US TSYS: Short End Leads Post-NFP Rally Despite Faded 50bp Sept Cut Prospects
The short-end led a Treasury rally in a busy Friday session, despite a fading of the initial dovish reaction to soft nonfarm payrolls data.
- The week's main event August employment report showed both a miss in nonfarm payrolls growth (142k vs 165k cons) and heavy downward revisions to the prior 2 months (-86k), alongside a slight downtick in the unemployment rate.
- That spurred a sharp bull steepening in the curve as a 50bp September Fed cut regained 50% implied probability.
- Comments 15 minutes after the NFP release by NY Fed Pres Williams were seen as noncommittal on 25 vs 50bp, and yields reversed steadily from session lows to session highs.
- Gov Waller's speech at 1100ET saw a renewed Treasury bid, as headlines emerged that he could support a "front-loaded" cutting cycle - but it soon became clear that this was a hypothetical and, like Williams, didn't seem particularly pro-50bp for Sept.
- The net impact was that September pricing was trimmed to 32bp of cuts, (4-5bps fewer than seen pre-payrolls), but short-end Treasuries still ended much stronger as futures saw more cuts overall: 2.5bp extra by end-2024 (to 113bp cumulative) and 12bp of extra cuts due by Jun’25 (221bp).
- 2s10s closed the week comfortably in positive territory for the first time since 2022, rallying 7bp on the day.
- We won’t get any more Fed communications due to the pre-FOMC blackout – but for observers clinging on to the possibility of a 50bp September hike, next Wednesday’s CPI release could be eyed as a tiebreaker.
- Latest levels: The Dec 24 T-Note future is up 6.5/32 at 114-30.5, having traded in a range of 114-10 to 115-13.The 2-Yr yield is down 8.7bps at 3.6565%, 5-Yr is down 4.3bps at 3.4938%, 10-Yr is down 1.5bps at 3.7117%, and 30-Yr is unchanged at 4.0198%.
SOFR FIXES AND PRIOR SESSION REFERENCE RATES
US: SOFR FIX - 06/09/24 - Source BBG/CME
- 1M 5.10984 -0.00816
- 3M 4.93864 -0.00743
- 6M 4.59199 -0.02342
- 12M 4.05361 -0.05677
REPO REFERENCE RATES (rate, change from prev. day, volume):
- Secured Overnight Financing Rate (SOFR): 5.35%, no change, $2205B
- Broad General Collateral Rate (BGCR): 5.32%, -0.01%, $803B
- Tri-Party General Collateral Rate (TGCR): 5.32%, -0.01%, $773B
FED: RRP Usage Holds Prior Decline To Recent Lows
- O/N RRP usage increased just $8bn to $299bn today after yesterday’s new three plus year low of $291bn.
- The number of counterparties fell further to 57, the lowest since Aug 7.
US SOFR OPTION SUMMARY
Friday's SOFR options flow included:
- SFRU4 95.12/95.06ps traded 3.5 in 3.5k.
- SFRU4 95.06/95.18cs 2x3, traded 5.25 and 5.5 in 2.5k.
- SFRU4 95.12/95.25cs traded 4.5 and 4.75 in 6.5k.
- SFRU4 95.25/95.37cs 1x2 traded 1.5 in 5k.
- SFRU4 95.25/95.31cs, bought for 1 I 12k total
- SFRU4 95.2595.31/95.37/95.43c condor, traded 1.25 in 6.5k.
- SFRU4 95.50c traded half in 10k.
- SFRU4 95.12c sold at 4.75 in 12k total.
- SFRU4 95.25c sold at 1.25 in 10k
- SFRU4 95.12 call vs 9512.25 sold at 4.75 in 15k all day
- SFRU4 95.00/95.12/95.25 cfly sold at 4 in 2.5k
- SFRU4 94.93/95.50 traded 0.25 for the c in 6k. (risk reversal)
- SFRU4 95.18/95.12/95.06p ladder traded 0.75 in 2.5k. (block)
- SFRU4 95.18/95.31cs traded 3.25 and 3.5 in 10k. (block)
- SFRV4 95.50p, traded 1.25 in 8.5k.
- SFRZ4 95.50p, traded 4.5 in 7.5k.
- SFRZ4 95.87/96.12/96.87c ladder vs 95.25p traded 2.25 and 2.5 in 5k.
- SFRZ4 96.12/96.25cs 2x3 traded 10 in 5k. (block)
- SFRH5 96.31/96.00ps 2x3 traded 12.5 in 5k.
- SFRM5/0QM5 97.50c, spread, traded for -6 in 5k.
EGBs-GILTS CASH CLOSE: Bull Steeper To Close A Strong Week
European core bonds strengthened for the 4th consecutive session Friday, with a softer-than-expected US employment report driving significant intraday volatility.
- Below-consensus August US nonfarm payroll gains plus downward revisions to prior spurred a sizeable rally across global core FI, with yields dropping to session lows as the data were seen to support more aggressive Fed easing.
- However the move quickly faded as the underlying data and key Fed policymakers were seen to be equivocal on confirming an outsized 50bp cut at the FOMC's September meeting, and within 1.5 hours yields had fully reversed to session highs.
- Earlier in the session, Eurozone quarterly labour cost and GDP data came in on the soft side, while German industrial production was well below-expected.
- Bunds outperformed Gilts, with both the UK and German curves bull steepening on the day. The 2Y segment benefited not so much from near-term US rate expectations, but from a softer expected trajectory overall in 2024-26.
- Periphery EGB spreads widened in afternoon trade as equities sold off.
- Focus next week will be on the ECB decision Thursday, for which expectations are firmly for a cut in the deposit rate by 25bps to 3.50%. We also get UK labour market and economic activity readings.
Closing Yields / 10-Yr Periphery EGB Spreads To Germany
- Germany: The 2-Yr yield is down 6.6bps at 2.23%, 5-Yr is down 4.9bps at 2.046%, 10-Yr is down 3.6bps at 2.172%, and 30-Yr is down 2bps at 2.436%.
- UK: The 2-Yr yield is down 5.2bps at 3.954%, 5-Yr is down 3.5bps at 3.773%, 10-Yr is down 2.9bps at 3.886%, and 30-Yr is down 1.2bps at 4.431%.
- Italian BTP spread up 2bps at 145.2bps / Spanish up 1.3bps at 82.5bps
EUROPE OPTIONS: Relatively Limited Trade Amid Busy Overall Session
Friday's Europe rates/bond options flow included:
- DUV4 107.20/107.50cs, bought for 3 in 2k.
- RXV4 136/137cs, bought for 14 in 4k.
- ERZ4 97.00/97.25/97.50 call fly paper paid 4.0 on 6K
FOREX: USDJPY Pressure Maintained, Key Support Looms
- A slightly softer-than-expected non-farm payrolls release and was offset by firmer average hour earnings figures on Friday. Downward revisions initially contributed to a softer greenback, however, the USD index continued to trade in a volatile manner and owing to the continued weakness for major equity benchmarks, looks set to close in moderate positive territory on the session.
- Fed speak added to the USD noise with comments from Williams and Waller adding little to the 25bp vs 50bp debate ahead of the Sep 18 FOMC decision.
- Standing out once again this week, is the Japanese Yen. USDJPY is currently down 0.80% at 142.30, owing to the pressure on equities and lower US yields. However, the pair has exhibited a 223 pip range, further evidence of the ongoing sensitivity to US data and bouts of waning global risk sentiment.
- The pair traded as low as 141.78, just 8 pips above the key support. The increasing significance of this technical area and the close proximity to the weekend means it is worth highlighting some levels further down. These include 140.82 - Low Jan 2 and 140.25 - Low Dec 28 ‘23 and a key support, levels that could come under threat early next week ahead of US CPI data.
- The dynamic of haven demand worked in favour of the greenback against the likes of AUD (-1.08%) and NZD (-0.85%), with these risk sensitive currencies the worst performers in G10. EUR and GBP have also weakened, but to a lesser degree, and developments for equities will be key in whether further downside in these majors can gather steam.
- Aside from US CPI, the ECB meeting will be in focus next week, as well as China inflation data and labour market figures in the UK.
FX OPTIONS: Expiries for Sep09 NY cut 1000ET (Source DTCC)
- EUR/USD: $1.0855(E1.3bln), $1.1040-60(E1.8bln), $1.1100(E886mln), $1.1125(E572mln), $1.1150-60(E850mln), $1.1175(E1.7bln), $1.1200(E2.4bln), $1.1225(E614mln)
- USD/JPY: Y142.00($1.1bln), Y142.50-70($3.2bln), Y143.90-00($818mln), Y145.00($1.5bln), Y146.50($2.0bln)
- GBP/USD: $1.3170-75(Gbp611mln)
- USD/CAD: C$1.3500-10($581mln)
EQUITY TECHS: E-MINI S&P: (U4) Corrective Pullback
- RES 4: 5821.25 1.00 proj of the Apr 19 - Jul 16 - Aug 5 price swing
- RES 3: 5800.00 Round number resistance
- RES 2: 5721.25 High Jul 16 and key resistance
- RES 1: 5557.86/5669.75 20-day EMA / High Sep 3 and a bull trigger
- PRICE:5526.25 @ 14:31 BST Sep 6
- SUP 1: 5466.50 Intraday low
- SUP 2: 5459.75 38.2% retracement of the Aug 5 - Sep 3 bull leg
- SUP 3: 5438.75 Low Aug 14
- SUP 4: 5394.88 50.0% retracement of the Aug 5 - Sep 3 bull leg
This week's move lower in S&P E-Minis highlights the start of a corrective cycle. The pullback has resulted in a breach of the 20-day EMA and the pair has also traded through support at the 50-day average, at 5520.21. A clear break of this EMA would signal scope for a deeper retracement towards 5459.75 initially, a Fibonacci retracement. Key near-term resistance has been defined at 5669.75, the Sep 3 high.
COMMODITIES: Crude Moves to Losses, Precious Metals Slide Following NFP Miss
- Crude has fallen back into losses on the day, amid weaker US payroll data, coupled with lower Aramco OSPs signalling further bearishness.
- WTI Oct 24 is down by 1.9% at $67.9/bbl, taking the weekly loss to around 7.7%.
- For WTI futures, the breach of key support at $70.88, the Aug 5 low, paves the way for an extension towards $66.66, a Fibonacci projection. Initial resistance is at $73.11, the 20-day EMA.
- Spot gold is down by 0.9% today, bringing the yellow metal back below the $2,500 mark at $2,494/oz, leaving it marginally lower on the week.
- With the trend condition in gold still bullish, sights remain on $2,536.4 next, a Fibonacci projection. Initial support is at $2,472.0, the Sep 4 low.
- Silver is underperforming today, down by 3.2% at $27.9/oz, taking the gold-silver cross to its highest level since August 14.
- A medium-term bearish cycle in silver remains intact, with key support at $26.018, the May 2 low.
- Copper has also slid by 1.7% to $407/lb, following the soft US payrolls data, leaving the red metal 3.4% lower over the week.
- A bear cycle in copper futures remains intact, with focus on $396.45, the Aug 7 low. Clearance of this support would expose $374.65, the Feb 9 low.
| Date | GMT/Local | Impact | Country | Event |
| 09/09/2024 | 2301/0001 | ** |  GB | KPMG/REC Jobs Report |
| 09/09/2024 | 2350/0850 | ** |  JP | GDP (r) |
| 09/09/2024 | 0130/0930 | *** |  CN | CPI |
| 09/09/2024 | 0130/0930 | *** | CN | Producer Price Index |
| 09/09/2024 | 1400/1000 | ** |  US | Wholesale Trade |
| 09/09/2024 | 1500/1100 | ** | US | NY Fed Survey of Consumer Expectations |
| 09/09/2024 | 1530/1130 | * | US | US Treasury Auction Result for 13 Week Bill |
| 09/09/2024 | 1530/1130 | * | US | US Treasury Auction Result for 26 Week Bill |
| 09/09/2024 | 1900/1500 | * | US | Consumer Credit |
| 10/09/2024 | 0600/0800 | *** |  DE | HICP (f) |
| 10/09/2024 | 0600/0700 | *** | GB | Labour Market Survey |
| 10/09/2024 | 0600/0800 | *** |  NO | CPI Norway |
| 10/09/2024 | 0700/0900 | ** |  ES | Industrial Production |
| 10/09/2024 | 0800/1000 | * |  IT | Industrial Production |
| 10/09/2024 | 0900/1000 | * | GB | Index Linked Gilt Outright Auction Result |
| 10/09/2024 | 1000/0600 | ** | US | NFIB Small Business Optimism Index |
| 10/09/2024 | 1100/1200 | GB | BOE's Breeden remarks from Wharton-IMF Dialogue - Text release | |
| 10/09/2024 | - | *** | CN | Trade |
| 10/09/2024 | - | *** | CN | Money Supply |
| 10/09/2024 | - | *** | CN | New Loans |
| 10/09/2024 | - | *** | CN | Social Financing |
| 10/09/2024 | 1210/0810 |  CA | BOC Governor Macklem speech in London UK | |
| 10/09/2024 | 1255/0855 | ** | US | Redbook Retail Sales Index |
| 10/09/2024 | 1400/1000 | US | Fed Vice Chair Michael Barr | |
| 10/09/2024 | 1530/1130 | * | US | US Treasury Auction Result for Cash Management Bill |
| 10/09/2024 | 1700/1300 | *** | US | US Note 03 Year Treasury Auction Result |
| 11/09/2024 | 0600/0700 | ** | GB | UK Monthly GDP |
| 11/09/2024 | 0600/0700 | ** | GB | Trade Balance |
| 11/09/2024 | 0600/0700 | ** | GB | Index of Services |
| 11/09/2024 | 0600/0700 | *** | GB | Index of Production |
| 11/09/2024 | 0600/0700 | ** | GB | Output in the Construction Industry |
| 11/09/2024 | 0900/1000 | ** | GB | Gilt Outright Auction Result |
| 11/09/2024 | 1100/0700 | ** | US | MBA Weekly Applications Index |
| 11/09/2024 | 1230/0830 | *** | US | CPI |
| 11/09/2024 | 1230/0830 | * | CA | Intl Investment Position |
| 11/09/2024 | 1400/1000 | * | US | Services Revenues |
| 11/09/2024 | 1400/1000 | US | MNI Connect Video Conference on ‘Fed Balance Sheet – Comparison with Other Central Banks’ | |
| 11/09/2024 | 1430/1030 | ** | US | DOE Weekly Crude Oil Stocks |
| 11/09/2024 | 1700/1300 | ** | US | US Note 10 Year Treasury Auction Result |
| 12/09/2024 | - |  EU | European Central Bank Meeting |
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