HIGHLIGHTS
- Treasuries look to finish near session lows, curves bear flattening after September job gains beat expectations.
- The unemployment rate was also far lower than expected at 4.05% after 4.22% in Aug and 4.25% in July.
- Projected rate cut pricing recalibrates to only -50bp in rate cuts by year end compared to -122.5 back in mid-September.
- Focus now turns to next week's CPI and PPI inflation measures on Thursday and Friday respectively, prefaced by Wednesday's September FOMC minutes release.
MNI US TSYS: Tsys Broadly Lower, Curves Flatter After Strong September Job Gains
- Treasuries gapped lower following this morning's stronger than expected jobs data for September, futures gradually extending session lows since midmorning while curves bear flatten: 2s10s -8.542 at 5.295 -- the lowest since mid-September.
- Payrolls growth was far stronger than expected in September at 254k (cons 150k) for a 104k surprise, nearly entirely driven by the 98k surprise for private payrolls (223k vs cons 125k).
- The status flows within the household survey echo the strong headline figures that saw the unemployment rate surprisingly fall from 4.22% to 4.05%. The outright shift from employed to unemployed (-215k) extended the improvement seen in Aug (-47k) after what had been a sharp 292k increase in July that drove the surprise lurch in the unemployment rate to 4.25%.
- Markets have been swift to price out a 50bp November rate cut after September's employment report came in much stronger than expected - in addition to revisions that recast the summer's weak hiring in a much more positive light. Indeed, November implied pricing has even dipped a little below 25bp, suggesting potential for a rate hold.
- Meanwhile, focus turns to next week's CPI and PPI inflation measures on Thursday and Friday respectively, prefaced by Wednesday's September FOMC minutes release.
SOFR FIXES AND PRIOR SESSION REFERENCE RATES
SOFR Benchmark Settlements:
- 1M -0.00519 to 4.84558 (+0.00148/wk)
- 3M -0.00574 to 4.58398 (-0.00937/wk)
- 6M -0.00737 to 4.28099 (+0.01914/wk)
- 12M +0.03245 to 3.86582 (+0.08274/wk)
US TSYS: Repo Reference Rates
- Secured Overnight Financing Rate (SOFR): 4.85% (-0.07), volume: $2.182T
- Broad General Collateral Rate (BGCR): 4.82% (-0.05), volume: $821B
- Tri-Party General Collateral Rate (TGCR): 4.82% (-0.05), volume: $787B
- (rate, volume levels reflect prior session)
STIR: FRBNY EFFR for prior session:
- Daily Effective Fed Funds Rate: 4.83% (+0.00), volume: $81B
- Daily Overnight Bank Funding Rate: 4.83% (+0.00), volume: $226B
FED Reverse Repo Operation
RRP usage falls to $330.012B this afternoon from $341.248B prior. Compares to $239.386B on Monday September 16 2024 -- the lowest level since early May 2021. Number of counterparties holds steady at 57.
US SOFR/TREASURY OPTION SUMMARY
Better put trade on net, mostly new and position adds with some modest profit taking since this morning's strong jobs gain and UR dip sees underlying shift lower as aggressive rate hike pricing cools. SOFR White pack (SFRZ4-SFRU5) currently -0.120-0.195, while projected rate cuts broadly weaker vs. pre-data levels (*): Nov'24 cumulative -26.6bp (-33.1bp), Dec'24 -57.2bp (-66.3bp), Jan'25 -80.9bp (-93.9bp).
- SOFR Options:
- +35,000 SFRM5 98.50 calls, 2.5 ref 96.425
- Block, 25,000 SFRZ4 95.68/95.81 2x1 put spds, 1.25 ref 95.775
- Block, +25,000 SFRM5 95.50/96.00/96.50, 12.5 ref 96.445
- Block, 10,000 SFRX4 95.43/95.62 put spds, 1.0 ref 95.815
- +5,000 SFRZ4 95.43/95.56 put spds 0.75 ref 95.805
- -10,000 SFRZ4 95.87/96.00/96.12 call flys 1.00 to -0.75 ref 95.805
- +5,000 SFRZ4 95.50p 1.0 ref 95.80
- +20,000 SFRZ4 95.50/95.62 put spds 1.5 ref 95.80
- +5,000 0QX4 97.37/97.62 call spds 6.0 ref 96.735
- +5,000 SFRZ5 96.00/96.50 put spds 16.5 ref 96.735
- +30,000 SFRZ4 95.43/95.56 put spds 0.75 ref 95.80
- +5,000 SFRZ5 99.00/99.50/100.00 call trees 1.5 ref 96.755
- -10,000 0QV4 96.75/96.87/97.25/97.37 put condors, 4.0 96.75
- Block, 15,000 SFRV4 95.87 puts 0.75 over SFRZ4 95.62/95.75 put spds vs. 95.82/0.50%
- Block, 10,000 SFRX4 95.43/95.62 put spds, 1.0
- Block, 5,000 SFRV4 96.25 calls, 0.5 ref 95.905
- Block, 5,000 SFRV4 96.25 calls 0.5 vs. 95.92/0.04$ at 0759:40ET
- Block, 4,500 SFRZ4 95.37/95.50 2x1 put spds, 0.0 ref 95.905 at 0758:40ET
- 5,000 SFRV4 95.93/96.00/96.06 call trees ref 95.915
- over 14,000 SFRV4 96.06/96.12 call spds ref 95.92 to -.915
- 4,500 0QV4 96.50/96.62 put spds ref 96.90
- 3,000 SFRV4 95.81/95.87 2x1 put spds, 0.50 ref 95.91
- 1,500 2QV4 96.75/96.81 put spds ref 96.905
- 2,000 SFRF5 96.06/96.25/96.37/96.50 put condors ref 96.385
- 2,500 SFRX4 96.00/96.12 call spds vs. 95.43/95.75 put spds ref 95.92
- 10,000 SFRX4 95.68/95.75/95.81 put flys (appr 2,000 vs. SFRV4 96.12 Calls)
- over 5,300 SFRV4 96.18 calls ref 95.93
- Block, 5,000 SFRV4 95.87/96.18/96.50 call flys, 8.0 vs. 95.95/0.50%
- Treasury Options:
- Update, +60,000 TYX4 113 calls, 37 ref 112-30.5/0.48%, 77k total
- over 5,000 USZ4 114/118 put spds, 35 ref 122-05 to -06
- 12,000 wk2 FV 109 puts, 18 total over 44,300 on the day
- -25,000 FVZ 110.75/111.75/112.25 call flys, 4
- 5,000 TYX4 111.5/112 put spds 4 ref 113-06.5
- 4,000 TYZ4 111.5 puts, 36 ref 112-31.5
- 7,000 TYX4 113 calls ref 113-01.5
- 11,200 TYX4 112/116 strangles
- 2,600 USX4 120/121 2x1 put spds, 4 net 2-leg over ref 122-15
- 4,000 USZ4 117/119 put spds 34 ref 122-15 to 121-28
- 6,000 Monday wkly TY 114.5/114.75 call spds ref 113-25.5
- over 6,200 TYX4 113 puts, 17 last ref 113-26
- 1,800 wk3 TY 114/115.25 2x3 call spds vs. 112.75/114 3x2 put spds
- 10,000 wk1 TY 113.5/113.75 put spds, 5 ref 113-27
- Block/screen, 15,000 TYZ4 111/112 put spds, 12 ref 113-30.5
Block/screen, 20,000 TYZ4 111.5/112.5 put spds, 15 ref 114-00 to -00.5
MNI BONDS: EGBs-GILTS CASH CLOSE: Short-End Craters On US Jobs, BoE Pill
European curves bear flattened Friday, with Gilts underperforming.
- Commentary by BoE chief economist Pill was seen as more hawkish than Governor Bailey's in the prior session - while he appeared less hawkish than in previous appearances, implied BoE rates jumped as it was far from clear he would support a November cut, let alone back-to-back cuts.
- Global bonds dropped sharply in the afternoon as the US employment report came in stronger than any analyst had expected, leading to a November Fed 50bp cut to be priced out.
- Both the German and UK curves bear flattened amid the short-end selloff: 2Y Gilt yields registered their 4th biggest rise of the year (+17bp) - and German 2Y yields rose the most since April 2023.
- Periphery EGB spreads tightened, led by Italy, as German yields rose and equities gained post-US payrolls on faded recession fears.
- Next week's schedule is a little lighter from a European perspective, with German factory orders and monthly UK activity the data highlights, with multiple ECB speakers also featuring ahead of the decision the following week.
Closing Yields / 10-Yr Periphery EGB Spreads To Germany
- Germany: The 2-Yr yield is up 12.2bps at 2.203%, 5-Yr is up 9.7bps at 2.071%, 10-Yr is up 6.6bps at 2.21%, and 30-Yr is up 2.9bps at 2.492%.
- UK: The 2-Yr yield is up 17bps at 4.139%, 5-Yr is up 15.1bps at 4.016%, 10-Yr is up 11.4bps at 4.13%, and 30-Yr is up 7.8bps at 4.676%.
- Italian BTP spread down 4bps at 129.9bps / Spanish down 3bps at 75.8bps
MNI EGB OPTIONS: Both Downside And Upside Bought In Rates Friday
Friday's Europe rates/bond options flow included:
- RXX4 135.50/136.50cs 1x2, bought for 1 in 1.3k
- RXX4 138.5c, bought for 5 in 12k (ref 134.53).
- RXX4 135.50/137.00cs, bought for 28 in 1.3k.
- RXX4 133.50/132.50ps, sold at 22 in 1k
- ERM5 97.875 / 97.375 1x1.25 put spread, bought for 15 in 20k
- SFIH5 95.50/95.40ps, bought for 1.5 in 8k
- SFIH5 95.95/96.05/96.15/96.25 call condor bought for 2 in 23k
FX OPTIONS: Expiries for Oct07 NY cut 1000ET (Source DTCC) - EUR/USD: $1.0950-55(E1.4bln), $1.0990(E535mln), $1.1100-15(E2.3bln), $1.1265(E1.1bln), $1.1300(E875mln)
- USD/JPY: Y143.00-05($2.1bln), Y143.20-30($2.8bln), Y144.00($3.3bln), Y144.50($2.0bln), Y144.75-85($1.5bln), Y145.00($2.1bln), Y145.75-95($1.2bln), Y146.85-00($1.7bln)
- AUD/USD: $0.6755(A$500mln), $0.6900(A$994mln)
MNI US STOCKS: Late Equities Roundup: Bid But Off Highs Ahead Weekend, Banks Leading
- Stocks are holding moderate gains late Friday, off this morning's post-data highs amid cautious positioning going into the weekend as Mideast tensions remain high. Currently, the Dow trades up 223.06 points (0.53%) at 42233.82, S&P E-Minis up 34.5 points (0.6%) at 5784.25, Nasdaq up 158.3 points (0.9%) at 18076.47.
- Financial and Consumer Discretionary sectors outperformed in the second half, banks and financial services companies leading gainers: Discover Financial Services +5.20%, Capital One +4.77%, M&T Bank +3.35%, Wells Fargo +3.31%. Reminder, the next earnings cycle kicks off next week with Bank of NY Mellon, Wells Fargo, JP Morgan and Blackrock reporting next Friday.
- The Consumer Discretionary outpaced the Energy sector in the second half, led by auto makers and part suppliers: Tesla +3.42%, Aptiv +1.32%, GM +1.27%.
- Conversely, Real Estate and Utilities sectors continued to underperform in late trade, specialized REITS weighing on the former: Extra Storage -3.53%, American Tower -2.56%, Crown Castle -2.30%. Meanwhile, electricity providers weighed on the Utility sector: Pinnacle West -1.73%, Xcel Energy -1.68%, AES Corp -1.50%.
MNI EQUITY TECHS: E-MINI S&P: (Z4) Bullish Outlook
- RES 4: 5900.00 Round number resistance
- RES 3: 5871.77 2.0% Upper Bollinger Band
- RES 2: 5868.50 1.00 proj of the Apr 19 - Jul 16 - Aug 5 price swing
- RES 1: 5830.00 High Sep 26
- PRICE: 5783.25 @ 1503 ET Oct 4
- SUP 1: 5728.91 20-day EMA
- SUP 2: 5660.56 50-day EMA
- SUP 3: 5500.00 Round number support
- SUP 4: 5451.25 Low Sep 6 and a bear trigger
A bull cycle in S&P E-Minis remains intact and the latest shallow pullback appears to have been a correction. Recent gains reinforce a bullish theme and note that moving average studies are in a bull-mode setup, highlighting a dominant uptrend. Scope is seen for a climb towards 5868.50, a Fibonacci projection, and 5900.00 further out. On the downside, initial support to watch is 5728.91, the 20-day EMA. Key support lies at 5660.56, the 50-day EMA.
MNI COMMODITIES: Oil Reverses Gains After Biden Comments, Spot Gold Consolidates
- Oil markets reversed much of their Friday gains after Biden added more clarity to his Israel response comments suggesting oil sanctions are under consideration rather than strikes.
- WTI Nov 24 is up by 0.7% at $74.3/bbl.
- Goldman said Iranian oil strikes could cause a $20/bbl price response longer term though noted OPEC+ spare capacity could fill the gap.
- For WTI futures, recent gains have exposed $75.20, a Fibonacci retracement. On the downside, initial support to watch is $70.55, the 20-day EMA.
- US natural gas failed to hold up gains this week, seeing a sharp reversal following 5 weeks of rising prices with weather holding above normal and demand down slightly.
- US Natgas Nov 24 is down by 3.8% today at $2.86/mmbtu.
- Meanwhile, spot gold has edged down by 0.3% today to $2,648/oz, having swung from a low of $2,632 shortly after the US payrolls data to a high of $2,670 later in the session.
- The move leaves the yellow metal marginally lower on the week as it has consolidated after reaching a fresh all-time high last week.
- Although gold is in consolidation mode, the trend condition is unchanged and bulls remain in the driver’s seat.
- The focus is on $2,690.2 next, a Fibonacci projection. Firm support lies at $2,611.7, the 20-day EMA.
MONDAY DATA CALENDAR
| Date | ET | Impact | Period | Release | Prior | Consensus | |
| 07/10/2024 | 1130 | * | 11-Oct | Bid to Cover Ratio | -- | -- | |
| 07/10/2024 | 1130 | * | 11-Oct | Bid to Cover Ratio | -- | -- | |
| 07/10/2024 | 1500 | * | Aug | Consumer Credit m/m | 25.452 | -- | USD (b) |
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