MNI ASIA OPEN: Strong Jobs Report Brings Fed Closer to Tapering

EXECUTIVE SUMMARY

• DATA REACT: July Jobs Report Substantial Further Progress
• US JUL NONFARM PAYROLLS +943K; PRIVATE +703K, GOVT +240K
• US PRIOR MONTHS PAYROLLS REVISED: JUN +938K; MAY +614K
• FED KAPLAN CALLS FOR GRADUAL, BALANCED TAPERING STARTING SOON, Bbg

US

US: Lots of positives from the July payrolls report which will further encourage the FOMC to acknowledge that "substantial further progress" has been achieved on employment by the time the September meeting rolls around, so long as the August report doesn't unduly disappoint.

• The +943k payrolls added and upward revisions mean the US economy is now 5.7mn jobs short of pre-pandemic levels (146.8mn vs 152.5mn). Gov Waller, for one, said yest that 800k-1mn in Jul and Aug would constitute "substantial" progress for a September taper announcement.
• The main U-3 unemployment rate came in much lower than expected, at 5.4% (5.7% expected, 5.9% prior). As a benchmark: the June Fed SEP median forecast was 4.5% end-year.
• The fairly steady (participation rate (+0.1pp to 61.7%) was a bit confounding, with the labor force growing by just 261k - but the Fed will be encouraged by the biggest rise in the employment-to-population ratio since October (+0.4pp to 58.4%, vs pre-pandemic peak of 61.1%). For prime age workers (25 to 54), the ratio rose 0.6pp (to 77.8%, vs pre-pandemic peak of 80.5%).
• U-6 Underemployment fell sharply to 9.2% (from 9.8% prior).
• Re the Fed's concern over the breadth of the recovery from pandemic, there were some positives here too: Black and Hispanic unemployment fell by 1.0pp (9.2%) and 0.8pp (6.6%) respectively, while leisure and hospitality jobs gained 380k. And long-term unemployed dropped 600k from June.
• Maybe taking the shine off a bit: government payrolls contributed heavily: +240k. Private payrolls were revised up in June by 107k but a higher base meant they came around in line with expectations in July, +703k vs 709k survey. The education sector (private + public) lost 1.01mn jobs non-adjusted, but that was +271k seasonally adjusted.

OVERNIGHT DATA

• US JUL NONFARM PAYROLLS +943K; PRIVATE +703K, GOVT +240K
• US PRIOR MONTHS PAYROLLS REVISED: JUN +938K; MAY +614K
• US JUL UNEMPLOYMENT RATE 5.4%
• US JUL AVERAGE HOURLY EARNINGS +0.4% Vs JUN +0.4%; +4.0% YOY
• US JUL AVERAGE WEEKLY HOURS 34.8 HRS
• US BLS: NET REVISIONS FOR JUNE, MAY +119K

• MNI:US JUN WHOLESALE INV 1.1%; SALES 2%

• US JUN CONSUMER CREDIT +$37.7B
• US JUN REVOLVING CREDIT +$17.9B
• US JUN NONREVOLVING CREDIT +$19.8BB

• CANADA JUL EMPLOYMENT +94.0K; JOBLESS RATE 7.5%
• CANADA JUL FULL-TIME JOBS +83.0K; PART-TIME +11.0K

MARKETS SNAPSHOT

• DJIA up 109.13 points (0.31%) at 35172.4
• S&P E-Mini Future up 2.75 points (0.06%) at 4424.5
• Nasdaq down 72.7 points (-0.5%) at 14822.81
• US 10-Yr yield is up 6.3 bps at 1.2868%
• US Sep 10Y are down 16/32 at 134-0
• EURUSD down 0.0077 (-0.65%) at 1.1758
• USDJPY up 0.46 (0.42%) at 110.21
• WTI Crude Oil (front-month) down $1.07 (-1.55%) at $68.01
• Gold is down $40.69 (-2.26%) at $1763.93

• EuroStoxx 50 up 13.46 points (0.32%) at 4174.54
• FTSE 100 up 2.52 points (0.04%) at 7122.95
• German DAX up 16.78 points (0.11%) at 15761.45
• French CAC 40 up 35.77 points (0.53%) at 6816.96

US TSY SUMMARY: Strong Employ Data Keeps Taper Talk Alive

• Tsy 10-30Y yields climbed back to mid-July levels: 30YY 1.9454% high, 10YY 1.2986% high; yield curves bear steepening in shorts to intermediates.
• The +943k jobs gain for July NFP further underscores JP Morgan's opinion that last week's FOMC's "statement language made November a live possibility for a tapering announcement."
  • While keeping November "in play," JPM said "September is probably too soon to be consistent with their providing "advance notice," but even without a taper announcement, the September dots for '22 should keep the Fed interesting next month."
  • JPM adds "both the workweek and earnings data remain consistent with effective constraints on labor supply, perhaps related to expanded unemployment benefits. About half the states terminated those benefits between the June and July survey weeks, but so far there is no visible imprint on the data (state-level July jobs data will be released in three weeks)."
• Slow start for data risk next week, focus on CPI Wednesday, PPI Thursday. Late Friday, the 2-Yr yield is up 0.8bps at 0.2063%, 5-Yr is up 4bps at 0.7645%, 10-Yr is up 6.5bps at 1.2885%, and 30-Yr is up 7.1bps at 1.9323%.

US TSY FUTURES CLOSE

• 3M10Y +6.834, 124.115 (L: 116.608 / H: 124.787)
• 2Y10Y +6.009, 108.161 (L: 101.788 / H: 108.833)
• 2Y30Y +7.004, 172.923 (L: 165.658 / H: 173.512)
• 5Y30Y +3.633, 117.339 (L: 113.257 / H: 117.732)
• Current futures levels:
• Sep 2Y down 0.75/32 at 110-8.875 (L: 110-07.75 / H: 110-09.5)
• Sep 5Y down 7.5/32 at 124-3.75 (L: 124-02.25 / H: 124-10.5)
• Sep 10Y down 17/32 at 133-31 (L: 133-29.5 / H: 134-15)
• Sep 30Y down 1-20/32 at 164-2 (L: 163-30 / H: 165-21)
• Sep Ultra 30Y down 3-0/32 at 197-29 (L: 197-22 / H: 200-30)

US EURODOLLAR FUTURES CLOSE

• Sep 21 -0.005 at 99.870
• Dec 21 -0.005 at 99.820
• Mar 22 -0.005 at 99.840
• Jun 22 -0.010 at 99.790
• Red Pack (Sep 22-Jun 23) -0.055 to -0.02
• Green Pack (Sep 23-Jun 24) -0.065 to -0.06
• Blue Pack (Sep 24-Jun 25) -0.08 to -0.07
• Gold Pack (Sep 25-Jun 26) -0.09 to -0.08

SHORT TERM RATES

US DOLLAR LIBOR: Latest Settles

• O/N -0.00050 at 0.07850% (+0.00162/wk)
• 1 Month -0.00062 to 0.09513% (+0.00462/wk)
• 3 Month +0.00300 to 0.12838% (+0.01063/wk) ** (Record Low: 0.11800% on 6/14)
• 6 Month +0.00088 to 0.14938% (-0.00375/wk)
• 1 Year +0.00575 to 0.23738% (+0.00225/wk)

• Daily Effective Fed Funds Rate: 0.10% volume: $70B
• Daily Overnight Bank Funding Rate: 0.08% volume: $243B

• Secured Overnight Financing Rate (SOFR): 0.05%, $901B
• Broad General Collateral Rate (BGCR): 0.05%, $381B
• Tri-Party General Collateral Rate (TGCR): 0.05%, $353B
• (rate, volume levels reflect prior session)

• Tsy 0Y-2.25Y, $12.401B accepted vs. $43.826B submission
• Next scheduled purchases
• Mon 8/09 1010-1030ET: Tsy 10Y-22.5Y, appr $1.425B
• Tue 8/10 1010-1030ET: Tsy 4.5Y-7Y, appr $6.025B
• Wed 8/11 1010-1030ET: Tsy 22.5Y-30Y, appr $2.025B
• Thu 8/12 1010-1030ET: TIPS 1Y-7.5Y, appr $2.025B
• Thu 8/12 1500ET Update NY Fed Operational Purchase Schedule

FED: Reverse Repo Operations

NY Fed reverse repo usage climbs to $952.134B from 68 counterparties vs. $944.335B on Thursday. Compares to last Friday's new record high of $1.039.394B

PIPELINE: August Kicks Off W/Over $34B High-Grade Debt

• Date $MM Issuer (Priced *, Launch #)
• 08/06 $Benchmark: No new issuance on docket as yet; $34.17B total/wk
• $9.65B Priced Thursday
• 08/05 $5B *Amgen 4pt: $1.25B 7Y +65, $1.25B 10Y+85, $1.15B 20Y+105, $1.35B 30Y+115
• 08/05 $1.7B *Westlake Chem $300M 3NC1 +55, $350M 20Y +125, $600M 30Y +140, $450M 40Y +165
• 08/05 $850M *So-Cal Edison $400M 2Y +50, $450M 3Y +60
• 08/05 $600M *Mid-America Appts, $300M each WNG 5Y +47, WNG 30Y +107
• 08/05 $1.5B *Ford Motor Co 5Y 2.7%

EGBs-GILTS CASH CLOSE: Big US Job Gains Sink European FI

A weak session developed into a rout for core European FI following a strong US nonfarm payrolls release at 1330BST, with 10Y Gilt yields rising as much as 7bp from that point (of 9bp total on the day).

• Long-end Gilts underperformed Bunds (10Y German yield only rose 3bp after payrolls) by a wide margin, though it was the opposite case at the short end.
• The afternoon's moves reversed some of the flattening in recent sessions (German 5s30s hit lowest since early Feb in the morning before closing steeper).
• Periphery spreads tightened, led by Greece (-3.3bp), as global stocks tested highs.
• BoE's Bailey didn't move the market with his comments today, and European data was limited. The only bond supply was Belgian ORI (E0.5bln).

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is up 1.9bps at -0.757%, 5-Yr is up 3.3bps at -0.729%, 10-Yr is up 4.1bps at -0.457%, and 30-Yr is up 4.5bps at -0.002%.
• UK: The 2-Yr yield is up 4.7bps at 0.139%, 5-Yr is up 6.3bps at 0.297%, 10-Yr is up 8.8bps at 0.612%, and 30-Yr is up 7.6bps at 1.011%.
• Italian BTP spread down 0.3bps at 102.5bps / Spanish down 0.5bps at 69.8bps

FOREX: US Dollar Back In Business

• Stronger than expected July nonfarm payrolls from the U.S. bolstered the greenback on Friday. The dollar index rallied roughly 0.6% as some analysts remain of the opinion that November is still a viable meeting for a potential tapering announcement.
• The dollar had been strengthening in the lead up to the data, with most recent optimistic Fed speak potentially fuelling expectations for a stronger set of data.
• Sure enough, a +943k jobs gain was enough to affirm positive sentiment and, despite the usual choppy price action on the release, eventually extend the USD upward trajectory.
• EUR, AUD and NZD all fell in line with greenback strength (between 0.6-0.7%), whereas JPY, GBP and CAD slightly outperformed, retreating around 0.4%. USDCHF had the biggest move, rising 0.83%, to 0.9146 as of writing.
• Of note, EURUSD edged towards the July lows, printing just two pips shy at 1.1752. The break below the 1.18 handle has marked the resumption of the downtrend after the corrective bounce at the tail-end of July. The aforementioned July lows represent the bear trigger which should then target 1.1704, the March 31 low and a key support.
• Japan out on Monday, with a limited data docket – headlined by US JOLTS. There may also be comments from Fed members Bostic and Barkin.
• Next week's focus will be firmly on Wednesday's US CPI data.