MNI US MARKETS ANALYSIS - Sharp Cuts Exp in UK Fiscal Event

Highlights:

• Reeves' Spring Statement eyed for aggressive welfare cuts in face of fiscal pressure
• Soft UK CPI unlikely to prompt quicker BoE easing pace
• Prelim durable goods, busy central bank speak to dominate headline flow

US TSYS: Bear Steeper On Thin Volumes, Multi-Pronged Session Ahead

• Treasuries are within session ranges to sit modestly bear steeper on thin volumes, underperforming Gilts (softer than expected UK CPI) and less so EGBs (pullback in equities).  
• It’s ahead of a docket covering various angles including durable goods data (for Feb, i.e. prior to March mfg surveys rolling over), the CBO’s X date projection, Fedspeak and 5Y supply.
• Cash yields are 1.1-2.7bp higher, with 3s lagging and 20s leading increases.
• 2s10s sees an additional mechanical adjustment higher with a new 2Y taking benchmark after yesterday’s auction, leaving 2s10s at 32.6bps (+2.4bp) for highs since Mar 14.
• The front-end to belly outperforms despite supply ahead, with both $28bn 2Y FRN and $70bn 5Y auctions. Yesterday’s 2Y came in almost on the screws but with a step higher in bid-to-cover.  
• TYM5 at 110-19 (-05+) is back within earlier ranges after a brief lift to 110-23, on particularly low volumes of just over 200k.
• Data: MBA mortgage data (0700ET) and Durable goods orders/shipments Feb prelim (0830ET)
• Fedspeak: Kashkari hosts Fed Listens event (1000ET), Musalem on economy/mon pol (1310ET, text + Q&A) – see STIR bullet
• Other: CBO publishes its X date projection (1000ET)
• Coupon issuance: US Tsy $28B 2Y FRN - 91282CMJ70 (1130ET), US $70B 5Y Note auction - 91282CMU2 (1300ET)
• Bill issuance: US Tsy $60B 17W bill auction (1130ET)

STIR: Next Fed Cut Seen In July, Hawkish Musalem Ahead

• Fed Funds implied rates are back little changed on the day to sit in the middle of yesterday’s range.
• Cumulative cuts from 4.33% effective: 4bp May, 17.5bp Jun, 28.5bp Jul, 43bp Sep and 62.5bp Dec.
• A sharp drop in consumer confidence in yesterday’s Conference Board survey helped extend a dovish move away from latest post-FOMC highs, but there are still 4.5bp fewer cuts for 2025 than pre-PMI levels following Monday's service PMI beat.  
• Today’s notable data is limited to durable goods whilst Fedspeak comes from traditionally more hawkish members. The latter starts with Minneapolis Fed’s Kashkari (’26 voter) in an event that could limit headlines before more detail from St Louis Fed’s Musalem (’25 voter, one of most hawkish on FOMC).
  • 1000ET – Kashkari hosts a Fed Listens event (Q&A only). It’s been a while since he last spoke, saying Feb 7 that “We’re in a very good place to just sit here until we get a lot more information on the tariff front, on the immigration front, on the tax front… I would expect the federal funds rate to be modestly lower at the end of this year.”
  • 1310ET – Musalem speaks on the economy and monetary policy (text + Q&A). He was one of the hawks who pre-FOMC subtly floated rate hike potential. He spoke on Feb 20 of a core scenario in which "monetary policy remains modestly restrictive until inflation convergence is assured, at which point the policy rate can be gradually reduced toward the neutral level as convergence progresses", but "I perceive the risk that progress on inflation could stall as being greater than the risk of substantial labor market weakening", and he noted a scenario where a more restrictive policy path could be appropriate.

STIR: Dovish BoE Repricing Following CPI, Over 45bp Of Cuts Showing Through Dec

Softer-than-expected inflation data drives a dovish move in GBP STIRs, with modest undershoots vs. market and BoE expectations for both core and headline CPI.

• Meanwhile, services CPI topped market consensus but was below BoE expectations, while core goods inflation slowed notably - but this is largely due to clothing which should at least partially reverse in March.
• The slowing in the core goods component is of growing importance for the market, given the BoE’s apparent increased focus on the metric. But it's not a broad-based move and so we think the market is overreacting here.
• BoE-dated OIS 4-6bp more dovish across ’25 meetings.
• 18.5bp of cuts priced through May, 21bp through June, 30.5bp through August and 46bp through year-end.
• The strip discounted ~40bp of cuts through year-end at yesterday’s close.
• We still look for the next cut at the May MPC, inline with the sell-side consensus
• SONIA futures flat to +7.5.
• Focus for the remainder of the session is on the Spring Statement, with the potential for larger-than-expected spending cuts (via welfare and government departments) apparent, particularly in light of recent press reports pointing to such moves.
• That adds to the dovish impetus.
• Our full preview of that event is here.

UK FISCAL: Times reports GBP5bln welfare cuts announced last week aren't GBP5bln

• As we noted above, The Times has reported that the GBP5bln of welfare cuts announced last week by the government have been assessed by the OBR to only save GBP3.4bln.
• As a consequence it states that Chancellor Reeves will announce further welfare cuts in the Spring Statement today, alongside other larger departmental cuts.
• This brings up some interesting questions. First, there were two full rounds of forecasts that the OBR produced that included all of the measures the government proposed that were sent to the Treasury on 10 March and 21 March. So why did the Treasury not wait for the OBR's costings before putting a figure on the savings when they were this close? Does that mean that these cuts were basically rushed through at the last minute and they didn't run them past the OBR first? Why not just wait for the Spring Statement?
• We suspect that this was to try and get the main bad news out of the way - but we are not sure that this has really helped in this situation. Possibly with the mainstream media the focus will be the total cuts aren't as bad as some had expected, but we don't think this will fool markets.
• The additional measures are expected to be incapacity benefits frozen to 2030 rather than raised in line with inflation (which will be hugely unpopular amongst the backbenchers) and a "small reduction" in the weekly universal credit payments in 2029.
• Other larger departmental cuts will likely not be fully detailed until the Spending Review on 11 June.
• Full Times article here.

FOREX: GBP Softer, But Weakness on CPI Could Prove Fleeting

• GBP is softer against all others in G10 on the back of the February CPI print - the headline missed expectations, with Y/Y CPI 0.2ppts lower than forecast at 2.8%, however the underlying details were more mixed, with services CPI proving stickier than expected against both market and BoE expectations. In addition, slowing core goods inflation came in large part due to clothing discounting, which is often swiftly reversed.
• As a result, GBP/USD has faded further off highs, narrowing the gap with 1.2886 - the March 23rd low and key support. The sustainability of any further weakness will be dependent on how seriously the market sees this slower CPI print as a threat to the BoE's policy cycle. SONIA markets have priced in slightly more aggressive easing this year as a result, but the market is moving quickly to reverse the move into the US crossover.
• AUD and NZD trade well despite the moderation in Australian CPI Y/Y for February, and as the currencies shrug off the softer showing from global equities. Cross demand is largely responsible here, with NZD/JPY rising through resistance at the 50-dma of Y86.29. AUD/JPY is yet to rise through the same level, which has been tested on several occasions this year - meaning a break of 95.37 would be a bullish signal.
• Prelim US durable goods data is the data highlight Wednesday, while the CB speaker slate sees Fed's Kashkari & Musalem, ECB's Knot & Cipollone as well as the BoC minutes release. 

FOREX: EUR/USD Through Unchanged as Single Currency Slips to Mid-Table

Single currency is edging further off daily highs headed into the NY crossover: EUR/USD slips through unchanged to now trade in negative territory, while EUR/GBP opens a ~15 pip gap with earlier highs.

• No specific newsflow or headlines to drive the modest weakness, which coincided with the generally well received Bund auction, but a slight pick up in volumes across currency futures may indicate some flow-driven price action here, with 1.0763 still the first support at the 20-day EMA.
• EUR is now mid-table in G10, with short-term focus on GBP and the Spring Statement due in just under two hours. We wrote yesterday on GBP's constructive backdrop in recent weeks, and provide some of the latest analyst views on GBP, as well as a full technical update for a number of GBP crosses here: https://mni.marketnews.com/4c0UAhX

OPTIONS: Expiries for Mar26 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0690(E912mln), $1.0775-90(E766mln), $1.0900-25(E2.3bln)
• USD/JPY: Y148.00-10($932mln), Y151.74($519mln), Y152.00($955mln)
• AUD/USD: $0.6370-80(A$699mln)
• USD/CAD: C$1.4200($556mln), C$1.4240($634mln), C$1.4500($781mln)
• USD/CNY: Cny7.2430($600mln), Cny7.3000($500mln)

EQUITIES: Recent Gains in E-Mini S&P Considered Technically Corrective

• The medium-term trend direction in Eurostoxx 50 futures is up and recent short-term weakness is considered corrective. Support to watch is the 50-day EMA, at 5293.33. It has recently been pierced. A clear break of it would highlight a stronger short-term bear threat and suggest scope for a retracement towards 5160.00, the Feb 4 low. The bull trigger is 5516.00, the Mar 3 high. Clearance of this level would resume the uptrend.
• S&P E-Minis are trading at their recent highs. The trend condition is bearish and the latest recovery appears corrective. MA studies remain in a bear-mode set-up, highlighting a dominant downtrend. However, this week’s gains have resulted in a breach of the 20-day EMA. This signals scope for a continuation higher near-term - towards 5864.25, the Jan 13 low. A reversal lower would refocus attention on 5559.75, the Mar 13 low and bear trigger.

COMMODITIES: WTI Futures Pierce Key Pivot Resistance at 50-Day EMA

• Despite recent gains, a bearish trend condition in WTI futures remains intact. However, a key pivot resistance at $69.12, the 50-day EMA, has been pierced. A clear breach of this hurdle would strengthen a bullish theme and open $70.98, the Feb 25 high. For bears, a reversal lower would expose the bear trigger at $64.85, the Mar 5 low. Clearance of this level would resume the downtrend and open $63.73 next, the Oct 10 ‘24 low.
• A clear uptrend in Gold remains intact and the yellow metal is holding on to the bulk of its recent gains. Last Thursday’s fresh trend high reinforces the bull theme and sights are on $3079.2 next, a Fibonacci projection. Note that moving average studies remain in a bull-mode position, highlighting a dominant uptrend and positive market sentiment. Support is at $2970.1, the 20-day EMA.

Date	GMT/Local	Impact	Country	Event
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
27/03/2025	0830/0830		GB	BOE's Dhingra on inflation targeting in the UK post pandemic period
27/03/2025	0900/1000	***	NO	Norges Bank Rate Decision
27/03/2025	0900/1000	**	EU	M3
27/03/2025	1000/1000	**	GB	Gilt Outright Auction Result
27/03/2025	-		FR	Insee publishes General Govt balance
27/03/2025	1230/0830	*	CA	Payroll employment
27/03/2025	1230/0830	***	US	Jobless Claims
27/03/2025	1230/0830	**	US	WASDE Weekly Import/Export
27/03/2025	1230/0830	***	US	GDP
27/03/2025	1230/0830	**	US	Advance Trade, Advance Business Inventories
27/03/2025	1300/1400		EU	ECB's De Guindos at 2025 IIF European Summit
27/03/2025	1400/1000	**	US	NAR Pending Home Sales
27/03/2025	1430/1030	**	US	Natural Gas Stocks
27/03/2025	1500/1100	**	US	Kansas City Fed Manufacturing Index
27/03/2025	1530/1130	**	US	US Bill 04 Week Treasury Auction Result
27/03/2025	1530/1130	*	US	US Bill 08 Week Treasury Auction Result
27/03/2025	1700/1300	**	US	US Treasury Auction Result for 7 Year Note
27/03/2025	1740/1840		EU	ECB's Schnabel lecture on MonPol Transmission
27/03/2025	1805/1905		EU	ECB's Lagarde prerecorded message for Women in Finance conference
27/03/2025	1900/1500	***	MX	Mexico Interest Rate
27/03/2025	2030/1630		US	Richmond Fed's Tom Barkin
27/03/2025	2030/1630		US	Boston Fed's Susan Collins
28/03/2025	2330/0830	**	JP	Tokyo CPI