MNI ASIA MARKETS ANALYSIS: ADP-Tied Rally Holds Sway

US TSYS Markets Roundup: Lower ADP Kindles Hops For Softer Policy

• A risk-on tone held in late trade (stocks bouncing late) after markets latched onto this morning's lower than expected ADP private employment vs. ISM Services PMI that pointed to slower albeit strong growth.
• While there isn't a strong correlation, lower private jobs gain ahead Friday's NFP is a potential setup for softer policy expectations that have been weighing on rates and stocks the last four weeks.
• Initially following EGBs, Treasury futures continue to reject overnight cycle lows (TYZ3 106-03.5, 10Y yield 4.8799% high) then extended the rally after ADP Employment Change comes in much lower than expected +81k vs.150k est, +177k prior.
• Following mixed EU servicer PMI overnight, US services PMI was 50.1 (vs 50.2 flash; 50.5 prior), the composite print was 50.2 (vs 50.1 flash; 50.2 prior). "September data indicated a continued decline in new business at service sector firms"…"lower new orders were reportedly linked to weak domestic and foreign client demand".
• Dec'23 10Y futures topped 107-00 to 107-05 high in the first half, while yield slipped to 4.7246% low. Technical resistance focus on 107-14 (High Oct 3).
• Cross asset summary: Greenback softer (DXY -.195 at 106.805), Gold weaker (-3.98 at 1819.04), crude broadly weaker (WTI -4.67 at 84.56). Stocks back near midday highs with S&P E-Mini futures up 28.75 points (0.67%) at 4293.25, DJIA up 86.46 points (0.26%) at 33088.8, Nasdaq up 164 points (1.3%) at 13223.73.
• Thursday Data Calendar: Weekly Claims, Trade Balance, and various Fed speakers: Cleveland Fed Mester, MN Fed Kashkari, Richmond Fed Barkin, SF Fed Daly and Fed Vice Chair Barr.

SHORT TERM RATES

SOFR Benchmark Settlements:

• 1M +0.00289 to 5.33040 (+0.01141/wk)
• 3M +0.00811 to 5.42240 (+0.02690/wk)
• 6M +0.00759 to 5.49332 (+0.02605/wk)
• 12M +0.00599 to 5.48366 (+0.01740/wk)

• Daily Effective Fed Funds Rate: 5.33% volume: $94B
• Daily Overnight Bank Funding Rate: 5.32% volume: $245B

• Secured Overnight Financing Rate (SOFR): 5.33%, $1.498T
• Broad General Collateral Rate (BGCR): 5.30%, $539B
• Tri-Party General Collateral Rate (TGCR): 5.30%, $533B
• (rate, volume levels reflect prior session)

FED REVERSE REPO OPERATION

Repo operation usage slips to $1,342.031B - lowest since early November 2021 w/96 counterparties vs. $1,348.465B in the prior session. The high for 2023 stands at $2,375.171B on Friday March 31, 2023; all-time record high of $2,553.716B reached December 30, 2022.

SOFR/TRASURY OPTION SUMMARY

Carryover rate hike insurance/put buying faded Early Wednesday as underlying futures rebounded, trading higher/near highs at the bell. Better SOFR and Treasury call interest reported as rate hike projections into early 2024 softened: November at 22.2% w/ implied rate change of +5.6bp to 5.384%, December cumulative of 9.7bp at 5.426%, January 2024 7.9bp at 5.408%. Fed terminal slips to 5.425% in Jan'24.

• SOFR Options:
  • Block, 5,000 SFRH4 94.75/95.25 call spd (8.0) with SFRH4 95.00/95.25 call spd (3.0), 11.0 total debit
  • Block, 5,000 SFRZ4 96.00/97.00/98.00 call flys, 10.0
  • Block, 5,000 SFRM4 96.50 calls, 10.5 ref 94.85
  • Block, 5,000 SFRM4 96.50/96.75/97.00 call tree on 2x1x2 ratio, 1.5 net, 3 legs over
  • Block, 50,000 SFRZ3 94.75/95.00 call spds, 1.5 ref 94.545
  • +10,000 3QV3 91.12/96.25 call spds, 1.25 ref 95.81
  • -5,000 SFRM4 96.00/97.00 call spds, 7.5 vs. 94.80/0.05%
  • -5,000 SFRF4 94.62/94.75 strangles, 32-31.5
  • 2,000 SFRZ3 94.56/94.68/94.81 call flys ref 94.52
  • 4,500 SFRZ3 94.50/94.56/94.62/94.68 call condors ref 94.52
  • 2,000 3QZ3 95.75/96.12/96.37/96.62 broken put condors ref 95.755
  • 2,000 SFRH4 94.87/95.87 call spds vs. 2QH4 96.87/97.87 call spds
  • Block/screen, 7,000 SFRH4 95.50/96.00 call spds, 3.25 ref 94.61
  • 3,250 SFRH4 95.00/95.50 call spds vs. 0QH4 97.00/97.50 call spds
  • 3,000 SFRV3 94.62 calls, 1.0 ref 94.525
  • 3,000 SFRZ3 94.68 calls, 4.5 ref 94.515
  • Block/screen, 5,000 SFRX3 95.06/95.31 call spds, 0.5 ref 94.52 to -.515
  • 3,000 SFRX3 95.06 calls, 1.75 ref 94.52
  • Block, 5,000 SFRX3 95.06/95.37 call spds 0.5 ref 94.52
  • 4,500 SFRZ3 94.50/94.62 call spds ref 94.52
• Treasury Options:
  • over 2,600 FVX3 105/106 call spds 14 ref 104-22
  • 2,000 FVX3 106.5/108.5 1x2 call spds ref 104-20
  • over 4,000 TYZ3 107.5 puts, 140
  • 1,500 TYZ3 109/111/113 call flys
  • 2,000 FVZ3 108 calls, 6.5 ref 104-15.25
  • 4,500 TUZ3 100.87/101.25/101.5/101.87 call condors ref 101-04.88
  • 2,600 TYZ3 104.5 puts, 41 ref 106-17
  • 2,200 FVZ3 106.25 calls, 19 ref 104-12.5
  • over 7,800 TYX3 106.75 calls, 52-53 ref 106-13 to -14
  • Decent overall TYX put volumes:
  • 26,800 TYX3 105 puts, 24 last
  • 17,700 TYX3 105.5 puts, 32 last
  • 12,000 TYX3 106 puts, 45 last
  • 38,000 TYX 106.5 puts, 60 last
  • 12,200 TYX3 108 puts ref 106-13.5
  • 6,700 TYX3 104.5 puts ref 106-14
  • over 30,000 TYX3 105.25 puts, 28-30 ref 106-16 to -13 (small tied to 105.25/106.5 2x1 put spds)

EGBs Bund Retracement From 3.00% Extends Further

Bunds continue to grind away from session lows, with the benchmark futures contract +15, a little shy of recent session highs.

• Recent flow has seen a 6.6K block in bund futures, price action points to a buy, although it’s harder to be sure when looking at quoted levels at the time that the trade was registered.
• German cash benchmarks sit 1.0-6.5bp richer on the day as the curve bull flattens, with bears failing to solidify this morning’s brief and limited showing above 3.00% in 10-Year yields.
• Softer than expected eurozone retail sales data wouldn’t have harmed the bid, while positive revisions to final Eurozone services & composite PMIs did little to hinder the rally.
• German 2s10s tick away from the multi-month highs registered this morning, while 5s30s move off YtD steeps registered early today.
• EGBs run a touch wider vs. Bunds on the day, although the move is contained.
• BTPs were not sensitive to a RTRS sources piece noting that “Italy risks collecting minimal proceeds from a windfall tax on banks after it gave lenders the option to set aside money instead of paying the levy.”
• 10-Year PGBs are incrementally wider on the day after a couple of sessions of compression (with the latter related to a sovereign rating upgrade and reduced issuance requirements for the remainder of ’23).

FOREX USD Rally Falters as Yields Roll Off Highs

• Early gains for the USD accompanied another surge higher for longer-end US yields, as the 10y and 30y yields crested at new cycle highs, steepening the curve in the process. The 30y yields managed to show north of 5% for the first time this cycle, a move that initially helped pressure the likes of EUR/USD and GBP/USD into the NY crossover.
• Nonetheless, the momentum soon faded, allowing beleaguered USD pairs to recover some of this week's sharp losses. As a result, the USD was mixed through the European close, allowing GBP, EUR and CHF to trade among the best performers in developed markets. Nonetheless, the medium-term USD uptrend drawn off the July low remains intact, meaning this price action could be consolidative, rather than the beginning of any major reversal for the greenback.
• Lastly, a pullback in oil prices worked against oil-tied currencies to leave the NOK and CAD among the poorest performers in G10. Oil prices slipped sharply to partially reverse the solid gains posted across August and September, as demand concerns peaked amid Saudi Arabia and Russia's plans to continue their policy of reduced output. The OPEC JMMC meeting came and went with little consequence.
• Focus Thursday remains on the US labour market, as the Challenger job cuts and weekly jobless claims data provide the last look at jobs sentiment ahead of Friday's Nonfarm Payrolls. Markets look for the US to have added around 170k jobs over the month of September, with the UAW strike and the conclusion of the actors strike seen having minimal impact.

FX Expiries for Oct05 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0500(E954mln), $1.0525(E582mln)
• USD/JPY: Y147.85-00($843mln), Y148.40($565mln), Y149.00($802mln)
• GBP/USD: $1.2100(Gbp506mln)
• AUD/USD: $0.6400(A$584mln), $0.6425-40(A$1.0bln)

Late Equity Roundup: Consumer Discretionary, IT Outperform

• Stocks have scaled back midday highs, running mixed in late trade as earlier post-ADP risk-on tone cooled. Currently, S&P E-Mini futures are up 13.5 points (0.32%) at 4278.75, DJIA down 16.57 points (-0.05%) at 32985.91, Nasdaq up 118.8 points (0.9%) at 13178.08.
• Leaders: Consumer Discretionary sector bounced from weaker levels in the first half of the week, underpinned by auto maker Tesla +4.56% and parts maker Aptiv +1.11% followed by cruise lines Carnival +2.75%, Norwegian +2.6%.
• Communication Services and Information Technology sectors continued to outperform, interactive media and entertainment shares buoyed the former: Google +1.55%, News Corp +1.45%, Meta +1.1%. IT, meanwhile, led by software and services providers: Fair Isaac +2.33%, Oracle +1.88%, Cadence +1.85%.
• Laggers: Energy and Utilities continued to underperform, the former as crude prices fell sharply (WTI -4.86 at 84.37) as U.S. gasoline inventories surged by 6.5M barrels. Devon Energy -6.12%, Marathon -6.05%, APA traded -5.19%, Schlumberger -5.05%. Independent power and electricity providers weighed on Utilities: AES -3.85%, NextEra Energy -4.1%, AES -2.88%, NRG -1.61%.
• Technicals: A bear cycle in S&P E-minis remains in play. The contract traded lower yesterday, confirming a resumption of the bear leg and maintaining the price sequence of lower lows and lower highs. This signals scope for weakness towards 4194.75, the May 24 low. Pivot resistance is 4453.89, the 50-day EMA. Ahead of the 50-day average is resistance at 4401.10, the 20-day EMA.

E-MINI S&P TECHS: (Z3) Bears Remains In The Driver’s Seat

• RES 4: 4566.00 High Sep 15 and a key resistance
• RES 3: 4514.50 High Sep 18
• RES 2: 4453.89 50-day EMA
• RES 1: 4401.10 20-day EMA
• PRICE: 4279.00 @ 1450ET Oct 4
• SUP 1: 4235.50 Intraday low
• SUP 2: 4194.75 Low May 24
• SUP 3: 4166.25 1.50 proj of the Jul 27 - Aug 18 - Sep 1 price swing
• SUP 4: 4134.00 Low May 4

A bear cycle in S&P E-minis remains in play. The contract traded lower yesterday, confirming a resumption of the bear leg and maintaining the price sequence of lower lows and lower highs. This signals scope for weakness towards 4194.75, the May 24 low. Pivot resistance is 4453.89, the 50-day EMA. Ahead of the 50-day average is resistance at 4401.10, the 20-day EMA.

COMMODITIES

• WTI Crude Oil (front-month) down $4.76 (-5.33%) at $84.49
• Gold is down $5.07 (-0.28%) at $1817.94

U.S. Gasoline Inventories Climb by 6.5 Million Barrels, Largest Weekly Rise Since Jan. 7, 2022 -- EIA

• US EIA: CRUDE OIL STOCKS EX SPR -2.22M TO 414.1M SEP 29 WK
• US EIA: DISTILLATE STOCKS -1.27M TO 118.8M IN SEP 29 WK
• US EIA: GASOLINE STOCKS +6.48M TO 227.0M IN SEP 29 WK
• US EIA: CUSHING STOCKS +0.13M TO 22.1M BARRELS IN SEP 29 WK
• US EIA: SPR +0.3M TO 351.3M BARRELS IN SEP 29 WK
• US EIA: REFINERY UTILIZATION WEEK CHANGE -2.2% TO 87.3% IN SEP 29 WK

THURSDAY DATA CALENDAR

Date	GMT/Local	Impact	Flag	Country	Event
05/10/2023	0030/1130	**		AU	Trade Balance
05/10/2023	0600/0800	**		DE	Trade Balance
05/10/2023	0645/0845	*		FR	Industrial Production
05/10/2023	0700/0900	**		ES	Industrial Production
05/10/2023	0730/0930	**		EU	IHS Markit Final Eurozone Construction PMI
05/10/2023	0830/0930			UK	BOE DMP Survey
05/10/2023	0830/0930	**		UK	IHS Markit/CIPS Construction PMI
05/10/2023	0945/1145			EU	ECB's Lane, BOE Broadbent and Riksbank Breman at ECB MP Conference
05/10/2023	0945/1045			UK	BoE's Broadbent speaks at ECB conference
05/10/2023	1230/0830	***		US	Jobless Claims
05/10/2023	1230/0830	**		US	WASDE Weekly Import/Export
05/10/2023	1230/0830	**		CA	International Merchandise Trade (Trade Balance)
05/10/2023	1230/0830	**		US	Trade Balance
05/10/2023	1300/0900			US	Cleveland Fed's Loretta Mester
05/10/2023	1400/1000	*		CA	Ivey PMI
05/10/2023	1400/1600			EU	ECB's de Guindos speaks at ECB MP Conference
05/10/2023	1430/1030	**		US	Natural Gas Stocks
05/10/2023	1440/1040			US	Minneapolis Fed's Neel Kashkari
05/10/2023	1530/1130			US	Richmond Fed's Tom Barkin
05/10/2023	1530/1130	**		US	US Bill 04 Week Treasury Auction Result
05/10/2023	1530/1130	*		US	US Bill 08 Week Treasury Auction Result
05/10/2023	1600/1200			US	San Francisco Fed's Mary Daly
05/10/2023	1615/1215			US	Fed Vice Chair Michael Barr