FOREX: USDCHF Pierces Initial Support, Schlegel to Temper Franc Optimism
May-07 15:12
- In contrast to yesterday’s price action, the Swiss Franc is among the strongest performing currencies across G10 Wednesday, highlighted by a 0.79% reversal higher for CHFJPY. Price action has also seen USDCHF extend intra-day declines in recent trade, likely helped by the most recent weakness for major equity benchmarks.
- We have noted that recovery highs for USDCHF matched perfectly with the prior breakdown point of 0.8333. the 2023 low, likely helping the resumption of weakness in recent sessions. Furthermore, the pair briefly dipped below a couple of daily lows from late April around the 0.8200 mark, keeping bearish conditions firmly intact for now. Cycle lows remain much further out, at 0.8040.
- As a reminder, SNB President Schlegel strengthened his tone on the Swiss Franc yesterday, stating it has appreciated 'really a lot'. Schlegel is usually not known for such pronounced commentary on Franc valuations and while the bullish CHF case remains in play, the risk reward for further swift Franc gains may be diminishing at this juncture.
- CIBC note Schlegel’s warning was more forceful and believe that because Switzerland is a highly open economy, this period of CHF strength could be especially painful, with uncertainties around the global trade outlook. CIBC remain short CHF/JPY with a target of 166.
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STIR: Fed Rate Path Continues Push Higher After Tariff Rumor Spike
Apr-07 15:08
- The Fed rate path is pushing higher again having initially fully reversed a spike on unsubstantiated and subsequently refuted headlines around a 90-day pause in tariffs.
- The speculation-driven spike aside, it’s back close at Friday’s close for near-term meetings and a little above for meetings from September onwards.
- Cumulative cuts from an assumed 4.33% effective: 12.5bp for May (vs 16bp at the NY crossover), 35bp Jun (vs 40bp), 57.5bp Jul (vs 66bp) and 99bp Dec (vs 112bp).
- Inter-meeting cut odds still haven’t fully receded though, showing ~2bp of cuts priced in the April FF contract vs closer to 6.5bp of cuts at one point overnight. Today’s regular Board of Governors meeting at 1130ET could be helping that despite being a purely routine event as noted earlier.
- There have been larger reversals of the overnight rally further out the curve: SOFR futures show terminal yields at 3.14% (in the SFRU6) after a ~20bp lift since the NY crossover. It’s now +8.5bp from Friday to limit the slide to ~25bps since Liberation Day tariffs.
US STOCKS: Early Equities Roundup: Unwinding Early Losses, Wary of Tariff Rumors
Apr-07 15:07
- Stocks are mixed in late morning trade, volatile morning after a momentary gap higher early Monday as markets reacted to unsubstantiated headlines that suggested Pres Trump was considering a 90 day pause in tariffs - stocks surged as wires reposted the false rumor that apparently originated on social media.
- Stocks had opened sharply lower overnight and were gradually scaling back losses before the gap bid, earlier short covering after Japanese Prime Minister Shigeru Ishiba said he would go to the US as soon as possible to pitch a wide-ranging deal with President Donald Trump over tariffs, Bbg reported.
- Currently, the DJIA trades down 65.62 points (-0.17%) at 38,226.63 (36,611.78 low), S&P E-Minis up 27 points (0.53%) at 5,135.75 (4,832.00 low), the Nasdaq up 180.4 points (1.2%) at 15,752.95 (14,784.03 low)
- Health Care and Utilities sectors underperformed in the first half, care providers and pharmaceutical companies weighed on the former: Cardinal Health -3.79%, IDEXX Labs -3.32%, Cigna Group -3.13%, Bristol-Myers Squibb -3.13% and Henry Schein Inc -3.04%.
- Renewable and alternative energy weighed on the Utility sector: Eversource Energy -5.19%, Dominion Energy -4.29%, Edison International -4.26%, Sempra -4.01% and PPL Corp -3.80%.
- On the positive side, Communication Services and Financial sectors outperformed in the first half, interactive media and entertainment share buoyed the former: Meta Platforms +0.66%, Warner Bros Discovery +0.62%, Netflix +0.42% and Alphabet +0.39%.
- Meanwhile, banks and services supported the Financial sector with Apollo Global Management +2.85%, KKR & Co +1.65%, Bank of America +0.41% and JPMorgan Chase +0.37%.
STIR: Tariffs Pull Near-term ESTR Curve Lower; M/T Curve Still Steeper On Fiscal
Apr-07 14:58
With global markets settling after a volatile ~60 minutes of (erroneous) headline-driven trading, ECB implied rates remain off session lows alongside core EGB yields. The 1y1y ESTR swap rate is nonetheless still on track for its lowest close since December 11, 2024, currently at 1.71%. That’s down from a close of 1.90% at last Wednesday's close (i.e. before the "Liberation Day" announcement), and also well below the 1.83% seen on February 28 (i.e. before the German defence/infrastructure announcement).
- The imposition of US tariffs – alongside the policy uncertainty that has built up over the past few months – is expected to weigh on regional demand and therefore contain inflationary pressures in the near-term.
- Additional disinflationary channels stem from the possible diversion of Chinese goods to the EU in response to US tariffs (note: EU officials are currently considering whether to implement measures to protect EU businesses against such dynamics) and a weaker energy price outlook on the back of lower global demand and an unwinding of OPEC+ supply cuts.
- 1- and 2-year EUR inflation swaps are on track to close at their lowest since mid-2021, even as Brent crude and natural gas futures drift away from early lows through the course of today’s session.
- However, on a 3-5-year horizon, the ESTR forward curve still sits steeper than at the end of February. This likely reflects the positive growth and inflation impulse from increased German/EU fiscal spending, possibly alongside the medium-term inflationary impact of tariffs assuming the EU retaliates.
