US TSYS: Post-FOMC React

SNB Chairman Schlegel appears overall rather pessimistic on the economic outlook in Switzerland in today's speech at the University of Lucerne. The Swiss franc was little changed as he spoke. Some key highlights as quoted by Bloomberg:

• "SNB tolerates negative inflation rate in short term" (Schlegel mentioned in the last SNB press conference that the inflation rate can temporarily move into negative territory for individual months.)
• "Inflation outlook is very uncertain".
• "Swiss 2025 growth will be lower than expected". (The latest SNB Swiss growth forecast for 2025 was 1.0-1.5%. Q1 Q/Q (sports-adjusted) growth was already 0.7%)
• Schlegel added: "Tariff situation very challenging for some firms [...] Uncertainty is toxic for growth"
• "Can't rule out use of negative rates again if needed"
• "Franc is bought by domestic and foreign investors"
• "Too much gold on balance sheet not an advantage"
• "There is currently no alternative to US treasuries"

• RES 4: 0.8768 High Nov 20 ‘23    
• RES 3: 0.8624/0.8738 High Apr 21/ High Apr 11 and the bull trigger
• RES 2: 0.8541/8557 High May 2 / High Apr 28
• RES 1: 0.8459 50-day EMA
• PRICE: 0.8418 @ 16:38 BST May 19
• SUP 1: 0.8394 Low May 16   
• SUP 2: 0.8359 1.236 proj of the Apr 11 - 16 - 21 price swing
• SUP 3: 0.8316 Low Mar 28 and a key support
• SUP 4: 0.8277 1.618 proj of the Apr 11 - 16 - 21 price swing  

A bearish theme is EURGBP remains in play - for now. The cross has recently cleared 0.8459, the 50-day EMA, signalling scope for a continuation lower near-term. Friday’s fresh cycle low strengthens the bearish theme. The 0.8400 handle has been pierced, a continuation lower would open 0.8359, a Fibonacci projection. Key near-term resistance to watch is 0.8541, the May 2 high. A break of this hurdle is required to signal a potential reversal.     

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