CNH: CNY Fixing A Touch Firmer

Jun-15 01:22

The USD/CNY fixing printed at 6.7518, versus a market estimate of 6.7524.

  • This result represents a very modest -6pip surprise in USD/CNY terms. Recall yesterday's fix was +1pips in terms of surprise.
  • This follows the prior 3 sessions where we had downsides on the fix of more than -20pips, which compares to +7pips a week ago.
  • The 5-day rolling sum of the error term is still negative at -74pips.
  • USD/CNH hasn't reacted much. We sit in the low 6.7400 region at the moment, around 0.20% sub NY closing levels, in line with softer USD sentiment more broadly.

Historical bullets

US TSYS/TIPS: Goldman: Broad-Based CPI Strength Met With Sharp Rl Yld Decline

May-16 01:11

Goldman Sachs note that “April core CPI rose by the fastest pace since January and was two-tenths above consensus expectations. The report saw strength in not only reopening categories, but underlying core services and core goods prices as well. While the last few upside inflation surprises resulted in higher longer-dated real yields on the view that the Fed may need to deliver more tightening, this past week’s release produced the opposite effect - real yields fell sharply across the curve. The different market response likely reflects heightened concerns about decelerating growth (as seen in the downdraft in both equities and breakevens) and the Fed’s ability to continue tightening into a potential slowdown. However, we expect this decline in real yields to reverse. In our baseline economic view where recession is avoided and inflation begins to normalize, we see 5y5y real yields as having another 25-50bp of upside from current levels, to between 75-100bp in level terms, and 10y real yields at 60-70bp by year-end. In a high inflation scenario, we would expect the Fed would likely need to raise the policy rate above 4%, which would argue for even higher intermediate real yields than our baseline. We expect this drift higher in real yields to occur as we move through the year, and investors reduce their perceptions of near-term recession odds. Of course, if recession fears are indeed realized, real yields could end up materially lower, reflecting two-sided risks.”

US TSYS: TYM2 Looks Below Friday’s Lows, But Move Limited Thus Far

May-16 01:04

TYM2 has had a brief look below its early Asia & Friday trough, showing as low as 119-01+ in the process, although the move remains limited at present, with the contract off lows, last dealing at 119-03. Do note that the S&P 500 e-mini also looked through its early Asia-Pac high before backing off from best levels (a little ahead of the move in TYM2). Cash Tsys sit ~3bp cheaper across the curve, with 10+-Year swap spreads running 0.3-0.6bp wider, pointing to the potential for longer dated payside swap flow having a hand in the cheapening observed in the Tsy space during early Asia dealing. TY-WN invoice spreads have widened by a similar amount to their corresponding swap spreads. China matters remain front and centre thus far.

GERMANY: Social Democrats Suffer Another Defeat In Regional Poll

May-16 00:59

Chancellor Olaf Scholz's Social Democratic Party (SPD) lost to the Christian Democratic Union (CDU) in the election to the regional legislature of North Rhine-Westphalia, Germany's most populous state.

  • This is the SPD's second electoral defeat in as many weeks after the Schleswig-Holstein May 8 poll and deals a blow to Scholz, who travelled to the state multiple times during the campaign period.
  • Scholz's party won just shy of 27% of the vote, its worst-ever result in North Rhine-Westphalia, with the CDU improving their performance to nearly 36%.
  • The federal government's handling of the Russia-Ukraine crisis has been widely cited among the reasons for these unsatisfactory results, with Scholz accused of foot-dragging on Western initiatives to support Kyiv.
  • The Greens almost tripled their vote share, which makes them a kingmaker, as a poor showing from the FDP rules out the reinstatement of a CDU-FDP administration.
  • A CDU-Green administration is the most likely outcome but a replication of the federal "traffic lights" alliance (SPD+Greens+FDP) or a "Jamaica" coalition (CDU+Greens+FDP) are also possible scenarios.
  • Whether or not the CDU will enter the next administration, the results bode ill for the SPD, as the sheer size of North Rhine-Westphalia makes the regional poll a bellwether for national sentiment.

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