MNI ASIA MARKETS ANALYSIS: Tech Stocks And Oil Drop Sharply

MNI (NEW YORK) - HIGHLIGHTS:

• U.S. Stocks Post Biggest Drop Since Aug 5, Led By Tech In Risk-Off Session 
• Dollar Gains, WTI Down 4+% To YTD Lows, Tsy And EGB Curves Bull Flatten
• Focus In Payrolls Week Remains On Labor Market Dynamics, With JOLTS Data Eyed Weds

US TSYS: Curve Bull Flattens In Risk-Off Session

Treasuries gained Tuesday in the return from the Labor Day weekend, though core FI gains were relatively tame in comparison to the broader risk-off move in global markets.

• Almost the entirety of Treasury gains were made between 0830-1000ET, which coincided with a sharp pullback in oil prices (WTI down more than 4% on the day) as well as soft data including construction activity and ISM Manufacturing.
• While the standout market move was in equities, which saw their worst session in a month as tech names dropped (Nasdaq futures -3.4% vs -2.4% in S&P eminis), the Treasury move actually preceded the stock risk-off move, and yields hit the lows before 1100ET before trading largely sideways.
• Further Treasury gains may have been restrained in part by heavy corporate issuance, with Bloomberg reporting that this was the "busiest single sales day" on record (the day after Labor Day was also the most active of 2023).
• The Treasury curve bull flattened, keeping 2s10s from closing in positive territory for another day.
• With markets closely focused on Friday's nonfarm payrolls, attention Wednesday will be on JOLTS job openings data, with the Bank of Canada decision (likely cut) also eyed.
• Late-session levels: The Dec 24 T-Note future is up 16/32 at 114-20, having traded in a range of 113-12 to 114-07.5. The 2-Yr yield is down 4.3bps at 3.8734%, 5-Yr is down 5.9bps at 3.6439%, 10-Yr is down 7.1bps at 3.8329%, and 30-Yr is down 7.4bps at 4.122%.

SOFR FIXES AND PRIOR SESSION REFERENCE RATES

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

• Secured Overnight Financing Rate (SOFR): 5.32%, -0.01%, $2011B
• Broad General Collateral Rate (BGCR): 5.32%, no change, $767B
• Tri-Party General Collateral Rate (TGCR): 5.32%, no change, $732B
• SOFR fell back another 1bp to 5.32% on Friday for month-end. 

Reverse Repo Operation

Uptake of the New York Fed's overnight reverse repo facility fell $83B to just under $350B Tuesday, reversing the typical month-end jump (the ON RRP level was closer to $350B prior to the final 3 sessions of August when it jumped to $433B). Today's operation saw 69 counterparties, down slightly from 72 in the previous operation on Aug 30.

US SOFR OPTION SUMMARY: Tuesday's SOFR options flow included:

• SFRU4 95.00/94.93/94.87p fly 2x3x1 traded 2 in 4k.
• SFRU4 94.81/94.75p strip, traded half in 5k.
• SFRU4 95.06/95.12cs traded 2 in 5k.
• SFRU4 95.00/95.12/95.25c fly, traded 2 in 5k.
• SFRU4 95.12/95.06/94.93 broken p fly, traded for -0.25 in 4k.
• SFRU4 95.18/95.25cs, traded for 1.5 in 4.5k.
• SFRU4 95.12/95.18cs, traded for 2 in 3k.
• SFRU4 95.12/95.25/95.31/95.43c condor, traded for 3 in 2k.
• SFRU4 95.25/95.37cs traded 1 in 3k
• SFRU4 95.0625p sold at 4.25 in 10k (done pre US ISM Mfg).
• SFRU4 95.12^, bought for 13.75 in 1
• SFRU4 95.18/95.25/95.31/95.37c condor, bought for 1.25 in 5k
• SFRV4 95.68/95.56ps vs 96.00c traded for -0.25 in 7.5k.
• SFRM5 98.37c traded for 6.5 in 2k.
• 0QH5/2QH5 97.50/98.00cs spread, traded for 1.5 in 5k.

EGBs-GILTS CASH CLOSE: Gilts Outperform Amid Core FI Gains

Core EGBs and Gilts rallied Tuesday amid a broader global safe haven bid.

• There was no evident single trigger for the strong afternoon rally in core FI: factors included lower oil prices (on positive Libyan supply headlines), a drop in tech stocks as the US returned from holiday, and a miss in US data (construction activity and ISM manufacturing).
• A few comments from ECB officials ahead of next week's decision didn't have a major market impact: Nagel said he wouldn't commit in advance on whether he would vote for a cut; Simkus sees a "clear case", however an October cut is "quite unlikely".
• Eurex futures volumes were dominated by Sep/Dec rolls, which are by now at least halfway complete.
• Both the UK and German curves bull flattened. Gilts outperformed global peers, with 15-year Gilt syndication seeing solid demand.
• Periphery EGB spreads closed wider against the risk-off backdrop, with BTPs underperforming.
• Wednesday's schedule includes final August services PMIs and Eurozone PPI, as well as an appearance by ECB's Villeroy.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is down 4.1bps at 2.38%, 5-Yr is down 5.4bps at 2.171%, 10-Yr is down 6.1bps at 2.277%, and 30-Yr is down 7.3bps at 2.507%.
• UK: The 2-Yr yield is down 4bps at 4.082%, 5-Yr is down 5.2bps at 3.882%, 10-Yr is down 6.5bps at 3.99%, and 30-Yr is down 5.7bps at 4.51%.
• Italian BTP spread up 3.1bps at 146.7bps  / Greek up 2.9bps at 105.5bps  

EUROPE OPTIONS: Limited Rate Trade Tuesday

Tuesday's Europe rates/bond options flow included:

• ERM5 97.75/97.87cs bought for 4.25 in 5k
• SFIH5 95.25/95.50/96.35/96.60c condor, bought for 17.25 in 3k. also bought Yesterday in 3k
  
   

FOREX: AUDJPY Slumps 1.8% as Risk Sentiment Sours

• Curves bull flattening in core fixed income markets and aggressive weakening for global equity benchmarks have contributed to significant risk off trade in currency markets Tuesday, with AUD the notable laggard in the space and the Japanese Yen top of the G10 pile.
• As such AUDJPY is 1.8% lower on the day and has notably erased an entire week’s worth of gains in one swoop. The 50-day exponential moving average, and the 100.00 mark proved a very strong resistance area for the cross and today’s weakness sees the pair trade back below the 20-day average.
• Further weakness may be dependent on whether AUDUSD can extend its current corrective pullback and make a meaningful break below its firm support between 0.6714-0.6670, 20- and 50-day EMA values.
• Yen strength on Tuesday was underpinned by comments overnight from BoJ Governor Ueda reiterated Tuesday that the central bank will continue to raise interest rates if the economy and prices perform as expected.
• USDJPY’s trend structure is bearish, and risk sentiment has underpinned this theme, with the pair trading as low was 145.16, an impressive 200 pips off session highs. Below here, support does not come in until 143.45, the Aug 26 low.
• Looking ahead, the Bank of Canada is more than fully priced to opt for a third consecutive 25bp cut on Wednesday to 4.25%. USDCAD is 0.4% higher on the session and our analyst notes that the most recent shallow retracement appears to be a flag formation - a bearish continuation pattern. Sights are on 1.3358, a Fibonacci retracement. On the upside, initial firm resistance to watch is at 1.3594.

• Elsewhere on Wednesday, Australian GDP and US JOLTS data will be in focus.

   

FX OPTIONS: Expiries for Sep04 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0950(E894mln), $1.1000-20(E1.1bln), $1.1125-30(E597mln), $1.1190-00(E1.2bln)
• USD/JPY: Y145.00($927mln), Y146.25-35($1.3bln)
• EUR/JPY: Y164.00(E826mln)
• AUD/USD: $0.6740(A$620mln)

• USD/CAD: C$1.3515($1.1bln), C$1.3700($506mln)

   

EQUITIES: Tech, Energy Lead Losses As Eminis Test Support

S&P Emini futures are down 1.7% and are moving through last week's low of 5561.25 (Aug 29). Support to watch lies at 5518.91, the 50-day EMA. A clear breach of it is required to instead highlight a potential bearish threat.

• Losses are being led by tech (-3.8%), with chipmaker giant Nvidia the standout (off nearly 8%). Energy (-2.1%) is the 2nd weakest sector, as crude oil prices come off sharply (WTI futures -4.5%).
• Despite no single indentifiable catalyst, there are multiple classic signs of a risk-off move: in the green are defensives (consumer stables, utilities) and real estate.
• Meanwhile the BBG dollar index is pushing to session highs, with the euro dropping to the lowest levels vs USD since Aug 19.

S&P TECHS: E-MINI S&P: (U4) Bulls Remain In The Driver’s Seat 

• 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: 5669.75 Intraday high       
• PRICE: 5629.50 @ 14:22 BST Sep 3
• SUP 1: 5561.25/5518.91 Low Aug 29 / 50-day EMA 
• SUP 2: 5438.75/5319.50 Low Aug 14 / 9
• SUP 3: 5182.00 Low Aug 8
• SUP 4: 5120.00 Low Aug 5 and the bear trigger

A bullish theme S&P E-Minis remains intact and the contract is trading closer to its recent highs. A resumption of gains would pave the way for a climb towards key resistance and the bull trigger at 5721.25, the Jul 16 high. Clearance of this level would resume the primary uptrend. Support to watch lies at 5518.91, the 50-day EMA. A clear breach of it is required to instead highlight a potential bearish threat.

COMMODITIES: Crude Plunges, Copper Slides Further

• WTI crude has fallen sharply to around year-to-date lows, as the market faces further downward pressure from expectations of OPEC+ cut unwinding, coupled with optimism that the Libya production stoppage may be short lived.
• WTI Oct 24 is down by 4.5% at $70.2/bbl.
• WTI futures have pierced key support at $70.88, the Aug 5 low. A clear break of this level would confirm a resumption of the downtrend that started Apr 12, paving the way for an extension towards $68.92, the Dec 13 ‘23 low.
• Meanwhile, spot gold is down by 0.4% to $2,489/oz today.
• Trend conditions in gold remain bullish, with focus on a climb towards $2,536.4 next, a Fibonacci projection.
• Initial support to watch lies at $2,484.0, the 20-day EMA, which was pierced earlier in the session. A pullback would be considered corrective.
• Elsewhere, copper has fallen by 3.0% to $409/lb, bringing the red metal to its lowest level since August 15.
• Concerns over weak Chinese demand is weighing on copper, with Goldman Sachs citing high copper inventories in China and its weak property sector as it announced a cut in its copper price forecast.
• A bear cycle in copper futures remains intact and the latest resumption of weakness reinforces this theme, opening $396.45, the Aug 7 low. Clearance of this support would expose $374.65, the Feb 9 low. 

Date	GMT/Local	Impact	Country	Event
04/09/2024	0130/1130	***	AU	Quarterly GDP
04/09/2024	0700/0900		EU	ECB's Elderson at Joint European Banking Authority and ECB conference
04/09/2024	0900/1100	**	EU	PPI
04/09/2024	1100/0700	**	US	MBA Weekly Applications Index
04/09/2024	-	***	US	Domestic-Made Vehicle Sales
04/09/2024	1230/0830	**	US	Trade Balance
04/09/2024	1230/0830	**	CA	International Merchandise Trade (Trade Balance)
04/09/2024	1255/0855	**	US	Redbook Retail Sales Index
04/09/2024	1345/0945	***	CA	Bank of Canada Policy Decision
04/09/2024	1400/1000	**	US	Factory New Orders
04/09/2024	1400/1000	***	US	JOLTS jobs opening level
04/09/2024	1400/1000	***	US	JOLTS quits Rate
04/09/2024	1400/1000		US	MNI Connect Video Conference on the U.S. Fiscal Policy Outlook
04/09/2024	1430/1030		CA	BOC Governor Press Conference
04/09/2024	1800/1400		US	Fed Beige Book
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