Americas Breakfast Briefing

By Jamie Vosper May 7

US OPEN/EVENTS AHEAD

Late Monday, Fed's Barkin said he is optimistic that current rates can bring inflation back to 2% as the full impact of higher rates is still to come & the strong labour market gives the Fed time to gain confidence. Fed's Williams opined that 'eventually' they will cut rates. Today's only scheduled Fed speaker is Kashkari and the sole G8 government bond auction is the US $58bn 3yr note sale (4.548% & 2.5 b/c prev). The RBA left rates on hold as expected & was less hawkish than feared while Israel indicated that the Hamas ceasefire proposal was 'far from its demands' but will continue talks. Overnight, Japanese Apr final Services PMI eased to 54.3 from 54.6. The second half data slate is limited to US Consumer Credit. Turning to markets, S&P gained 1% to a 3.5wk high on Monday but the related futures virtually unchanged in EZ flows. Nikkei added 1.5% to a 3 week high but Chinese indices mixed, Hang Seng lost 0.55% after hitting an 8 month peak of 18638.8. WTI is a tad firmer after hitting an 8 week low of $77.91 yest. Jun24 10yr notes traded 109-03 (+6.5 ticks) vs a 4wk peak of 109-09+ yesterday.

• The US/UK 10yr spread narrows from 0.404 (22 April wide) amid deteriorating studies to pressure strong clustered support at 0.258 (25/27 March tights, near 50DMA and a 9-1/2mth rising trendline)
• While this continues to support, watch for renewed widening to 0.404 and key resistance at 0.419 (31 October 2023 peak)
• Above would mark new 15mth wides and expose 0.455/0.473 (61.8% retrace of 1.187/-0.730, 2020-2023 decline and 2023 peak - 3 February)
• Only below 0.258 then 0.234 (20 February former wide) would damage broader widening and risk a return towards 0.065/0.055 (1 March/1 December tights)

EUROPEAN ROUND UP

Jun24 Gilt futures were playing a bit of catch up this morning after yesterday's bank holiday and advanced almost a big figure to a high since the 12th April and outperformed their German counterpart by almost 1/5pt. This heavy divergence steepened the 10yr yield spread between the benchmarks to a four week wide. The German 2-10yr yield spread flattened to a 15 day tight as the longer end of the curve outperformed the softer date. Turning to risky assets, the FTSE fared significantly better than its core peers, advancing in excess of 1% to carve out yet another new historic apex at 8311. The next major technical objective for bullish investors now stands at 8368. There was a decent data slate in the first half, German factory orders improved from prior but missed expectations, Exports improved but missed f/c & Imports moderated & beat predictions. German Construction PMI declined but its UK peer jumped sharply and easily exceeed predictions. EC Retail Sales came in at 0.8% m/m from -0.3% vs 0.7% f/c & the y/y print up to 0.7% from -0.5% vs -0.2% anticpated.

• FTSE 100 Index extends the recent steep uptrend via 8111.4 (1 May higher low) to post new record highs over 8300.0
• Strengthening studies (note FTSE's 100% bullish rating on this week's Sentiment Matrix) suggest potential to 8430.9 (.618x 4898.8/7687.3 long-term advance from 6707.6)
• Sustained gains would then expose 8546.3 (equality of 6707.6/8047.1 advance from 7206.8)
• The recent upside acceleration does heighten chances of a corrective dip, but only below 8111.4 cautions and exposes 8021.7 (23 April low)

MARKET HEADLINES

• German Mar Factory Orders improved to -0.4% m/m from -0.8% prior vs 0.4% f/c
• German Mar Exports rose 0.9% from -2.0% vs 0.3% expected
• German Mar Imports fell to 0.3% m/m from 3.0% previously vs -1.0% predicted
• German Mar Trade Balance rose to EUR 22.3bn from 21.4bn vs 22.4bn expected
• French Q1 preliminary Wages up to 1.3% q/q from 0.4%
• French Q1 Private Sector Payrolls 0.2% q/q from -0.1% previously
• German Apr Construction PMI softened to 37.5 from 38.3 prior
• UK Apr Construction PMI firmed to 53 from 50.2 & beat the 50.4 f/c
• EC Mar Retail Sales firmed to 0.8% m/m from -0.3% vs 0.7% expected#
• Gilts advanced to 3.5 week high
• Gilts ourperform Bunds by as much as 1/2pt
• UK/Germany 10yr yield spread steepened to 4wk wide
• FTSE hits new record high above 8300
• German factory orders remain weak. Turnover means poor IP implications
• French wage/payroll growth supports cautious ECB narrative

DAY AHEAD