HIGHLIGHTS
- Treasuries surged higher after April jobs report missed est's, reigniting more than one rate cut hopes by year end.
- ISM Services data mostly weaker while bounce in Prices Paid to 2023 levels weighed on the midmorning rally.
- With "more jobs reports like this" Chicago Fed Goolsbee said Fed "more confident" the economy is "not over heating".
US TSYS Jobs and ISM Services Miss, Tempered by Gov Jobs, Prices Paid
- Treasuries gapped higher after the headline April jobs data missed est's. Nonfarm payrolls increased 175k in April for a 65k miss along with a -22k two-month revision, but with a partial caveat that the government made up a large part of the downside surprise.
- The u/e rate meanwhile technically surprised higher on a rounded basis at 3.9% but as we’d warned it didn’t take much and indeed it only increased from 3.83% to 3.86%, back to where it was in Feb after its surprise lurch higher.
- Fed speak resumed: With "more jobs reports like this" quipped Chicago Fed President Goolsbee on a Bbg interview, the "more confident" the Fed is that the economy is "not over heating".
- Tsys rallied midmorning again after mostly weaker ISM services data, but pared gains after Prices Paid bounced to 2023 levels: 59.2 vs. 54.9 est. Balance of data ISM Services Index (49.4 vs. 52.0 est), Employment (45.9 vs. 49.0 est), New Orders (52.2 vs. 54.5 est).
- Curves bull steepened as short end rates priced in two 25bp rate cuts by December briefly, levels have moderated since: June 2024 -10% w/ cumulative rate cut -2.5bp at 5.302%, July'24 at -28% vs. -34% (post data high) w/ cumulative at -9.5bp vs. -12.3bp (post data) at 5.233%, Sep'24 cumulative -22.1bp (-25.9bp post data), Nov'24 cumulative -31.7bp (-35.6bp earlier). Dec'24 cumulative currently -46.4bp vs. -54.7bp post data as two 25bp cut pricing moderates.
SOFR FIXES AND PRIOR SESSION REFERENCE RATES
SOFR Benchmark Settlements:
- 1M -0.00043 to 5.32241 (+0.00668/wk)
- 3M -0.00838 to 5.32755 (-0.00195/wk)
- 6M -0.02153 to 5.30693 (-0.00729/wk)
- 12M -0.04870 to 5.20872 (-0.03508/wk)
- Secured Overnight Financing Rate (SOFR): 5.31% (-0.01), volume: $1.838T
- Broad General Collateral Rate (BGCR): 5.31% (+0.00), volume: $703B
- Tri-Party General Collateral Rate (TGCR): 5.31% (+0.00), volume: $697B
- (rate, volume levels reflect prior session)
- Daily Effective Fed Funds Rate: 5.33% (+0.00), volume: $83B
- Daily Overnight Bank Funding Rate: 5.32% (+0.00), volume: $268B
FED Reverse Repo Operation
NY Federal Reserve/MNI
- RRP usage rises to $450.165B vs. $428.680B Thursday. Compares to $327.066B on Monday, April 15 -- the lowest level since mid-May 2021.
- Meanwhile, the latest number of counterparties holds steady at 70.
SOFR/TEASURY OPTION SUMMARY
Still two-way, SOFR and Treasury options leaned bullish Friday as underlying futures surged higher following April jobs miss. Projected rate cut pricing surged after the data but has moderated slightly: June 2024 -10% w/ cumulative rate cut -2.5bp at 5.302%, July'24 at -28% vs. -34% (post data high) w/ cumulative at -9.5bp vs. -12.3bp (post data) at 5.233%, Sep'24 cumulative -22.1bp (-25.9bp post data), Nov'24 cumulative -31.7bp (-35.6bp earlier). Dec'24 cumulative currently -46.4bp vs. -54.7bp post data as two 25bp cut pricing moderates.
- SOFR Options:
- -21,000 SFRU4 94.62/95.00 2x1 put spds, 15.0 ref 94.915
- +10,000 SFRH5 96.25/97.75 call spds 13.5 vs. 95.395/0.18%
- +5,000 SFRH5 95.75/96.00 call spds 1.25 over 94.00/94.50 put spds ref 95.37
- +5,000 SFRU4 94.37/95.00/94.62/94.75 put condors 3.25 ref 94.90
- -5,000 SFRZ4 95.75/96.00 call spds 3.25 ref 95.21
- -8,000 SFRM4 94.68/94.75/94.81 put flys, 1.0
- +10,000 SFRU4 95.0/95.12/95.25 call ef 94.955
- Block/screen, -21,000 SFRU4 94.62/95.00 2x1 put spds, 15.0 ref 94.915
- Block, 5,000 SFRZ4 94.37/94.62/94.87 put flys, 5.5 ref 95.135
- Block, 5,000 SFRZ5 93.75/94.25/94.75 put flys, 4.0/checking direction but paper +47k Wed, +10k Thu, +50k Apr 18
- Block, 7,150 SFRU4 94.81/94.93/95.06 call flys, 2.5
- Block, 10,000 SFRH5 94.43/94.68 put spds, 4.5 ref 95.31
- 6,000 SFRZ4 93.25/94.50/94.56 broken put trees ref 95.075
- Block, 2,500 0QK4 95.00/95.12 put spds, 0.5 ref 95.49
- 3,000 0QM4 95.75/96.00/96.25 call flys ref 95.49
- Block, 5,000 0QK4 95.68/95.81 call spds, 2.0 ref 95.49
- 2,000 SFRZ4 94.37/94.62/94.87 put flys vs. 1,000 SFRZ 96.00 calls
- 2,000 SFRU4 94.62/94.75 put spds vs. 1,000 SFRU4 95.50 calls
- Block, 2,500 0QU4 94.50/95.00/95.50 1x4x2 put flys, 14.5 ref 95.65
- Treasury Options
- 33,000 TYM4 113 calls, 1 vs. 108-23.5/0.03% blocked at 1151:17ET
- 33,000 TYM4 112.75 calls 1 vs. 108-21/0.03% on the screen
- Block, -15,000 TYM4 111 calls, 5.5/splits ref 108-26
- 12,000 TYM4 106 put, 4 ref 108-25.5 at 1133:59ET
- +11,750 TYM4 105.5/111.5 call over risk reversals, 2
- 2,500 FVM4 103/103.5/104/104.5 put condors ref 105-12.5
- 1,500 TUN4 102.25/103 2x3 call spds vs. 3,000 TUN4 101.25 puts
- 2,500 TYN4 110/110.5/111.5/112 call condors ref 108-17
- 4,300 wk2 10Y 106.25 puts, 1 ref 108-08.5 expire next Fri
- 2,100 TYM4 109/110.5 call spds ref 108-10
EGBs-GILTS CASH CLOSE: Bull Steeper On Soft US Jobs Data
The German and UK curves bull steepened to close a busy week amid soft US data.
- After fairly subdued trade in the morning, with Eurozone unemployment steady as expected, Bunds and Gilts surged in early afternoon after US job gains and hourly earnings missed expectations.
- Short-end instruments outperformed on the curve, as implied 2024 cut pricing jumped for both the ECB (from 70bp coming into the session, to 78bp at one point, before closing at 74bp) and BoE (46bp to 58bp to 53bp).
- While the moves partially faded by the cash close, Gilts modestly outperformed Bunds for a second consecutive session.
- Periphery EGB spreads tightened alongside the more dovish central bank easing outlook. Note that Italy is scheduled to be reviewed by Fitch after hours; a negative outlook action is possible but not expected.
- Next week's schedule includes German industrial data and the BoE meeting.
Closing Yields / 10-Yr Periphery EGB Spreads To Germany
- Germany: The 2-Yr yield is down 6.6bps at 2.924%, 5-Yr is down 5.7bps at 2.514%, 10-Yr is down 4.6bps at 2.495%, and 30-Yr is down 2.6bps at 2.619%.
- UK: The 2-Yr yield is down 7bps at 4.356%, 5-Yr is down 7bps at 4.103%, 10-Yr is down 6.4bps at 4.222%, and 30-Yr is down 5bps at 4.7%.
- Italian BTP spread down 0.6bps at 131.7bps / Spanish down 0.4bps at 77bps
EGB Options: Upside In Focus Friday
Friday's Europe rates/bond options flow included:
- SFIN4 95.40/95.65/95.90 call fly - sold at 1.25 in 10k. Apparent liquidation
- ERU4 96.37/96.50/96.62/96.75c condor, bought for 5.25 in 9k
- ERU4 96.75/96.87/97.00c fly, bought for 0.75 in 7k
- ERZ4 96.87/97.00cs vs 96.50/96.37ps, bought the cs for flat in 8k
FOREX USD Index Remains Weaker Despite Post-Payrolls Recovery
- The US employment report showed broad weakness in April with a below consensus NFP, a higher unemployment rate and softer average hourly earnings. This prompted sharp greenback weakness across global markets, most evident for USDJPY which sold off around 130 pips to a fresh three-week low of 151.86.
- The pair closely matched the first major support since the suspected BOJ intervention earlier in the week at 151.91 (50-dma) - which also coincides with solid support at 151.95, the 2022/2023 (and briefly 2024) highs.
- Following a decent bounce of these levels, a stronger prices paid component within the ISM services data assisted a more pronounced recovery for USDJPY and stabilised overall greenback sentiment.
- Healthy price action for equity markets amid bolstered Fed rate cut pricing for 2024 have helped AUD and NZD outperform in G10, both rising around three quarters of a percent, only shadowed by the Norwegian Krona, which has advanced 1.2% on Friday following a relatively hawkish Norges Bank earlier in the session.
- AUDUSD traded firmly higher Friday and in the process breached resistance at 0.6587, the Apr 29 high. The break of this hurdle cancels a recent bearish threat and highlights a resumption of the bull leg that started Apr 19. This opens 0.6668, the Mar 8 high.
- Slightly more subdued price action for EURUSD, however, today’s 0.35% rally has improved the short-term technical set-up. The pair has cleared the 20- and 50-day EMAs. This signal scope for a continuation near-term and attention turns to the bear channel top at 1.0857.
- Holidays in both Japan and the UK on Monday places the short-term focus on central bank decisions in Australia and the UK later in the week, as well as a host of EM central bank meetings.
FX Expiries for May06 NY cut 1000ET (Source DTCC)
- EUR/USD: $1.0700-20(E1.9bln), $1.0745-50(E1.3bln), $1.0800(E586mln)
- USD/JPY: Y152.00-10($909mln), Y153.00-07($601mln), Y154.00($1.0bln)
- AUD/USD: $0.6500(A$624mln), $0.6625(A$1.7bln)
- USD/CAD: C$1.3900($993mln)
- USD/CNY: Cny7.2475($627mln)
Late Equities Roundup: IT, Materials Remain Strong, Earning Wind Down
- Stocks are seeing some late position squaring sales ahead of the weekend (extended Spring holiday for Japan, UK and Ireland), stocks just off midmorning highs. Currently, DJIA is up 433.79 points (1.13%) at 38661.42, S&P E-Minis up 65 points (1.28%) at 5156.25, Nasdaq up 325.4 points (2.1%) at 16167.7.
- Leading gainers: Information Technology and Materials sectors continued to outperform in late trade, chip stocks and hardware makers supporting the former: Apple +7.21% after an upbeat forecast and $110B share buyback annc, Enphase +6.26%, Motorola +5.02%, Nvidia +3.60%. Mining stocks buoyed the Materials sector: Steel Dynamics +3.27%, Freeport-McMoRan +2.79%, Albemarle +2.20%.
- Laggers: Energy and Health Care sectors underperformed late trade, oil and gas shares weighed on the former: EOG Resources -1.46%, Targa Resources -1.09%, Chevron -0.99%. Equipment and services weighed on the Health Care sector: DaVita -4.31%, Cardinal Health -3.74% while Becton Dickenson declined 1.52%.
- While the latest earning cycle is winding down, there are a few larger names to announce: Berkshire Hathaway on Saturday. On Monday: Spirit Airlines, Tyson Foods, Jeld-Wen, Realty Income, Williams Cos, Primerica, Simon Property Goodyear Tire, Vertex, Microchip Technology.
E-MINI S&P TECHS: (M4) Monitoring Resistance At The 20-Day EMA
- RES 4: 5333.50 High Apr 1 and the bull trigger
- RES 3: 5285.00 High Apr 10
- RES 2: 5213.25 High Apr 15
- RES 1: 5166.75 Intraday high
- PRICE: 5158.50 @ 1520 ET May 3
- SUP 1: 5022.25/4963.50 Low Apr 25 / 19 and the bear trigger
- SUP 2: 4907.57 50.0% retracement of the Oct 27 ‘23 - Apr 1 bull leg
- SUP 3: 4863.75 Low Jan 19
- SUP 4: 4799.50 Low Jan 17
The short-term trend condition in S&P E-Minis remains bearish and recent gains appear to be a correction. The contract has recently traded through the 50-day EMA, signalling scope for a continuation lower. A resumption of the bear leg would open 4907.57, a Fibonacci retracement. Firm resistance at 5120.92, the 20-day EMA, has been pierced. A clear breach would instead signal a reversal and expose key resistance at 5333.50, Apr 1 high.
COMMODITIES WTI Declines On Easing Geopolitical Risk Premium
- WTI is on track for losses of around 6.5% on the week, as the easing geopolitical risk premium due to abating Middle East supply fears drives crude prices down.
- WTI Jun 24 is down 0.7% on Friday at $78.4/bbl.
- Price has breached key support at the 50-day EMA, at $81.05, strengthening a short-term bearish theme and opening $76.07, the Mar 11 low.
- Meanwhile, Henry Hub front month has climbed strongly again today, supported by a below expectation increase in US natural gas storage and some discretionary buying as traders take advantage of lower prices.
- US Natgas Jun 24 is up 5.0% at $2.14/mmbtu.
- Spot gold has risen from its intra-day low of $2,277/oz to trade just 0.2% lower on the day at $2,299. This leaves the yellow metal 1.7% lower on the week and 5.4% below its mid-April record high.
- Initial support is at $2281.7, the May 1 low, and a continuation lower would signal scope for an extension towards $2247.3, the 50-day EMA.
- Silver, which has been the higher-beta precious metal, is 0.9% lower on Friday at $26.4/oz. Yesterday's low marks the key support at $26.02, with the 50-dma undercutting at $25.77.
- Copper is up 1.6% on the day at $455.7/lb, leaving the metal 3% below its two-year high reached earlier this week.
MONDAY-TUESDAY DATA CALENDAR
| Date | GMT/Local | Impact | Flag | Country | Event |
| 06/05/2024 | 0900/1100 | ** |  | EU | PPI |
| 06/05/2024 | 1530/1130 | * |  | US | US Treasury Auction Result for 26 Week Bill |
| 06/05/2024 | 1530/1130 | * | | US | US Treasury Auction Result for 13 Week Bill |
| 06/05/2024 | 1650/1250 | | US | Richmond Fed's Tom Barkin | |
| 06/05/2024 | 1700/1300 | | US | New York Fed's John Williams | |
| 07/05/2024 | 2301/0001 | * |  | UK | BRC-KPMG Shop Sales Monitor |
| 07/05/2024 | 0030/1030 | *** |  | AU | Retail trade quarterly |
| 07/05/2024 | 0430/1430 | *** | | AU | RBA Rate Decision |
| 07/05/2024 | 0545/0745 | ** |  | CH | Unemployment |
| 07/05/2024 | 0600/0800 | ** |  | DE | Manufacturing Orders |
| 07/05/2024 | 0600/0800 | ** | | DE | Trade Balance |
| 07/05/2024 | 0645/0845 | * |  | FR | Foreign Trade |
| 07/05/2024 | 0730/0930 | ** | | EU | S&P Global Final Eurozone Construction PMI |
| 07/05/2024 | 0830/0930 | ** | | UK | S&P Global/CIPS Construction PMI |
| 07/05/2024 | 0900/1100 | ** | | EU | Retail Sales |
| 07/05/2024 | 1255/0855 | ** | | US | Redbook Retail Sales Index |
| 07/05/2024 | 1400/1000 | * |  | CA | Ivey PMI |
| 07/05/2024 | 1530/1130 | | US | Minneapolis Fed's Neel Kashkari | |
| 07/05/2024 | 1530/1130 | * | | US | US Treasury Auction Result for Cash Management Bill |
| 07/05/2024 | 1700/1300 | *** | | US | US Note 03 Year Treasury Auction Result |
| 07/05/2024 | 1900/1500 | * | | US | Consumer Credit |
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