MNI ASIA MARKETS ANALYSIS: Cautious Dovishness Pre-Payrolls

MNI (NEW YORK) - HIGHLIGHTS:

• Equities And USD Hold Modest Losses, Treasuries Edge Higher After Mixed US Data Thursday
• Futures Imply 40% Probability Of 50bp Sept Fed Cut Headed Into Friday's Employment Report
• Aug Payrolls Seen Bouncing to 160k, Unemp At 4.2% With Dovish Skew - See MNI Preview Below

US TSYS: Early Gains Faded With All Eyes On Payrolls

Treasuries edged higher Thursday as incoming labor market data painted a mixed picture ahead of Friday's crucial nonfarm payrolls report.

• In a session that brought multiple employment indicators, a sizeable ADP private payrolls miss at 0815ET (99k vs cons 145k) saw futures jump to session highs.
• Markets largely looked past the slightly stronger-than-expected weekly jobless claims and quarterly productivity data 15 minutes later, allowing Dec TYs to extend to 114-29+ (up 11.5 ticks on the day) before a solid ISM Services report at 1000ET  51.5 (cons 51.4) triggered a reversal lower in TYs back to session lows.
• Afternoon trade was relatively subdued, with Treasuries regaining ground into the close to settle in the middle of the session's rang, with equities stabilizing and attention turning toward Friday's employment report.
• The closely-watched 2s10s set a fresh 2-year high (1.532bp) intraday after the ADP data but ended up inverting further post-ISM, as the short-end remained relatively anchored. September Fed rate cut pricing again neared 50/50 for 50bp in Fed Funds futures, before fading to 40/60.
• Friday's calendar is dominated by payrolls and their implications for Fed policy - our August employment report preview is here (PDF); later in Friday's session we will hear from the FOMC's Williams, Goolsbee and Waller who are anticipated to provide a final steer on the rate outlook going into the pre-September meeting blackout starting this weekend.
• Latest levels: Dec 10-Yr futures (TY) up 5.5/32  at 114-23.5 (L: 114-16 / H: 114-29.5). The 2-Yr yield is down 0.4bps at 3.7497%, 5-Yr is down 0.9bps at 3.5404%, 10-Yr is down 2.5bps at 3.7307%, and 30-Yr is down 3.4bps at 4.0234%.
   

MNI NONFARM PAYROLLS PREVIEW - PDF LINK

Nonfarm payrolls growth is expected to see a partial bounce in August to 165k after a particularly soft 114k, with continued questions over the extent to which the latter was driven by one-off factors.

• Expect particular sensitivity to the unemployment rate: consensus looks for 4.2% after the surprisingly large 0.20pp increase to 4.25% in July was mostly driven by temporary layoffs. Surprises in either direction can confirm either a 25bp or 50bp Fed cut in September.

   

SOFR FIXES AND PRIOR SESSION REFERENCE RATES

REPO REFERENCE RATES (rate, change from prev. day, volume):

• Secured Overnight Financing Rate (SOFR): 5.35%, 0.01%, $2169B
• Broad General Collateral Rate (BGCR): 5.32%, -0.01%, $793B
• Tri-Party General Collateral Rate (TGCR): 5.32%, -0.01%, $760B

STIR: New York Fed EFFR for prior session (rate, chg from prev day):

• Daily Effective Fed Funds Rate: 5.33%, no change, volume: $103B
• Daily Overnight Bank Funding Rate: 5.33%, no change, volume: $238B

FED: RRP Level Falls To One-Month Low

Takeup of the NY Fed's overnight reverse repo facility fell to $291B Thursday, down $46B.

• That is the lowest level since the 3+ year low of $286.7B set on August 7.
• The operation saw just 59 counterparties - down 5 from Wednesday, and the lowest since Aug 8.

US SOFR/TREASURY OPTION SUMMARY

Thursday's SOFR Options flow included:

• SFRU4 95.25/95.31cs traded for 1.25 in 12k.
• SFRU4 95.31/95.43cs traded 0.75 in 2.5k.
• SFRU4 95.31/95.37cs traded half in 11k
• SFRU4 95.12/95.25cs, sold at 4.75 in 5k.
• SFRU4 95.12^, bought for 14 in 2k.
• SFRU4 95.12/95.25/95.31c fly, bought for 1 in 5k.
• SFRU4 95.12/95.18cs, bought for 2.75 in 6k.
• SFRV4 95.87/96.12/96.25c fly traded 5.5 in 2k.
• SFRV4 95.81/95.75/95.68/95.62p condor, traded 1 in 3k vs futures and 1 in 9.5k straight.
• SFRZ4 95.87/96.12/96.37c fly traded 3 in 1.5k.
• SFRZ4 95.50/95.62/95.75c fly traded 1 in 13.5k.
• SFRZ4 96.00/96.25cs vs 0QZ4 98.00c bought the front for 0.25 in 15k
• SFRH5 97.00/97.31cs traded 5.25 in 5k (block)
• SFRH5 96.75/97.50/97.75/98.50c condor, sold at 9.25 in 50k
• SFRH5/SFRM5 96.00p spread, traded half for the H5 in 5k (block)
• 0QZ4 97.50/98.00cs traded 3.5 in 3k(block)

Treasury options:

• FVZ4 111.50/111.75/112.25/112.50c condor, bought for 1.5 in 5k.
• TYV4 116c, bought for '18 in 6.6k
• TYV4 112.50p bought for '6 and '5 in circa 50k, has traded multiple times today.
• TYX4 116/117/118c fly, bought for 6 in 6k.

BONDS: EGBs-GILTS CASH CLOSE: Rally Extends Amid Mixed US Jobs Data

Core European yields fell for a third consecutive session Thursday, with US labour market data continuing to guide direction ahead of Friday's key nonfarm payrolls release.

• Bunds and Gilts started on the back foot, with EGBs weighed down by heavy Spanish and French supply, and a stronger-than-expected headline German factory orders reading.
• US data including a below-expected ADP private payrolls figure helped boost global core FI in early afternoon trade, with Bund and Gilt futures hitting session highs, but the rally was pared later in the session due in part to a solid US ISM Services report.
• The German and UK curves bull steepened onthe day, with Gilts outperforming slightly overall.
• Periphery EGB spreads were little changed, with BTPs rising from intraday tights set after the announcement of Michel Barnier as the new French PM.
• Most focus Friday will be on the US employment report; we also get German and French industrial production data, and the final reading of Eurozone Q2 GDP which will include key details on labour costs ahead of next week's ECB meeting.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is down 2.7bps at 2.296%, 5-Yr is down 1.6bps at 2.095%, 10-Yr is down 1.6bps at 2.208%, and 30-Yr is down 1.5bps at 2.456%.
• UK: The 2-Yr yield is down 2.5bps at 4.006%, 5-Yr is down 2.5bps at 3.808%, 10-Yr is down 2bps at 3.915%, and 30-Yr is down 2.5bps at 4.443%.
• Italian BTP spread down 0.4bps at 143.2bps / Spanish down 0.5bps at 81.2bps

OPTIONS: Largely Upside Targeted Thursday

Thursday's Europe rates/bond options flow included:

• DUX4/DUZ4 107/107.3cs 1x2 spread, bought the Dec and receive 5 in 5k. This also traded Weds in 5k
• RXV4 135.50 calls paper paid 31 up to 32 on ~6K.
• ERU4 96.62/96.75 call spread paper paid 0.75 on 10K
• 0RZ4 98.50/99.00cs, bought for 3 in 4k.
• SFIX4 95.65/95.75 cs, bought for 2.75 in 6.75k total.

FOREX: Another Punchy USDJPY Range, Daily G10 Adjustments Contained

• Sensitivity to the plethora of US data and movements in major equity benchmarks kept the Japanese Yen in significant focus Thursday, with USDJPY exhibiting another punchy 140pip range on the session.
• Early USDJPY weakness was exacerbated by a soft US ADP release, and the pair reached as low as 142.85, an impressive sell-off from the 147.21 highs registered just on Tuesday. However, slightly better jobless claims data and an all-around solid ISM services report helped USDJPY extend its intra-day recovery, rising the best part of 1% to a 144.23 session high.
• Late weakness for equities dragged the pair back down into negative territory on the day and keeps markets on high alert ahead of the key US employment data on Friday, where short-term parameters appear well defined ahead of the event. On the downside, 142.85 and 141.70 provide support, while stronger US labour market dynamics should bolster the recovery towards the 20-day EMA at 146.20 and the week’s high at 147.21.
• Even greater volatility for MXNJPY was a key component of currency developments on Thursday, where a souring global and domestic picture helped USDMXN to rise as highs as 20.1491. This pair looks set to close at the highest level since late 2022 and developments for both the Yen and equity markets on Friday may be key to extend the peso’s woes.
• Despite the late equity weakness, the likes of EUR, GBP, AUD and NZD are all moderately rising on the session as traders await tomorrow’s US data for the next driver of greenback direction.
• Nonfarm payrolls growth is expected to see a partial bounce in August to 165k after a particularly soft 114k, with continued questions over the extent to which the latter was driven by one-off factors. This is expected to be a key ingredient to the Fed’s Sep 18th decision.
   

FX OPTIONS:  Larger FX Option Pipeline

• EUR/USD: Sep09 $1.0855(E1.3bln), $1.1040-60(E1.1bln), $1.1175(E1.7bln), $1.1200(E2.3bln); Sep10 $1.1000(E1.5bln), $1.1125(E1.2bln), $1.1200(E1.1bln)
• USD/JPY: Sep09 Y142.60-70($2.8bln), Y145.00($1.1bln), Y146.50($2.0bln); Sep10 Y145.70-80($2.8bln); Sep11 Y142.50-60($3.3bln)
• AUD/USD: Sep10 $0.6800(A$1.3bln); Sep11 $0.6610-25(A$1.3bln)
• USD/CNY: Sep10 Cny7.0450($1.3bln)

EQUITY TECHS: E-MINI S&P: (U4) Pierces Support At The 50-Day EMA 

• 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: 5562.66/5669.75 20-day EMA / High Sep 3 and a bull trigger        
• PRICE: 5518.25 @ 07:56 BST Sep 5
• SUP 1: 5506.75 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

A bullish theme S&P E-Minis remains intact, however, Tuesday’s sharp sell-off signals the start of a corrective cycle. Price has traded through the 20-day EMA and pierced support at the 50-day average, at 5520.21. A clear break of the 50-day EMA would signal scope for a deeper retracement towards 5459.75, a Fibonacci retracement. Key near-term resistance has been defined at 5669.75, the Sep 3 high. A breach of it would be bullish.

COMMODITIES: Crude Steady Despite OPEC Delay, Spot Gold, Copper Rise

• Crude markets have given up earlier gains, erasing the initial jump driven by OPEC’s decision to delay the unwinding of production cuts. The market seemingly lacks confidence in OPEC+’s ability to control global balances at present.
• WTI Oct 24 is broadly unchanged at $69.2/bbl.
• The clear break of key support at $70.88, the Aug 5 low, paves the way for an extension towards $66.66, a Fibonacci projection.
• In contrast, Henry Hub has maintained most of its gains on the day, supported by a smaller than expected injection into US natural gas storage last week.
• US Natgas Oct 24 is up 5.3% at $2.26/mmbtu.
• Meanwhile, spot gold has risen by 0.8% to $2,516/oz, keeping the yellow metal close to last month’s record high of $2,531.75, ahead of tomorrow’s key US labour market data.
• Focus remains on $2,536.4 next, a Fibonacci projection, while initial support is at $2,472.0, the Sep 4 low.
• Copper has also risen by 1.5% today to $414/lb.
• A bear cycle in copper futures remains intact, however, with attention on $396.45, the Aug 7 low. Clearance of this support would expose $374.65, the Feb 9 low.
• On the upside, the 50-day EMA at $424.92 has recently been pierced. A clear break of this would signal scope for stronger gains towards $444.30, the Jul 18 high.

Date	GMT/Local	Impact	Country	Event
06/09/2024	0600/0800	**	DE	Trade Balance
06/09/2024	0600/0800	**	DE	Industrial Production
06/09/2024	0600/0700	*	GB	Halifax House Price Index
06/09/2024	0645/0845	*	FR	Industrial Production
06/09/2024	0645/0845	*	FR	Foreign Trade
06/09/2024	0700/0900		EU	ECB's Elderson speech at ESCB Conference
06/09/2024	0900/1100	***	EU	GDP (final)
06/09/2024	0900/1100	*	EU	Employment
06/09/2024	0900/1100	*	IT	Retail Sales
06/09/2024	1230/0830	***	US	Employment Report
06/09/2024	1230/0830	***	CA	Labour Force Survey
06/09/2024	1230/0830	**	US	WASDE Weekly Import/Export
06/09/2024	1245/0845		US	New York Fed's John Williams
06/09/2024	1400/1000	*	CA	Ivey PMI
06/09/2024	1500/1100		US	Fed Governor Christopher Waller
06/09/2024	1700/1300	**	US	Baker Hughes Rig Count Overview - Weekly
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	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