MNI ASIA OPEN: Strong Jul/Aug Job Uprevisions Keeps Taper Alive

EXECUTIVE SUMMARY

• MNI: Fed Challenged to Divorce Taper From Rate Hikes--Ex-Staff
• MNI: US Unemployment Falls to Fresh Pandemic Low
• OECD SAYS 136 NATIONS AGREE TO GLOBAL CORPORATE-TAX ACCORD .. TAX DEAL REALLOCATES 25% OF BIG FIRMS' RESIDUAL PROFITS, Bbg

US

FED: Federal Reserve officials may have trouble convincing financial markets that a looming start to its tapering of bond purchases will not be swiftly followed by an interest rate increase, former Fed staffers told MNI.

• Relief that the Fed may have avoided a 'taper tantrum' may be premature, the economists and researchers said.
• "The Fed can say they're going to stop supplying these billions in purchases but that doesn't mean we're going to raise interest rates -- but the market might raise interest rates, and what are they going to do then?" William Gavin, a former vice president and economist at the St. Louis Fed, said in an interview. "The Fed cannot separate those. It cannot predict what will happen." For more see MNI Policy main wire at 0905ET.

• Employers added just 194,000 jobs in September, far below expectations for an increase of 500,000. August's 235,000 gain was revised up to 366,000 and July's increase of 1 million was revised up to 1.1 million.
• With those revisions, employment in July and August combined is 169,000 higher than previously reported, the BLS said, perhaps explaining some of the September miss. For more see MNI Policy main wire at 0932ET.

OVERNIGHT DATA

• US SEP NONFARM PAYROLLS +194K; PRIVATE +317K, GOVT -123K
  
• US PRIOR MONTHS PAYROLLS REVISED: AUG +366K; JUL +1,091K
• US SEP UNEMPLOYMENT RATE 4.8%
• US SEP AVERAGE HOURLY EARNINGS +0.6% Vs AUG +0.4%; +4.6% YOY
• US SEP AVERAGE WEEKLY HOURS 34.8 HRS

• US AUG WHOLESALE INV 1.2%; SALES -1.1%

• CANADA SEP EMPLOYMENT +157.1K; JOBLESS RATE 6.9%

MARKETS SNAPSHOT

Key late session market levels:

• DJIA up 50.36 points (0.14%) at 34805.3
• S&P E-Mini Future up 2.25 points (0.05%) at 4392.75
• Nasdaq down 34.4 points (-0.2%) at 14619.61
• US 10-Yr yield is up 2.8 bps at 1.6013%
• US Dec 10Y are down 8/32 at 131-4.5
• EURUSD up 0.0025 (0.22%) at 1.1577
• USDJPY up 0.56 (0.5%) at 112.18
• WTI Crude Oil (front-month) up $1.12 (1.43%) at $79.44
• Gold is up $2.31 (0.13%) at $1758.09

US TSYS: Strong Jul/Aug Uprevisions Keep Taper Annc Expectations Alive

• Contributing factors: drop in unemployment to 4.8%, longer avg workweek and strong earnings growth should give green light to Fed taper announcement in Nov.
• Sharp two-way trade post-data, as 30Y Bonds blipped higher on the consensus miss before the revision gain took hold and initial data point evaporated. Yield curves bounced (5s30s tapped 113.9 high) as bonds extended session lows from mid- into late morning trade.
• Aside from the initial excitement and decent volumes, tempo fell off in the second half as accts that were already squared and pared migrated back to the sidelines ahead the extended Columbus Day holiday weekend.
• No significant data until Wed next week w/Sep CPI (MoM 0.3% est/YoY 5.3% est) and Sep FOMC Minutes release later in the session.
• The 2-Yr yield is up 1bps at 0.3158%, 5-Yr is up 2.5bps at 1.0465%, 10-Yr is up 2.8bps at 1.6013%, and 30-Yr is up 3.2bps at 2.1582%.

US TSY FUTURES CLOSE

• 3M10Y +3.342, 155.058 (L: 148.096 / H: 156.461)
• 2Y10Y +2.003, 128.35 (L: 125.324 / H: 129.698)
• 2Y30Y +2.217, 183.897 (L: 180.725 / H: 185.995)
• 5Y30Y +0.58, 110.861 (L: 109.08 / H: 113.903)
• Current futures levels:
• Dec 2Y down 1/32 at 109-30.75 (L: 109-30.5 / H: 110-00.5)
• Dec 5Y down 4.5/32 at 122-15.25 (L: 122-13.5 / H: 122-24)
• Dec 10Y down 8/32 at 131-4.5 (L: 131-01 / H: 131-18.5)
• Dec 30Y down 20/32 at 157-26 (L: 157-16 / H: 158-21)
• Dec Ultra 30Y down 30/32 at 188-24 (L: 188-03 / H: 190-06)

US EURODOLLAR FUTURES CLOSE

• Dec 21 -0.005 at 99.835
• Mar 22 -0.005 at 99.850
• Jun 22 -0.020 at 99.770
• Sep 22 -0.015 at 99.650
• Red Pack (Dec 22-Sep 23) -0.04 to -0.025
• Green Pack (Dec 23-Sep 24) -0.055 to -0.045
• Blue Pack (Dec 24-Sep 25) -0.05 to -0.04
• Gold Pack (Dec 25-Sep 26) -0.045 to -0.04

SHORT TERM RATES

US DOLLAR LIBOR: Latest settlements

• O/N +0.00025 at 0.07263% (-0.00175/wk)
• 1 Month -0.00237 to 0.08363% (+0.00838/wk)
• 3 Month -0.00250 to 0.12113% (-0.01200/wk) ** Record Low 0.11413% on 9/12/21
• 6 Month +0.00062 to 0.15650% (-0.00175/wk)
• 1 Year +0.00387 to 0.24700% (+0.01212/wk)

• Daily Effective Fed Funds Rate: 0.08% volume: $77B
• Daily Overnight Bank Funding Rate: 0.07% volume: $259B

• Secured Overnight Financing Rate (SOFR): 0.05%, $911B
• Broad General Collateral Rate (BGCR): 0.05%, $372B
• Tri-Party General Collateral Rate (TGCR): 0.05%, $352B
• (rate, volume levels reflect prior session)

• Tsys 0Y-2.25Y, $12.401B accepted vs. $45.100B submission
• Next scheduled purchases
• Tue 10/12 1010-1030ET: Tsy 10Y-22.5Y, appr $1.425B
• Wed 10/13 1010-1030ET: Tsy 4.5Y-7Y, appr $6.025B
• Thu 10/14 1010-1030ET: Tsy 22.5Y-30Y, appr $2.025B
• Thu 10/14 1500ET: Update NY Fed Operational Purchase Schedule

FED Reverse Repo Operation

NY Fed reverse repo usage slips to $1,371.958B from 77 counterparties vs. $1.375.863B on Thursday. Record high remains at $1,604.881B from Thursday, September 30.

PIPELINE: High-Grade Issuance for Week Near $35B

No new issuers on tap for Friday as yet, sidelined ahead Sep employ data.

• Date $MM Issuer (Priced *, Launch #
• $6.45B Priced Thursday, $34.95B/wk
• 10/07 $2.4B *Kyndryl $700M 5Y +105, $500M 7Y +135, $650M 10Y +160, $550M 20Y +205
• 10/07 $2.25B *TransCanada Pipelines $1.25B 3Y +45, $1B 10Y +100
• 10/07 $1B *John Deere $600M 3Y FRN SOFR+20, $400M 5Y +32
• 10/07 $800M *Ontario Teachers Cadillac Property Trust 10Y +105

EGBs-GILTS CASH CLOSE: Yield Rise Remains Relentless

Gilt and Bund yields closed the week by continuing their almost uninterrupted rise since the end of August.

• Friday saw some mid-session respite after US payrolls data missed expectations, but the move quickly reversed and 10Y UK yields ultimately posted fresh post-May 2019 highs, with German counterparts equaling the highest yield since May 2021.
• The short end was not immune either, with Euribor and Short Sterling weakening sharply, pointing to greater scope for rate hikes by end-2022.
• Peripheries weakened but saw spreads tightening, led by Greece.
• No ratings decisions after hours Friday. Next week sees a slew of ECB and BoE speakers.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is up 1.4bps at -0.69%, 5-Yr is up 2.7bps at -0.532%, 10-Yr is up 3.6bps at -0.149%, and 30-Yr is up 3bps at 0.332%.
• UK: The 2-Yr yield is up 7.3bps at 0.547%, 5-Yr is up 7.3bps at 0.771%, 10-Yr is up 8.5bps at 1.162%, and 30-Yr is up 7.4bps at 1.503%.
• Italian BTP spread down 1.4bps at 102.7bps / Greek down 2.3bps at 105bps

FOREX: Jobs Data Puts Fed on Course to Taper

• Beyond the near-term volatility of the September jobs data, markets swiftly resumed their pre-data trends, with the release seen as working in favour of the Fed's plan to taper asset purchases before year-end. Despite the headline change in nonfarm payrolls coming in below expectations, sizeable positive revisions to the two prior months made for a decent report, particularly as the US Unemployment Rate fell below expectations.
• Similarly, Canada's jobs data came in ahead of forecast, with 157k jobs added against expectations of +60k. The release saw CAD outperform the rest of G10, pressuring USD/CAD through both the 200- and 100-dmas to print the lowest level since early August.
• JPY, AUD were among the poorest performers, with CAD, SEK and NOK the strongest.
• The coming week will likely start off on a quiet note, with US Colombus Day keeping markets muted. Focus then turns to UK jobs data, the German ZEW survey, US CPI/PPI and inflation & trade numbers from China. The South Korean central bank rate decision is due as well as FOMC minutes and the beginning of Q3 US corporate earnings season.