Markets were subdued ahead of CPI. U.S. Treasury yields rose marginally, while equities were mixed. Powell’s testimony before the Senate reinforced the central bank is in no rush to cut rates. The market is pricing in around 35bps of easing this year, with the probability of a rate cut in June standing at 50/50.
The $58 billion 3yr auction went well, stopping 1.3 basis points through at 4.30%, with record-low dealer allotments of just 10.2%. Indirect bidders took down 74% of the issuance, significantly above the four-auction average of 63.2%. These results suggest continued strong interest in U.S. government debt, particularly from overseas buyers. Next up are the 10yr and 30yr auctions; worth watching.
Equities remain focused on earnings, which has seen mixed results across sectors. This week, sees releases include reports from Biogen, CVS, Kraft Heinz, Cisco, and Reddit today.
Oil prices moved higher, with WTI crude gaining 1.24% amid growing concerns over the fragility of the Israel-Hamas ceasefire. Meanwhile, industrial metals came under pressure, with copper falling 2.43% and broader industrial metals also declining.
U.S. CPI is expected to show a monthly increase of 0.3% for both headline and core inflation. There are three more CPI and PCE reports due before the May 7 FOMC meeting, which should give more insight into the tariff conundrum. PPI is on Thursday followed by retail sales figures on Friday
Geopolitically attention will turn to the Munich Security Conference, where reports suggest U.S. officials may unveil a blueprint for resolving the Ukraine war.
In Latin America, Ecuador rebounded modestly post-election, while Argentina slipped, and Brazil's bonds saw slight gains despite U.S. tariff concerns on steel and aluminium. Mexico lagged ahead of PEMEX’s strategic plan announcement, which could bring clarity on private capital involvement or, conversely, a potential acquisition of a U.S. natural gas producer.
Israel priced a $5bn two-tranche deal, which initially widening slightly before buyers emerged. Ceasefire uncertainty between Israel and Hamas escalated following former President Trump’s remarks urging Israel to end the truce if hostages weren’t returned. Broader EEMEA IG remained stable, with some selling in Central and Eastern Europe to fund allocations in Israel and Albania.
High-yield EM debt saw mixed performance. Egypt and Jordan weakened following Trump's initial threats to cut foreign aid, though he later reversed his stance after a meeting with Jordan’s King Abdullah II. Ukraine's debt softened, but optimism arose as Trump announced a high-level U.S. visit to discuss an end to the war. Pakistan outperformed ahead of crucial IMF talks.
Primary activity remained robust. Israel, Albania, Saudi Electric, and Port of Spain Waterfront Development came to market. Investors await updates from Mongolia, the Dominican Republic, Panama, and Colombia on upcoming sovereign issuances
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