MNI ASIA MARKETS ANALYSIS: Rates/Stocks Off Lows Ahead Fri NFP

US TSYS Rates, Stocks Off Cycle Lows Ahead Friday's Sep Employment Data

• After paring gains in the lead-up to this morning's data, Treasury futures extended past late overnight lows after slightly lower than expected Initial Jobless Claims (207k vs. 210k est, 204k prior) and Continuing Claims (1.664M vs. 1.671M est, 1.670M prior). Meanwhile, Trade Balance reported -$58.3B vs. -$59.8B est vs. prior revised figure of -$64.7B.
• Futures extended lows post-data, TYZ3 tapped 106-28.5 (-7) -- well above Wednesday's low of 106-03.5, before rebounding over 107-00. Technicals held: Initial technical support at 106-00 (round number support), followed by 105-27+ (3.0% Lower Bollinger Band). Initial resistance is at 107-14 (High Oct 3).
• TYZ3 climbed to a session high of 107-12.5 high after dovish Fed speak from SF Fed President Daly said the Fed can hold interest rates steady because restrictive policy and tight financial conditions are working to slow the economy and inflation. "If we continue to see a cooling labor market and inflation heading back to our target, we can hold interest rates steady and let the effects of policy continue to work," she told the The Economic Club of NY.
• Meanwhile, focus turns to Friday's September employment data. Consensus looks for payrolls growth of 170k in September. While industry-specific blips may occur, headline aggregates are not expected to be impacted by either the actors’ strike, or the walk-out of UAW workers currently impacting Ford, GM and Stellantis.

SHORT TERM RATES

SOFR Benchmark Settlements:

• 1M +0.00558 to 5.33598 (+0.01699/wk)
• 3M -0.01620 to 5.40620 (+0.01070/wk)
• 6M -0.03069 to 5.46263 (-0.00464/wk)
• 12M -0.05391 to 5.42975 (-0.03651/wk)

• Daily Effective Fed Funds Rate: 5.33% volume: $103B
• Daily Overnight Bank Funding Rate: 5.32% volume: $247B

• Secured Overnight Financing Rate (SOFR): 5.32%, $1.436T
• Broad General Collateral Rate (BGCR): 5.30%, $555B
• Tri-Party General Collateral Rate (TGCR): 5.30%, $542B
• (rate, volume levels reflect prior session)

FED REVERSE REPO OPERATION: Lowest Since Sep'21

Repo operation usage slips to $1,265.132B - lowest since mid-September 2021 w/98 counterparties vs. $1,342.031B 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/TREASURY OPTION SUMMARY

Better low delta call/call spreads carried over from overnight through the NY session as underlying futures bounce off yesterday's cycle lows. Accounts hedging for looser policy if Friday's employment data comes out softer than expected. After a firmer start, even rate hike projections into early 2024 cooled: November at 22.2% w/ implied rate change of +5.6bp to 5.384%, December cumulative of 8.8bp at 5.417%, January 2024 6.9bp at 5.398%. Fed terminal slipped to 5.415% in Jan'24.

• SOFR Options:
  • Block, 5,000 SFRV3 94.56 straddles, 6.75 ref 94.565
  • over 6,000 SFRZ3 94.75/95.00 call spds
  • 4,000 SFRZ3 94.50/94.62/94.68/94.81 call condors
  • 2,500 SFRM4 95.50/0QM4 96.75 call spds
  • 1,500 SFRF4 94.75/95.00 call spds ref 94.675
  • 4,600 SFRZ3 94.37/94.50/94.62 put flys ref 94.555
  • 2,000 SFRF4 97.50 calls, 1.25 ref 94.67
  • 2,500 SFRZ3 94.56/94.68/97.81 call flys ref 94.55
• Treasury Options:
  • 2,500 TYZ3 109/110/111 call flys, 5 ref 107-10
  • Block, 4,000 TUZ3 101/101/.7/101.62/102 call condors, 7 net ref 101-12.62
  • 8,000 FVX3 106/107 call spds 15.5 ref 105-00.75
  • 5,000 FVX3 105.5/106.5 call spds, 15.5 ref 104-31.25
  • 3,000 FVZ3 107.75 calls, 10.5 ref 105-01.5
  • over 10,000 FVX 107 calls, 5.5 vs. FVZ3 107 calls 15.5-14.5 ref 105-01.25
  • FVZ3 calls outright and on spread:
  • over 13,000 FVZ3 106.75 calls, 18.5 last
  • over 10,600 FVZ3 106.25 calls, 22.5 last
  • 1,000 FVX3 105.5/106/106.25 call flys, 6 ref 105-00
  • 2,000 FVZ3 106.5 calls, 21.5 ref 105-01.25
  • over 4,400 USX3 109 puts, 62 to 101 ref 111-10 to -16
  • 1,000 TYX3 107.5/TYZ3 109 call calendar spds ref 107-03.5
  • 5,500 TYZ3 105.5/108.5 strangle or combo ref 107-07.5

Late EGBs

• After pushing lower post US weekly claims beat, Bund and EGBs recovered amid short covering going into late European trade. Bund through initial resistance seen of 128.00 to 128.21, next resistance at 128.45.
• Focus in Peripheral spreads has been on the BTP/Bund spread, which sit 3.7bps wider and above the March high at the time of typing. Investors will be watching the Psychological 200.00bps, but initial resistance comes at 202.45bps.
• Gilt has mostly traded inline with the German Bund, translated in a flat Gilt/Bund spread.
• Comments from BoE’s Broadbent weren’t market moving. He pointed to clear signs that rate rises were having an impact, along with more resilient than expected demand and suggestions that the UK inflation profile is similar to that seen elsewhere (envisaging a move back to target in ~2 years).
• After leading EGBs and Gilt lower following the US Data, US Treasuries have also recovered from their intraday lows, with TYZ3 back in the green, although the 20yr and 30yr futures are still lagging the shorter end part of the curve, and still lean in the red
• Attention on Friday's USD NFP/AHE.

FOREX Calmer Yield Curve Soothes Currency Markets

• The greenback traded softer Thursday, edging lower against all others in G10 to tip the USD Index back below the Wednesday low to 106.338 (-.463). A negative close for the USD Index would be the third consecutive decline, however prices are still well clear of the recent low at last Friday's 105.658. Nonetheless, the medium-term uptrend posted off the July low remains intact for now, keeping pullbacks corrective for now.
• The US yield curve was considerably quieter Thursday, lending an element of consolidation to currency markets more broadly. This kept GBP, EUR and JPY within recent ranges and few fresh technical signals emerged in a relatively muted session.
• Oil tied currencies traded heavy, helping keep NOK and CAD toward the bottom half of the G10 table. Brent and WTI crude futures extended the recent decline, putting Brent over $10/bbl off the recent cycle high. Demand concerns evident in this week's EIA release, expectations of economic weakness and relentless CTA selling have variously been cited as the driver of oil's decline. USD/CAD printed a new cycle best at 1.3786, marking five consecutive sessions of higher highs.
• Focus Friday rests on the September nonfarm payrolls report, at which markets expected the US to have added 170k jobs over the month. Primary dealers are somewhat more positive, with a median view of 180k, with the unemployment rate expected to correct lower after an upside surprise in August. Average hourly earnings data is also forecast to re-accelerate to 0.3%, further marring any expectations of a swift return for inflation to target.
• Outside of nonfarm payrolls, German factory orders, Italian retail sales and the Canadian jobs report are also on the docket. Meanwhile, Fed's Waller is set to speak.

FX Expiries for Oct06 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0450(E2.7bln), $1.0500-10(E2.2bln), $1.0550-60(E1.9bln), $1.0575(E614mln), $1.0600(E767mln), $1.0640-50(E1.1bln), $1.0685-00(E4.4bln)
• USD/JPY: Y149.00($825mln), Y149.35-50($2.1bln), Y150.00($1.8bln)
• GBP/USD: $1.2175(Gbp633mln), $1.2200(Gbp632mln), 1.2220-25(Gbp654mln), $1.2500-05(Gbp1.0bln)
• AUD/USD: $0.6300(A$1.5bln), $0.6380-00(A$4.6bln), $0.6500(A$1.3bln)
• USD/CAD: C$1.3625($1.5bln), C$1.3660-65($881mln)
• USD/CNY: Cny7.26($680mln), Cny7.27($697mln), Cny7.30($1.6bln), Cny7.35($2.9bln)

Late Equity Roundup: Off Lows, Real Estate, Health Care, IT Lead

• Stocks have recovered from late morning selling, to steady/mildly positive territory as shorts square up ahead Friday's September employment data. Currently, S&P E-Mini futures are down 1.25 points (-0.03%) at 4297, DJIA up 27.2 points (0.08%) at 33157.85, Nasdaq up 6 points (0%) at 13242.63.
• Leaders: Real Estate, Health Care and Information Terchnology sector shares outperformed, management and development shares buoyed the former: CoStar Group +3.1%, CBRE Group +1.33%. Pharmaceutical and biotech shares underpinned Health Care sector shares: Eli Lilly +1.7%, Regeneron +1.55%, Bio-Techne Corp +1.2%. Meanwhile, hardware and equipment makers buoyed IT: Western Digital +1.95%, Seagate +1.1%, Arista Networks +1.06%.
• Laggers: Consumer Staples, Materials and Energy sectors underperformed, the former weighed by food and beverage shares: Molson Coors -6.28%, Pepsico -4.67%, Coca-Cola -4.02%. Chemical names weighed on Materials sector: LyondellBasell Industries -2.63%, Linde Ind -2.25%, Albemarle -2.2%. Meanwhile, oil and gas shares weighed on the Energy sector as crude prices tumbled for another day (WTI -1.85 at 82.32): Exxon Mobil -2.06%, Phillips 66 -1.25, Devon Energy -1%.

E-MINI S&P TECHS: (Z3) Bear Outlook

• RES 4: 4566.00 High Sep 15 and a key resistance
• RES 3: 4514.50 High Sep 18
• RES 2: 4447.76 50-day EMA
• RES 1: 4391.25 20-day EMA
• PRICE: 4297.00 @ 1510 ET Oct 5
• SUP 1: 4235.50 Low Oct 4
• 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 once again, 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 4447.76, the 50-day EMA. Ahead of the 50-day average is resistance at 4391.25, the 20-day EMA.

COMMODITIES

• WTI Crude Oil (front-month) down $1.94 (-2.3%) at $82.27
• Gold is down $0.98 (-0.05%) at $1820.38

LNG: Comments from Russian President Vladimir Putin hitting wires as he continues his Q&A session at the Valdai Discussion Club.

• On the prospect of LNG supply to Europe via the Nord Stream pipelines, Putin says: "One line of Nord Stream 2 is not damaged," but, "only Germany has to decide on that, Russia may start gas supply via Nord Stream 2."
• Putin says: "Russia is transiting gas to Europe via Ukraine," and "Russia is paying Ukraine for gas transit," in accordance with its "contract obligations."
• On the prospect of expanding LNG exports: "We are transparent, ready for cooperation on gas supplies... Russia will boost supplies of LNG, including to other markets."

FRIDAY DATA CALENDAR

Date	GMT/Local	Impact	Flag	Country	Event
06/10/2023	0545/0745	**		CH	Unemployment
06/10/2023	0600/0800	**		DE	Manufacturing Orders
06/10/2023	0645/0845	*		FR	Foreign Trade
06/10/2023	0800/1000	*		IT	Retail Sales
06/10/2023	1230/0830	***		CA	Labour Force Survey
06/10/2023	1230/0830	***		US	Employment Report
06/10/2023	1600/1200			US	Fed Governor Christopher Waller
06/10/2023	1900/1500	*		US	Consumer Credit