MNI ASIA MARKETS ANALYSIS: Jobs Looking For Employable?

US TSY SUMMARY: April Jobs Surprise

Not your typical NFP jobs Friday: gap bid in Tsys after April employment report came out much weaker than expected with +266k job gains vs. +1 million mean estimate. Heavy volumes on two-way flow post-data (TYM1 appr 850k 20minutes after the release; 2.6m by the close), as futures scaled back appr half the move on lower than expected April jobs

• April Jobs-Miss Debate: whether due to seasonal adjustments or employable people staying at home (either due to safety concerns or collecting very generous jobless benefits), some feel it's not the health of the recovery, but the pace that is being impeded by supply constraints. The Fed will continue to be very patient. That said, Tsy futures have reversed early gains, curves bending steeper with Bonds broadly weaker into midday (5s30s topped 150.8).
• Not a noticeable reaction in rates as Pres Biden discusses April jobs report and American Rescue Plan. Tsys continue to inch lower in long end 2s-10s paring gains. Bonds continue to trade weaker -- TYM1 nearly back to steady on day -- comments from Tsy Sec Yellen on jobs data notwithstanding.
• Note 10Y breakeven hits 2.4993% Highest since early April 2013 while equities made new all-time high of 4232.25. The 2-Yr yield is down 1bps at 0.1429%, 5-Yr is down 3.4bps at 0.7708%, 10-Yr is up 0.8bps at 1.5771%, and 30-Yr is up 3.4bps at 2.2761%.

SHORT TERM RATES

US DOLLAR LIBOR: Latest Settles

• O/N -0.00 012 at 0.06413% (-0.00712/wk)
• 1 Month +0.00625 to 0.10138% (-0.00588/wk)
• 3 Month -0.00212 to 0.15988% (-0.01650/wk) ** (NEW Record Low)
• 6 Month -0.00738 to 0.19275% (-0.01212/wk)
• 1 Year -0.00250 to 0.27100% (-0.01012/wk)

• Daily Effective Fed Funds Rate: 0.06% volume: $72B
• Daily Overnight Bank Funding Rate: 0.05% volume: $261B

• Secured Overnight Financing Rate (SOFR): 0.01%, $883B
• Broad General Collateral Rate (BGCR): 0.01%, $368B
• Tri-Party General Collateral Rate (TGCR): 0.01%, $349B
• (rate, volume levels reflect prior session)

• No buy-op Friday
• Next week's schedule
• Mon 5/10 1010-1030ET: Tsy 7Y-20Y, appr $3.625B
• Tue 5/11 1010-1030ET: TIPS 1-7.5Y, appr $2.425B
• Wed 5/12 1500ET Update NY Fed Operational Purchase Schedule

US TSYS/OVERNIGHT REPO

Largely steady to prior session lvls, 10s and 30s specials cool slightly. Other current levels: T-Bills: 1M 0.0051%, 3M 0.0101%, 6M 0.0330%; Tsy General O/N Coll. 0.01%

EURODOLLAR/TREASURY OPTIONS SUMMARY

• +15,000 Blue Sep 77/80/82 put flys, 2.25
• -15,000 Green Sep 83/86/88/91 put condors, 4.5
• +15,000 Red Jun 93/96 put spds, 1.75
• Block, 10,000 Green Jun 99.18 puts, 1.0 vs. 99.455/0.10%
• +/-5,000 Blue Sep 80/90 risk reversal, 1.5 net call over
• -40,000 Green Jun 88/91/93 put flys, 2.5 -- unwinding
  
• Overnight trade
• -36,300 Green Jun 99.31/99.43 call spds, 6.5 vs. 99.355/0.10%
  
• 2,500 Blue Sep 80/82 3x2 put spds
• 2,000 Blue May 83/85 put spds

• -10,000 TYN 129.5/130.5/131.5/132 put condors, 1
• 6,000 TYM 130.5/131/131.5 put flys, 0.0
• -6,000 TYN 131 puts, 29
• 10,000 FVM 122.75/123.25/123.75 put flys, 1
• 1,500 FVQ 122/122.5/123/123.5 put condors, 1.5
• 10,000 TYM 132/132.5 2x1 put spds, 0.0
• Update, >35,000 wk2 TY 131/131.5 put spds, 5
• -2.500 wk2 133.25 calls, 13
• +5,000 FVN 123.5/124/124.5 1x1x2 call trees, 0.5
• Block, 14,600 TYM 132.5/TYN 131 put calendar spds, 14
• -5,000 TYM 134.25 calls, 4
• +2,500 TYM 130.5 puts, 2
• +8,000 TYU 130 puts, 38
• Overnight trade
• Block, +7,500 TYM 129/130.5/132 put flys, 13
• +12,000 TYM 133.5/134 call spds, 5
• +10,000 wk2 TY 131/131.75/132/132.5 put condors, 6
• 5,000 TYM 131 puts, 5
• 2,000 TYQ 129.5/131.5 put spds vs 133.5 calls

EGBs-GILTS CASH CLOSE: BTPs Get Kazak-ed

A busy back-and-forth session ended with Gilt and Bund cash trading cheaper/more expensive to end the week.

• The space was hit early in the session when in a BBG interview, ECB's Kazaks floated the possibility of a slowdown in PEPP purchases in June. Periphery spreads widened.
• Then the afternoon brought a shocking downside miss in US employment gains in April, pushing core global FI much higher. Then, in another twist, talk of of seasonal adjustment factors unduly impacting the reading led to a bearish reversal.
• In the end, yields were little changed on the session, with Gilts outperforming.
• In supply, Belgium sold E0.5bln of OLOs via ORI auction.

Closing yields/10-Yr Spreads to Bunds:

• Germany: The 2-Yr yield is up 0.5bps at -0.686%, 5-Yr is up 1.2bps at -0.587%, 10-Yr is up 1bps at -0.215%, and 30-Yr is up 1bps at 0.351%.
• UK: The 2-Yr yield is down 0.6bps at 0.033%, 5-Yr is down 2.1bps at 0.313%, 10-Yr is down 1.7bps at 0.775%, and 30-Yr is down 0.4bps at 1.314%.
• Italian BTP spread up 3.8bps at 118bps / Spanish spread up 2bps at 70.2bps

OPTIONS/EUROPE SUMMARY: Large Bund Put Condor Features

Friday's options flow included:

• RXM1 168.50/167.50/166.50/165.50p condor, bought for 7.5 in 30k
• 0RH2 100.37/100.12ps, bought for 4 in 3k
• 0RH2 100.37/12 p/s bought for 3.75 in 5k
• 2RZ1 100.25p v 0RZ1 100.37p, bought the 2yr for 4.75 in another 5k (10k all day)
• 2RH2 100.25^ bought for 27.5 in 3k2RU1 100.37^, sold at 14.5 in 1k
• LZ1 99.75/87/00 c/fly sold @ 1.75 in 6k
• 0LU1 99.75/99.50ps vs 99.87c, sold the ps at 6.25 in 2k

FOREX: US Dollar Index Closing At Lowest Level For 11 Weeks

• A weak US employment report prompted a strong selloff in the US dollar, with the DXY weakening by around 0.5% following the data.
• Despite a reversal in US treasuries, the dollar was unable to fully retrace and then extended its weakness throughout the session into the close. The weakness was felt evenly against G10 counterparts and EM currencies alike, with the only notable underperformer the Canadian Dollar where a similarly poor domestic jobs report was to blame.
• Fresh recent highs for GBPUSD at 1.40. Worth highlighting the cluster off daily highs just above the 1.40 mark, dating back to mid-February. The pair has consistently failed to close above this psychological level and looks likely to be in play next week. Clearing resistance at 1.4009 would reinstate a technically bullish theme.
  • The strength has been underpinned by what Prime Minister Johnson is celebrating as "very encouraging" early results in a crucial set of British elections – following the ruling Tory party winning the high-profile town of Hartlepool.
  • Labour party head Keir Starmer has described the election results as `bitterly disappointing'.
  • Additionally, reports circulated that two-thirds of U.K. adults have had first covid-19 vaccine dose.
• Notable longer term dynamics in USDCAD that has been in a clear downtrend since the reversal off 1.4668 on Mar 19, 2020. The rejection at 1.4668 meant that the major resistance at 1.4690, the Jan 2016 high remained intact. The USD remains in a clear downtrend. However, the pair is approaching a major support at 1.2062 that will potentially either reinforce the current medium-term bear leg if breached or lead to a reversal if the support manages to contain CAD strength.

FX OPTIONS: Expiries for May10 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.2000(E685mln), $1.2040(E683mln)
• USD/JPY: Y109.00-05($587mln), Y110.00($740mln)
• GBP/USD: $1.3800(Gbp678mln)
• EUR/GBP: Gbp0.8760-80(E670mln)
• AUD/USD: $0.7900(A$639mln)

PIPELINE: High-Grade Corporate Debt Issuance

• 05/07 $1B #Bunge Finance 10Y +120
• Date $MM Issuer (Priced *, Launch #)
• $8.65B Priced Thursday, $27.775B/wk
• 05/06 $1.5B *EIB 10Y +10
• 05/06 $1.25B *NatWest Markets $950M 3Y +55, $300M 3Y FRN SOFR+53
• 05/06 $1.1B *ORBIA $600M 5Y +110, $500M 10Y +145
• 05/06 $1B *Banco Santander Perp NC6 4.75%
• 05/06 $1B *Broadbridge Fncl 10Y +105
• 05/06 $800M *ENN Natural Gas 5NC3 +265
• 05/06 $800M *Weir Group 5Y +145
• 05/06 $700M *NIB 5Y FRN SOFR+19
• 05/06 $500M *SVB Fncl 7Y +87

EQUITIES: Stocks Higher as Stimulus Here to Stay

• A solidly lower-than-expected Nonfarm payrolls release caused concern among markets that the assumed post-pandemic recovery may be lumpier and longer than expected. Equity futures initially sold off on the headline miss, before a fearsome rally set in, as concerns that the Federal Reserve could taper asset purchases and withdraw stimulus as soon as summer were rowed back, with markets seeing QE as here to stay.
• The energy sector was an outperformer Friday, with materials and industrials not far behind. Consumer staples were the only sector in the red, edging lower by around 0.2%.
• The post-payrolls rally put stock futures at new alltime highs, with the e-mini S&P topping out at 4232.25. Similar records were hit across the Dow Jones futures, although the equivalent high in the NASDAQ remains out of reach for now.

Copper Too High, or 10Y US Too Low?

• While gold has been considered as one of the major safe havens that tend to increase in periods of rising price volatility and uncertainty, copper is viewed by many investors as a leading indicator of global economic health (also called Dr. Copper).
• The copper-gold ratio can therefore serve as an indicator of the global market's appetite for risky assets.
• The chart below shows that the copper-gold ratio has strongly co-moved with the 10Y US Treasury yield over time, and that periods of moderate to significantly divergence were generally followed by rapid adjustments between the two times series.
• However, the recent surge in copper prices (and the retracement in the 10Y yield) has led to a significant divergence between the two times series in the past few weeks (see chart below).
• Is the 10Y yield too low, or is the copper-ratio too high (especially copper) at current levels?