US EURODLR FUTURES: Post-LIBOR Settle Update: Maintaining Strong Bid
Lead quarterly EDU2 holding strong bid at 96.705 (+0.030) after latest 3M LIBOR set' new 3Y high of 2.48300% (+0.06000/wk).
- Forward Fed hike expectations moderate slightly: balance of Whites (EDZ2-EDM3) trades +0.075-0.105; Reds through Golds (EDU3-EDM7) +0.090-0.080.
- Front end inversion back to last week's lvls: Dec'22/Mar'23 at -0.125. Most inverted calendar spds: EDZ2/EDZ3 and EDH3/EDH4 both at -0.660. Inversion starts to flatten out in latter half of Greens w/ EDH5/EDM5 trading steady (97.245).
- Mon's minimal option volume still centered on downside puts, hedge/insurance vs. more aggressive rate hikes despite underlying futures moderating forward expectations after last Fri's strong jobs gain for Jun (+372) saw 10YY climb back to 3.099%.
- Highlight Eurodollar trade includes +25,000 (20k Blocked) ec 96.00/96.50 put spreads at 27.0 ref 96.23. Salient Treasury option trade had paper selling 22,000 TYU 115.5/121.5 call over risk reversals from 0.0-1.0 while 5Y options included a scale buyer of over 25,000 FVU 111.5 puts from 50-53. Lone upside call trade: 39,000 TYU 119/121 call spreads at 35 ref 117-27 to -27.5.
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US: Def Sec Austin Delivering Remarks On Indo-Pacific Strategy
20:30 ET 01:30 BST: US Defence Secretary Lloyd Austin is continuing his ten-day tour of Asia with a speech at the IISS Shangri-La Dialogue in Singapore outlining "Next Steps for the United States' Indo-Pacific Strategy."
- The Secretary's speech will be livestreamed on the Pentagon website: https://www.defense.gov/News/Live-Events/
- Today, Austin met with Chinese counterpart Wei Fenghe to discuss "the need to responsibly manage competition and maintain open lines of communication."
USDCAD TECHS: Cements Short-Term Reversal
- RES 4: 1.3077 High May 16 and the bull trigger
- RES 3: 1.2982 High May 16
- RES 2: 1.2896 High May 18 and a key resistance
- RES 1: 1.2813 High Jun 10
- PRICE: 1.2792 @ 16:01 BST Jun 10
- SUP 1: 1.2518 Low Jun 8
- SUP 2: 1.2459 Low Apr 21
- SUP 3: 1.2403/02 Low Apr 5 and key support / 2.0% 10-dma env
- SUP 4: 1.2387 Low Nov 10. 2021
A sharp rally in USDCAD continued Friday, cementing the short-term reversal. Key near-term support has been defined at 1.2518, the Jun 8 low. An extension higher would signal potential for a climb towards resistance at 1.2896, the May 19 high. For bears, a resumption of weakness and a breach of 1.2518 would again expose 1.2459, Apr 21 low and 1.2403 further out, the Apr 5 low and a key support.
US TSYS: Hot CPI, 2Y Yld Over 3% First Time Since 2008
Rates extend lows after May CPI came out higher than est at 1.0% vs. 0.7% est, unrounded 0.974%, core 0.631%. Heavy short end selling on inflation surge has market expecting Fed to hike US into a recession.
- Notably, 2Y yield surged to 3.0611% - the highest level since 2008, while curves bull flattened after some initial volatility in the long end: 2s10s at 9.858 (-12.786) vs. 9.421 low, 5s10s inverted, flattening -7.273 at -9.761 vs. -10.722 low, while 5s30s slipped to inverted low of -6.661.
- Reaction spurred several dealers to up their rate hikes estimates with Barclays now sees a 75bp Fed hike next week. They have also raised their forecast for the terminal rate by 25bp to 3.00-3.25% in early 2023, implying 150bp of hikes after June's meeting. That's the most aggressive June FOMC hiking call that we are aware of, but markets are pricing in a modest chance of such a surprise (15-20% probability per futures).
- GS upped they're hike forecast to 50bp in June, July and September (from 50bp in Jun/Jul and 25bp in Sep).
