SOFR: Net Long Setting Dominated In Futures On Thursday

• RES 4: 112-20+ High May 1 and a bull trigger  
• RES 3: 112-01+ High May 2  
• RES 2: 111-22   High May 7 and a key near-term resistance 
• RES 1: 111-01   20-day EMA
• PRICE:‌‌ 110-07+ @ 11:24 BST May 14
• SUP 1: 109-30   Low May 13 
• SUP 2: 109-08   Low Apr 24 and key support
• SUP 3: 108-26+ 76.4% retracement of the Jan 13 - Apr 7 bull cycle
• SUP 4: 108-21   Low Feb 19  

Treasury futures maintain a softer tone following recent weakness. Support at 110-01+, 76.4% of the Apr 11 - May 1 bull leg, has been cleared. The breach strengthens a bearish theme and exposes a key support at 109-08, the Apr 24 low and a bear trigger. Key near-term resistance has been defined at 111-22, the May 7 high. A move above this level is required to signal a potential reversal. 

• Fed Funds implied rates are 0-1bp lower for 2025 meetings, close to hawkish extremes.
• The 54bp of cuts priced for 2025 is off yesterday’s 52bps but those were levels last seen in February.
• Cumulative cuts from 4.33% effective: 2.5bp Jun, 11bp Jul, 26bp Sep, 38.5bp Oct and 54.5bp Dec.
• Today’s lighter docket should have tomorrow in mind with PPI/retail sales reports for April and Fed Chair Powell speaking 10 minutes after, albeit on the framework review.
• We touched on Chicago Fed’s Goolsbee (’25 voter) just below, on him solid underlying strength but with him watching for more timely signs of consumers and businesses pulling back.
• Still to come, Fed Vice Chair Jefferson (voter) speaks on the economic outlook at 0910ET (text only) before SF Fed’s Daly (non-voter) in a fireside chat late on at 1740ET (Q&A only).
• A senior figure on the FOMC who doesn’t speak particularly often, Jefferson will be watched closely for any reaction to the US-China trade de-escalation seen since the weekend. He said Apr 3: "In my view, there is no need to be in a hurry to make further policy rate adjustments. The current policy stance is well positioned to deal with the risks and uncertainties that we face in pursuing both sides of our dual mandate… If the economy remains strong and inflation does not continue to move sustainably toward 2%, the current policy restraint could be retained for longer. If the labor market were to weaken unexpectedly or inflation were to fall more quickly than anticipated, policy could be eased accordingly."

Italian machinery exports to the US have been on a declining trend since the start of 2024, and this dynamic looks set to continue with higher trade barriers. The April manufacturing PMI noted that “new export orders were also down again in April, in part reflective of tariff uncertainty, but the trend of contraction also lost momentum compared to March”. Meanwhile, momentum in domestic industrial production remains subdued.

• US officials have struck a hawkish tone with respect to an EU trade deal in recent days. President Trump said on Monday that “I see that with trade to European Union is in many ways nastier than China. And we've just started with them. Oh, they'll come down a lot. You watch.  We have all the cards. They treated us very unfairly”, while Bessent noted that “I think the US and Europe [deal] may be a bit slower….my personal belief is Europe may have a collective action problem”.
• Meanwhile, the Commission has formulated a E95bln package of retaliatory measures, targeting US cars and planes amongst other products, if a deal is not reached. A reminder that E21bln of EU retaliatory measures in response to US steel and aluminium tariffs were also put on hold for 90 days on April 14.
• In an interview with the MNI Policy Team, an advisor to the Spanish government and the EC said the Commission will be more pessimistic about the outcome of trade talks with the U.S. following the conclusion of U.S.-UK and U.S.-China trade agreements. She noted that “the European institutions are worried about their shrinking leverage”.