Strong Chinese data has helped inspire a general risk tone overnight, while accounts creep to the sidelines ahead of the various holidays on tap over the next two weeks. As of 9 AM ET, Treasuries are .5 to 1.5 bps higher, with the belly leading the move while US equity futures are marginally firmer.
A few things from overnight:
*The big event of this day was no surprise as it was heavily telegraphed, but Chinese data was a huge beat: GDP at 6.4%, IP, retail sales easy and large beats as well. Treasury futures gapped almost 2 bps higher on the data release, led by belly.
*Whether you believe the FSA story or not (telling Japanese accounts they HAD to hedge long US FI positions ahead of Golden Week, 4/26 to 5/6), the activity sure looks that way as Japanese real money lifted TYM (expiry 5/24) puts during the Asian session.
*Flows were much better in Asia, as has been the week’s theme. Early trade saw Asian bank buying of 5s, but then the wheels came off when the Chinese data hit (10 PM ET). Treasuries found a floor against 2.6% in cash 10s on the initial break; Insurers and pension types out of Japan lifted 30s against 3% in cash 30s while Asian real money lifted 30s and 10s against the aforementioned 2.6% level.
*Not to be missed, the appetite for spread product has yet to diminish, today’s featured buyer being Asian central banks (repeat winner). The same accounts were active in selling 2s and 3s to buy 5s and a smaller amount of 7s to go with their MBS and related spread products. Treasuries actually bounced all the way back to unchanged into the Europe handover as Asian buying overwhelmed the Japanese hedging and strong China data.
*London was a much quieter affair than Asia, although pressure on bunds ahead of supply led Treasuries back to, and eventually through, the lows from earlier in the session. Asian accounts bought off the new lows (2.6125% in 10s, 3.01% in 30s). Some short covering in long end of European curve supported global fixed income until better US dealer selling materialized in 5s and 10s ahead of the US data.
Today’s data event in the US have passed already with trade balance being a slight beat (risk positive again), although for those of you who really care we do get wholesale inventories and trade at 10 AM ET. Fed calendar is still fairly packed, with Harker at 12:30 PM ET on the economic outlook, Bullard at 12:45, and Logan at 5:30 PM. At 2 PM ET, the Fed will release the Beige Book ahead of the May 1 FOMC meeting. Tomorrow’s calendar is chock full of data in the US, so let’s see what happens there.
There is a better than 50% chance that the low for the day is in already at 122-20+ in TYM which is a measured objective off retracement on market profile charts; if we take that out though, it will be a quick and dirty visit down to 122-14. The lack of any volume in the market this week outside of the Asian hours makes everything a dicey call. You are supposed to be covering in here and theoretically adding to longs strategically, but there may be the opportunity to get better levels in the next 3-4 sessions. If we get above 122-26+, market will threaten to shrug off some of the recent weakness. We’ll see. Rather buy into strength right now than force myself to be crabby for a few days trying to be the tech guru. Know what I mean????
Have a good hump day and try to stay awake,
mjc