ahead of Retail Sales

Mar-17 10:59By: Edward Hardy
US

Highlights:

  • Markets gear for Trump-Putin call, JPY slips against most others
  • Curve trades bull flatter, longer-end weighed by EGBs
  • Retail sales expected to bounce back from January decline
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US TSYS: Bull Flatter, Taking Cues From EGBs

  • Treasuries trade bull flatter, with the front-end content at two-week hawkish extremes awaiting a new steer on Fed policy implications (possibly from today’s retail sales release) but the longer end dragged higher by EGBs.
  • EGB demand comes ahead of tomorrow's Bundestag vote on incoming Chancellor Merz's fiscal proposals, with local media pointing to the potential for fiscal dissent within the CDU/CSU, SPD & Greens.
  • Cash yields are unchanged to 3bp lower, with 30s leading the declines.
  • 2s10s at 27.2bp (-2.7bp) is at its lowest since Mar 5 having briefly pushed above 35bp last week.
  • TYM5 trades at 110-24+ (+ 04) towards the high end of overnight ranges on reasonable but lower than recent average cumulative volumes of 310k.
  • Late Friday lows of 110-18 didn’t trouble support at 110-12 (Mar 6 low), whilst the trend needle points north with resistance at 111-25 (Mar 11 high).
  • Data: Retail sales Feb (0830ET), Empire mfg Mar (0830ET), Business inventories Jan (1000ET), NAHB housing index Mar (1000ET)
  • Bill issuance: US Tsy $76B 13W & $68B 26W Bill auctions

STIR: Fed Rates Hold At Hawkish End Of Two Week Range

  • Fed Funds implied rates sit between unchanged to 1bp higher from Friday’s close for 2025 meetings, aided by oil futures sitting 1% higher.
  • It leaves the rate path at the hawkish end of the past two weeks, with 64bp of cuts priced for 2025 vs briefly almost 90bp earlier last week, but it’s still dovish compared to the 50bp pencilled in back in the December SEP.
  • We expect this 50bp of cuts to be kept with the new SEP due Wednesday – see the MNI Fed Preview here. The FOMC of course remains in media blackout in the interim.
  • Cumulative cuts from 4.33% effective: 0.5bp for Wed, 8bp May, 23bp Jun, 32bp Jul and 64bp Dec.
  • Today sees retail sales for February headline the US docket, watched to see the extent of a bounce from a particularly weak January report. 
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US TSY FUTURES: Net Short Setting Dominated On Friday

OI data points to net short setting across most contracts on Friday, with the only exception coming via net long cover in TU.

  • Net short setting was prominent across FV, TY & UXY futures.

 

14-Mar-25

13-Mar-25

Daily OI Change

OI DV01 Equivalent Change ($)

TU

3,876,424

3,914,131

-37,707

-1,476,690

FV

6,345,675

6,307,920

+37,755

+1,650,909

TY

4,785,909

4,763,065

+22,844

+1,471,310

UXY

2,269,460

2,245,818

+23,642

+2,111,604

US

1,777,855

1,775,889

+1,966

+257,502

WN

1,776,791

1,773,444

+3,347

+646,150

 

 

Total

+51,847

+4,660,785

STIR: Short Setting Seen In Most SOFR Futures Friday

OI data suggests that net short setting was seen across most SOFR futures on Friday, with the most meaningful exception coming via long cover in SFRH5.

 

14-Mar-25

13-Mar-25

Daily OI Change

 

Daily OI Change In Packs

SFRZ4

1,056,966

1,056,120

+846

Whites

+37,767

SFRH5

1,232,622

1,278,312

-45,690

Reds

+31,684

SFRM5

1,245,813

1,166,623

+79,190

Greens

+19,859

SFRU5

926,206

922,785

+3,421

Blues

-736

SFRZ5

1,065,044

1,050,788

+14,256

 

 

SFRH6

677,291

670,048

+7,243

 

 

SFRM6

632,647

626,665

+5,982

 

 

SFRU6

608,311

604,108

+4,203

 

 

SFRZ6

805,857

804,804

+1,053

 

 

SFRH7

500,544

475,970

+24,574

 

 

SFRM7

472,040

470,110

+1,930

 

 

SFRU7

304,344

312,042

-7,698

 

 

SFRZ7

402,894

399,853

+3,041

 

 

SFRH8

209,327

213,927

-4,600

 

 

SFRM8

178,332

177,808

+524

 

 

SFRU8

131,203

130,904

+299

 

 

US TSY FUTURES: A Managers Cut Longs Further Out Curve, Non-Comms Add To Short

The latest CFTC CoT report saw asset managers trim their overall net DV01 equivalent exposure by over $8mln. They reduced longs further out the curve (UXY, US & WN), although that was partially offset by an uptick in longs through the short end and intermediates (TU, FV & TY). The cohort remains net long across all contracts.

  • Hedge fund positioning had a modest bias towards an extension of their net short position, with the DV01 equivalent move in that direction (across TU, TY, US & WN) outweighing pockets of short cover (FV & UXY). The cohort remains net short across all contracts.
  • Broader non-commercial net positioning saw net shorts added to in most cases, with only short cover in UXY futures breaking that trend. The cohort remains net short across all contracts.
CFTCTsy170325

Source: MNI - Market News/CFTC/Bloomberg

EUROPE ISSUANCE UPDATE:

Slovakia auction results

  • E114mln of the 3.625% Jun-33 SlovGB. Avg yield 3.4071% (bid-to-cover 2.30x).
  • E82mln of the 3.75% Mar-34 SlovGB. Avg yield 3.5693% (bid-to-cover 3.62x).
  • E231mln of the 3.75% Feb-35 SlovGB. Avg yield 3.6681% (bid-to-cover 2.04x).
  • E103mln of the 1.00% Oct-51 SlovGB. Avg yield 4.1748% (bid-to-cover 2.75x).

FOREX: JPY on Backfoot as Market Postures for Fed, Trump-Putin Call

  • Markets are on a surer footing to start Fed week, although the narrow proximity to pullback lows for equities continues to underscore fragile sentiment headed into this week's FOMC rate decision and policy statement.
  • The JPY is weaker against all others in early dealing, with USD/JPY already showing through Friday's high of Y149.02 - meaning 149.20 is the next consequential level to the upside. The USD is mixed-to-lower, with Antipodean currencies outperforming - moderately countering the sharp weakness in AUD, NZD into last week's close.
  • The February retail sales release is the calendar highlight Monday, with markets expecting sales to bounce back this month from January's -0.9% for the advance reading. RBA's Hunter is the sole central bank speaker - with the Fed inside their pre-rate decision media blackout period.
  • Russia-Ukraine remains a key issue, with Trump set to speak to Putin tomorrow - at which they'll go over potential sticking points for a ceasefire deal, namely territory, power plants, security guarantees, involvement of foreign troops and market access. 

FOREX: EURUSD Back Above 1.0900, Goldman Sachs Revise Forecasts Higher

  • The most recent weakness for the greenback has allowed EURUSD to rise to session highs on Monday, with the pair back above 1.0900 at typing. German debt deal headlines prompted a solid rally on Friday, and those inspired highs at 1.0912 will be the first point of note on the topside.
  • A bullish theme remains intact for EURUSD, and moving average studies highlight a dominant uptrend. Recovery highs of 1.0947 will need to be cleared before the market turns its focus to pivot resistance at 1.10 and a more notable cluster of medium-term resistance around the 1.12 mark. As a reminder, several analysts have recently revised their EURUSD forecasts (See here: https://mni.marketnews.com/3Fwbo4l), with BofA most notably calling for the pair to reach 1.15 by year-end.
  • As a result of the shifting policy mix, Goldman Sachs have revised their EUR/USD forecasts up to 1.07, 1.05 and 1.02 in 3, 6 and 12 months (from 1.02, 1.01 and 0.99 previously). GS maintains that the most likely path is Dollar appreciation—though from a weaker level and to a smaller extent—given the path of policy changes they still think are in the pipeline and high implementation risks for Euro area policy that have been quickly priced.

OPTIONS: Expiries for Mar17 NY cut 1000ET (Source DTCC)

  • EUR/USD: $1.0600(E5.6bln), $1.0840-50(E790mln), $1.0900(E571mln)
  • USD/JPY: Y146.90-15($1.2bln), Y149.00-15($1.1bln)
  • GBP/USD: $1.3300(Gbp1.1bln)
  • EUR/GBP: Gbp0.8435(E830mln)

COMMODITIES: Gold Uptrend Still Firm Having Pierced $3000

  • A clear uptrend in Gold remains intact and last week’s move higher reinforces current conditions. The yellow metal traded to a fresh all-time high and price has also pierced the psychological $3000 handle.
  • A bearish condition in WTI futures remains intact and the latest recovery appears corrective - for now. Recent weakness resulted in a breach of $70.20, the Feb 6 low. This confirmed a resumption of the downtrend that started Jan 15.

EQUITIES: Trend Condition in Stocks Remains Bearish

  • The trend condition in S&P E-Minis remains bearish and fresh cycle lows last week reinforced current conditions. Moving average studies are in a bear-mode set-up highlighting a dominant downtrend.
  • The medium-term trend direction in the Eurostoxx 50 futures contract remains up and the recent pullback is considered corrective - for now. However, note that support at the 50-day EMA, at 5314.94, has been pierced.
DateGMT/LocalImpactCountryEvent
17/03/20251215/0815**ca CACMHC Housing Starts
17/03/20251230/0830*ca CAInternational Canadian Transaction in Securities
17/03/20251230/0830***us USRetail Sales
17/03/20251230/0830**us USEmpire State Manufacturing Survey
17/03/20251300/0900*ca CACREA Existing Home Sales
17/03/20251400/1000*us USBusiness Inventories
17/03/20251400/1000**us USNAHB Home Builder Index
17/03/20251400/1500 eu EUECB's Lagarde awarding of diplomas at University Aix-Marselle
17/03/20251530/1130*us USUS Treasury Auction Result for 26 Week Bill
17/03/20251530/1130*us USUS Treasury Auction Result for 13 Week Bill
18/03/2025- jp JPBank of Japan Meeting
18/03/20250930/0930 gb GBConsumer Price inflation weight update
18/03/20251000/1000**gb GBGilt Outright Auction Result
18/03/20251000/1100*eu EUTrade Balance
18/03/20251000/1100***de DEZEW Current Expectations Index
18/03/2025- us USFOMC Meetings with S.E.P.
18/03/20251230/0830***ca CACPI
18/03/20251230/0830***us USHousing Starts
18/03/20251230/0830**us USImport/Export Price Index
18/03/20251255/0855**us USRedbook Retail Sales Index
18/03/20251315/0915***us USIndustrial Production
18/03/20251530/1130**us USUS Treasury Auction Result for 52 Week Bill
18/03/20251700/1300**us USUS Treasury Auction Result for 20 Year Bond
19/03/20252350/0850**jp JPTrade
19/03/20252350/0850*jp JPMachinery orders