MNI ASIA MARKETS ANALYSIS: JOLTS Puts 50bp Cut Back In Frame

MNI (NEW YORK) - HIGHLIGHTS:

• Unexpectedly Weak US Job Openings Report Rekindles 50bp Fed Cut Speculation
• Treasury 2s10s Briefly Disinverts, USD Retreats Ahead Of Further Key Jobs Data Thu/Fri
• Oil Prices Hit Fresh 2024 Low As OPEC+ Reportedly Set To Delay Output Cut Unwind

US TSYS: Short End Leads Post-JOLTS Rally

The short end of the curve led a sizeable Treasury rally Wednesday, as soft job openings data rekindled speculation of a 50bp Fed cut two weeks from now.

• With Friday's crucial nonfarm payrolls report intensifying the focus on labor market indicators, the July JOLTS report saw Treasuries jump as job openings fell to 7.673m (cons 8.10m) in July after a downwardly-revised 7.91m (initial 8.184m) in June.
• Adding to the dovish tone was a Bank of Canada rate cut (as expected) and a Fed Beige Book that highlighted softer economic activity alongside moderating inflation and employment.
• For the first time since mid-August, STIR markets briefly showed around 50/50 implied probability of a 50bp cut in September - with 112bp of total cuts this year - though those extremes faded by a couple of basis points (last 36bp, ie 44% prob of 50bp Sept cut, and 110bp respectively).
• With the short end leading the rally, 2s10s notably disinverted intraday for just the second session since July 2022.
• The parade of labor market data continues Thursday with Challenger Job Cuts, ADP private payrolls, nonfarm productivity, and weekly jobless claims. Additionally we get ISM Services (including its Employment component), and final August PMIs.
• Latest levels: Dec 10-Yr futures (TY) up 18.5/32  at 114-18.5 (L: 114-0.5 / H: 114-19.5) The 2-Yr yield is down 10.1bps at 3.7621%, 5-Yr is down 7.8bps at 3.5611%, 10-Yr is down 7bps at 3.7609%, and 30-Yr is down 6.3bps at 4.0604%.
   

SOFR FIXES AND PRIOR SESSION REFERENCE RATES

STIR: Effective Fed Funds Rate

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

• Daily Effective Fed Funds Rate: 5.33%, no change, volume: $100B
• Daily Overnight Bank Funding Rate: 5.33%, 0.01%, volume: $238B

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

• Secured Overnight Financing Rate (SOFR): 5.34%, 0.02%, $2403B
• Broad General Collateral Rate (BGCR): 5.33%, 0.01%, $783B
• Tri-Party General Collateral Rate (TGCR): 5.33%, 0.01%, $757B
• SOFR increased 2bps yesterday after Friday's month-end but remains within recent ranges. 

FED: RRP Usage Continues Post Month-End Pullback

• RRP usage continued to pullback today, with a $12bn decline to $337bn after Tuesday’s $83bn decline away from the climb to $433bn at month-end on Friday.
• It remains a little above the low $300bn figures run at earlier in August.  
• The number of counterparties also fell by 5 to 64. 

US SOFR/TREASURY OPTION SUMMARY

Wednesday's SOFR options flow included:

• SFRU4 95.00p, bought for 1.25 and 1.5 in ~18k.
• SFRU4 95.00/95.12/95.25c fly, traded 2 in 3k.
• SFRU4 95.18/95.28cs vs 95.00p, traded half and 0.75 for the cs in 25k.
• SFRU4 95.06/95.12/95.18/95.25c condor, traded for 0.75 in 14k.
• SFRU4 95.12/95.06/95.00p ladder, traded 2.5 and 2.25 in 8k.
• SFRU4 95.00/94.93ps vs 95.18/95.25cs, traded 1.25 for the cs in 3k (block)
• SFRU4 95.18/95.31cs with 95.25/95.37cs strip, traded for 4.75 in 10k (block)
• SFRV4 96.06/96.18/96.31c fly, traded 0.75 in 10k.
• SFRZ4 95.00/94.93ps, traded 0.25 in 6k (block)

Treasury options:

• Weekly TY 112.50 puts (expiring this Friday so capture the upcoming run of labor market data, including NFPs) ~10K trades at 0-01 all day. Underlying last 114-06.

EGBs-GILTS CASH CLOSE: Rally Continues On Low US Job Openings

European bonds rallied Wednesday as the first key US labour market data of the week came in on the soft side.

• Gilts and Bunds edged higher in the morning session in a continuation of Tuesday's risk-off price action. Then global FI rallied in European mid-afternoon trade as US job openings came in lower than expected, spurring a bull-steepening Treasury rally.
• 10Y Gilt and Bund yields dropped about 2bp on the data, though closed off the lows.
• There was relatively little impact on market pricing for next week's ECB decision, which remains firmly anchored to a 25bp cut, with about 38bp of cuts through the remainder of the year beyond that (up a couple of basis points on the day).
• Periphery EGB spreads tightened, led by BTPs and GGBs.
• Thursday's calendar starts with German factory orders data, with the BoE’s Decision Maker Panel (DMP) survey and Eurozone retail sales out later in the morning, along with an appearance bny ECB's Holzmann.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is down 5.7bps at 2.323%, 5-Yr is down 6bps at 2.111%, 10-Yr is down 5.3bps at 2.224%, and 30-Yr is down 3.6bps at 2.471%.
• UK: The 2-Yr yield is down 5.1bps at 4.031%, 5-Yr is down 4.9bps at 3.833%, 10-Yr is down 5.5bps at 3.935%, and 30-Yr is down 4.2bps at 4.468%.
• Italian BTP spread down 3bps at 143.6bps  / Spanish down 1.1bps at 81.7bps 
   

EUROPE OPTIONS: Mixed Trade Leans Toward Upside Wednesday

Wednesday's Europe rates/bond options flow included:

• DUX4 107.00/107.30 1x2 cs  vs +DUZ4 107.00/107.30 1x2 - receiving net 4 (Rolling Nov into Dec) in 5k
• ERX4 97.00/97.12cs 1x2, bought the 1 for -1.5 (receive) in 3k
• OEV4 120.25/120.75 call spread paper paid 7.5 on 4K.
• SFIX4 95.30/95.40/95.50/95.60c condor, sold at 3.5 in 3k.

FOREX: USDJPY Extends Weekly Decline Amid Weak US JOLTS Data

• Weaker-than-expected JOLTS jobs data in the US has assisted broad greenback weakness on Wednesday. A weaker close for the USD index today would be the first in six sessions, and snap the mini-recovery posted off the mid-August lows. The associated lower core yields have further bolstered the Japanese Yen, and USDJPY (-0.90%) is consolidating roughly 300 pips below the Tuesday high as we approach the APAC crossover.
• A close at current levels of 144.20 keeps attention on the first firm support at 143.45 - while the bear trigger of 141.70 remains more medium-terms significance.
• Moderately outperforming its G10 counterparts, the Euro showed signs of life in the aftermath of the data, with EURUSD (+0.39%) rising to a fresh weekly high of 1.1095 from a 1.1039 low.
• While daily ranges have been relatively contained this week, price action today confirms that recent weakness appears corrective. While the 20-day EMA, at 1.1049, was pierced on the way lower, moving average studies remain in a bull-mode position, highlighting a primary uptrend. A resumption of gains would set the scene for a climb towards 1.1234, a Fibonacci projection.
• USDCAD (-0.25%) had a moderately negative response to today’s BOC rate decision, where the statement suggested little appetite for accelerating rate cuts beyond the current 25bp pace.
• RBA Governor Bullock is due to speak at the Anika Foundation, in Sydney overnight before German factory orders and Eurozone retail sales headline the European docket. More jobs information from the US is scheduled, in the form of jobless claims and ADP, however the main event will be US ISM Services PMI data for August.

FX OPTIONS: Expiries for Sep05 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0940-60(E3.4bln), $1.0975-90(E1.9bln), $1.1000-20(E2.2bln), $1.1050-60(E1.1bln), $1.1075-90(E3.0bln), $1.1100(E1.1bln), $1.1120-25(E1.6bln), $1.1145-55(E2.6bln), $1.1180-00(E2.1bln)
• USD/JPY: Y143.75-80(E1.0bln), Y144.95-00($1.6bln), Y145.50($1.5bln), Y146.00($1.3bln), Y147.85-00($1.1bln)
• GBP/USD: $1.3075(Gbp689mln)
• EUR/GBP: Gbp0.8480-85(E790mln)
• EUR/JPY: Y161.60(E747mln)
• AUD/USD: $0.6625(A$1.7bln), $0.6640(A$1.6bln), $0.6690(A$1.3bln), $0.6730(A$714mln), $0.6750(A$628mln)
• NZD/USD: $0.6065-70(N$2.9bln), $0.6150(N$1.0bln), $0.6175(N$1.6bln)
• USD/CAD: C$1.3565($705mln), C$1.4100($1.7bln)

EQUITY TECHS: E-MINI S&P: (U4) Corrective Cycle 

• 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: 5566.09/5669.75 20-day EMA / High Sep 3 and a bull trigger        
• PRICE: 5522.50 @ 15:35 BST Sep 4
• SUP 1: 5507.50 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

A bullish theme S&P E-Minis remains intact, however, yesterday’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 5519.81. 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 Extends Losses, Henry Hub Losing Ground, Spot Gold Steady

• Crude has hit its lowest level since December as the market weighs the impact of a discussed delay to OPEC+ cut unwinding. The potential return of Libyan flows is also adding downside.
• WTI Oct 24 is down 1.6% at $69.2/bbl.
• OPEC+ is close to an agreement to delay its unwinding of cuts due to begin in October, according to delegates speaking to Bloomberg.
• For WTI futures, the clear break of key support at $70.88, the Aug 5 low confirms a resumption of the downtrend that started April 12 and paves the way for an extension towards $68.92, the Dec 13 ‘23 low.
• Meanwhile, Henry Hub is on track for losses today, reversing an earlier intraday spike. Prior support came from steady LNG and Mexico export flows. However, weaker demand outlooks have added some downside pressure.
• US Natgas Oct 24 is down 2.5% at $2.15/mmbtu.
• Meanwhile, spot gold is broadly unchanged today at $2,493/oz.
• The trend in gold remains bullish with focus on $2,536.4 next, a Fibonacci projection.
• Initial support to watch lies at $2,485.4, the 20-day EMA, which has been pierced.

Date	GMT/Local	Impact	Country	Event
05/09/2024	0130/1130	**	AU	Trade Balance
05/09/2024	0545/0745	**	CH	Unemployment
05/09/2024	0600/0800	**	DE	Manufacturing Orders
05/09/2024	0730/0930	**	EU	S&P Global Final Eurozone Construction PMI
05/09/2024	0830/0930	**	GB	S&P Global/CIPS Construction PMI
05/09/2024	0830/0930		GB	BOE DMP Data
05/09/2024	0900/1100	**	EU	Retail Sales
05/09/2024	0900/1000	**	GB	Gilt Outright Auction Result
05/09/2024	1215/0815	***	US	ADP Employment Report
05/09/2024	1230/0830	***	US	Jobless Claims
05/09/2024	1230/0830	**	US	Non-Farm Productivity (f)
05/09/2024	1400/1000	***	US	ISM Non-Manufacturing Index
05/09/2024	1430/1030	**	US	Natural Gas Stocks
05/09/2024	1500/1100	**	US	DOE Weekly Crude Oil Stocks
05/09/2024	1530/1130	**	US	US Bill 04 Week Treasury Auction Result
05/09/2024	1530/1130	*	US	US Bill 08 Week Treasury Auction Result
06/09/2024	0130/1130	**	AU	Lending Finance Details
06/09/2024	0600/0800	**	DE	Trade Balance
06/09/2024	0600/0800	**	DE	Industrial Production
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