Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
EXECUTIVE SUMMARY
- MNI: US Payrolls Preview: Deciding 25bp or 50bp For A First Cut
- US DATA: Jobless Claims See Another Week Ruling Out Further Deterioration
- MNI INTERVIEW: US Service Growth To Keep Fed Cuts Gradual-ISM
- MNI: ECB Rate Shift Gives Added Focus To Deposit Facility Rate
- MNI INTERVIEW: Banxico Opens Door To Further Rate Cuts -Armijo
US TSYS: Early Gains Faded With All Eyes On Payrolls
Treasuries edged higher Thursday as incoming labor market data painted a mixed picture ahead of Friday's crucial nonfarm payrolls report.
- In a session that brought multiple employment indicators, a sizeable ADP private payrolls miss at 0815ET (99k vs cons 145k) saw futures jump to session highs.
- Markets largely looked past the slightly stronger-than-expected weekly jobless claims and quarterly productivity data 15 minutes later, allowing Dec TYs to extend to 114-29+ (up 11.5 ticks on the day) before a solid ISM Services report at 1000ET 51.5 (cons 51.4) triggered a reversal lower in TYs back to session lows.
- Afternoon trade was relatively subdued, with Treasuries regaining ground into the close to settle in the middle of the session's rang, with equities stabilizing and attention turning toward Friday's employment report.
- The closely-watched 2s10s set a fresh 2-year high (1.532bp) intraday after the ADP data but ended up inverting further post-ISM, as the short-end remained relatively anchored. September Fed rate cut pricing again neared 50/50 for 50bp in Fed Funds futures, before fading to 40/60.
- Friday's calendar is dominated by payrolls and their implications for Fed policy - our August employment report preview is here (PDF); later in Friday's session we will hear from the FOMC's Williams, Goolsbee and Waller who are anticipated to provide a final steer on the rate outlook going into the pre-September meeting blackout starting this weekend.
- Latest levels: Dec 10-Yr futures (TY) up 5.5/32 at 114-23.5 (L: 114-16 / H: 114-29.5). The 2-Yr yield is down 0.4bps at 3.7497%, 5-Yr is down 0.9bps at 3.5404%, 10-Yr is down 2.5bps at 3.7307%, and 30-Yr is down 3.4bps at 4.0234%.
NEWS
US NONFARM PAYROLLS (MNI PREVIEW - PDF LINK): Nonfarm payrolls growth is expected to see a partial bounce in August to 165k after a particularly soft 114k, with continued questions over the extent to which the latter was driven by one-off factors. Expect particular sensitivity to the unemployment rate: consensus looks for 4.2% after the surprisingly large 0.20pp increase to 4.25% in July was mostly driven by temporary layoffs. Surprises in either direction can confirm either a 25bp or 50bp Fed cut in September.
US (MNI): U.S. service growth appears likely to hold up even if it remains soft, Institute for Supply Management chair Steve Miller told MNI Thursday, suggesting the Federal Reserve can begin lowering interest rates this month with a more moderate 25 basis point cut. Recent reports have shown "anemic growth" with "stability" in the vast U.S. service sector, and there is not anything at the moment suggesting a sudden fall off in growth, Miller said.
ECB (MNI): The European Central Bank will move to implement the outcome of its Operational Framework Review at the Sept 12 policy meeting, with changes to the current rate suite set to start from the Sept 18 maintenance period, though Eurosystem officials told MNI it is likely to be many months before any effect on policy transmission is felt.
Banxico (MNI): Mexico's central bank is laying the groundwork to cut interest rates at each of its three remaining meetings this year, though a November pause to assess the effects of two previous reductions on the economy cannot be ruled out, former senior Banxico economist Alberto Armijo told MNI.
Canada (MNI): The Canadian opposition party leader who just ended a deal propping up Prime Minister Justin Trudeau’s minority government said Thursday he will decide future confidence votes on a case-by-case basis and that stance makes an early election more likely. “We are ready to fight an election whenever that happens," Jagmeet Singh of the NDP told reporters the day after he ended the agreement that had been due to run until the middle of next year. Singh also said he ended the deal because Liberals are no longer delivering enough to Canadians, suggesting there may be room for him to support a fiscal update due this fall if his priorities are included.
OVERNIGHT DATA
US DATA: Jobless Claims See Another Week Ruling Out Further Deterioration
- Weekly jobless claims again ruled out a sharper labor market deterioration, especially with continuing claims pulling back from recent highs (albeit still relatively elevated on a NSA basis).
- Initial jobless claims dipped to 227k (sa, cons 230k) in the week to Aug 31 after a marginally upward revised 232k (initial 231k).
- The four-week moving average fell further to 230k (-2k) having recently peaked at 241k in early Aug. It compares increasingly favorably with the 234k the week before Hurricane Beryl.
- Continuing claims saw a larger surprise lower at 1838k (sa, cons 1867k) in the week to Aug 24 after a downward revised 1860k (initial 1868k).
- It’s the lowest since mid-June as it pulls back from what had been levels close to the recent high of 1871k from Jul 27 that marked the highest since Nov 2021.
- Note that non-seasonally adjusted continuing claims look in keeping with recent themes, i.e. still sitting right at the top end of the years shortly before the pandemic but not pushing relatively higher.
US DATA: An All-Around Solid ISM Services Report
Employment missed expectations slightly but importantly held onto most of July’s improvement, whilst prices paid and new orders both beat and were at their highest since May.
- ISM Services: 51.5 (cons 51.4) in Aug after 51.4 in July.
- The overall reading has only been sub-50 this cycle in June (48.8) and April (49.4). It was last sub-50 in the depths of the pandemic in Apr-May 2020.
- Employment: 50.2 (cons 50.5) in Aug after rising 5.0pts to 51.1 in July. The 51.1 was the highest since Sep’23 after seven months below 50.
- Prices paid: 57.3 (cons 56.0) after 57.0. It averaged 59.3 in 2023 and 58.3 in 1H24.
- New orders: 53.0 (cons 51.9) after 52.4, highest since May as it confirmed the bounce seen in July.
US DATA: ADP Employment Disappoints In August
- ADP employment disappointed with 99k (cons 145k) in August after a downward revised 111k (initial 122k).
- "The job market's downward drift brought us to slower-than-normal hiring after two years of outsized growth. The next indicator to watch is wage growth, which is stabilizing after a dramatic post-pandemic slowdown." - ADP Chief Econ
- Small sized firms with 20-49 employees (-12k) saw a seventh consecutive monthly decline.
- Correlation with private payrolls has tended to be weak although most recently was more in line, with a 3-month average for ADP at 141k up to July (after today’s downward revision) vs 146k for private payrolls (in the July vintage).
US DATA: Challenger Job Cuts Don’t Point To Labor Market Alarm
- The Challenger jobs report showed hiring announcements remain extremely low but there was no further escalation in planned job cuts.
- Challenger job cuts only increased 1% Y/Y in August as they followed the 2023 pattern of stepping sharply higher in August (they increased from 25.9k in July to 75.9k in Aug in NSA data).
- Notably, tech returned to having an outsized role as planned job cuts surged to 39.6k vs 3.2k in Aug’23.
- It’s a crude measure but ex-tech job cuts fell 50% Y/Y to 36.3k vs 72k in Aug’23. The 36.3k is very similar to Aug’19 for a pre-pandemic comparison.
- Hiring announcements meanwhile increased from 3.7k in Jul to 6.1k in Aug, but remain very low historically (-21% Y/Y from what was an already low Aug’23).
- This is nothing particularly new though: the three lowest hiring announcements in the series history going back to 20024 have all come in the past eight months (3.0k in Dec’23 being the lowest).
US DATA: Slowest Y/Y ULC Growth In A Decade Gives Further Impetus For Fed Cut
The final release of Q2 productivity data showed an even bigger slowdown in unit labor costs (ULCs) than previously thought, with productivity growth estimates edging higher. Overall this is a report that provides some more impetus for the FOMC to start easing policy.
- ULC growth was revised down to 0.4% Q/Q SAAR, from 0.9% in the initial estimate and 3.8% in Q1. Productivity meanwhile picked up to 2.5% vs 2.3% initial and 0.4% prior. Put another way, output rose by 3.5% whereas hours worked rose just 1%; hourly compensation increased by 3%.
- This means that (on a seasonally adjusted basis) ULCs barely grew over the past year (0.3% Y/Y), as productivity posted solid gains (2.7%). The BLS notes that for ULCs, this was "the lowest rate since the fourth quarter of 2013, when the measure decreased 2.2 percent."
- The main consideration for the Fed here is that productivity growth is helping offset the inflationary impact of higher worker compensation. There is still a large gap in trend levels between the above-trend ULCs which jumped over 2021-23 while productivity slumped, as the low-productivity service economy came back online post-pandemic.
- The direction of travel is important here it's arguably the key to the Fed achieving a soft landing. Fed Gov Kugler, a labor economist, put it this way in June: "A third reason for my optimism about achieving 2 percent inflation is that I am also cautiously optimistic about productivity growth, which is a source of supply expansion that is likely to put downward pressure on inflation without slower economic growth".
MARKETS SNAPSHOT
Below gives key levels of markets in afternoon NY trade:
- DJIA down 244.68 points (-0.6%) at 40795.59
- S&P E-Mini Future down 19.25 points (-0.35%) at 5519.75
- Nasdaq up 30.1 points (0.2%) at 17146.33
- US 10-Yr yield is down 2.6 bps at 3.7288%
- US Dec 10-Yr futures (TY) are up 6/32 at 114-24
- EURUSD up 0.0023 (0.21%) at 1.1105
- USDJPY down 0.3 (-0.21%) at 143.48
- WTI Crude Oil (front-month) up $0.1 (0.14%) at $69.32
- Gold is up $20.24 (0.81%) at $2515.94
Prior European bourses closing levels:
- EuroStoxx 50 down 33.03 points (-0.68%) at 4815.15
- FTSE 100 down 27.89 points (-0.34%) at 8241.71
- German DAX down 15.35 points (-0.08%) at 18576.5
- French CAC 40 down 69.01 points (-0.92%) at 7431.96
US TREASURY FUTURES CLOSE
Curve update:
* 3M10Y -1.344, -134.315 (L: -135.775 / H: -130.944)
* 1Y10Y -0.799, -47.879 (L: -48.901 / H: -44.861)
* 2Y10Y -1.625, -1.901 (L: -2.636 / H: 1.532)
* 2Y30Y -2.7, 27.277 (L: 26.601 / H: 32.864)
* 5Y30Y -2.492, 48.205 (L: 47.756 / H: 52.307)
Current futures levels:
* Dec 2-Yr futures (TU) up 1/32 at 104-3.625 (L: 104-1 / H: 104-6.2)
* Dec 5-Yr futures (FV) up 3.5/32 at 110-5.25 (L: 109-31.3 / H: 110-9.5)
* Dec 10-Yr futures (TY) up 6.5/32 at 114-24.5 (L: 114-16 / H: 114-29.5)
* Dec 30-Yr futures (US) up 16/32 at 125-22 (L: 125-1 / H: 125-26)
* Dec Ultra futures (WN) up 29/32 at 135-22 (L: 134-17 / H: 135-28)
US 10-YEAR FUTURE TECHS: (Z4) Bullish Outlook
- RES 4: 116-00 Round number resistance
- RES 3: 115-19 High Aug 5 and the bull trigger
- RES 2: 114-31+ 76.4% retracement of the Aug 5 - 8 pullback
- RES 1: 114-22+ Intraday high
- PRICE: 114-14+ @ 15:51 BST Sep 04
- SUP 1: 113-25/12 20-day EMA / Low Sep 3
- SUP 2: 113-00 Low Aug 8
- SUP 3: 112-25 50-day EMA
- SUP 4: 111-28+ High Jul 17
Treasuries are holding on to this week’s gains and a bullish theme remains intact. The bounce Tuesday, from below the 20-day EMA, highlights a reversal and signals the end of the recent corrective phase. A stronger resumption of gains would refocus attention on key resistance and the bull trigger at 115-19, the Aug 5 high. On the downside, a deeper retracement would instead expose 112.25, the 50-day EMA.
SOFR FIXES AND PRIOR SESSION REFERENCE RATES
US: SOFR FIX - 04/09/24 - Source BBG/CME
- 1M 5.11800 -0.04449
- 3M 4.94607 -0.04835
- 6M 4.61541 -0.06955
- 12M 4.11038 -0.08347
REPO REFERENCE RATES (rate, change from prev. day, volume):
- Secured Overnight Financing Rate (SOFR): 5.35%, 0.01%, $2169B
- Broad General Collateral Rate (BGCR): 5.32%, -0.01%, $793B
- Tri-Party General Collateral Rate (TGCR): 5.32%, -0.01%, $760B
STIR: New York Fed EFFR for prior session (rate, chg from prev day):
- Daily Effective Fed Funds Rate: 5.33%, no change, volume: $103B
- Daily Overnight Bank Funding Rate: 5.33%, no change, volume: $238B
FED: RRP Level Falls To One-Month Low
Takeup of the NY Fed's overnight reverse repo facility fell to $291B Thursday, down $46B.
- That is the lowest level since the 3+ year low of $286.7B set on August 7.
- The operation saw just 59 counterparties - down 5 from Wednesday, and the lowest since Aug 8.
BONDS: EGBs-GILTS CASH CLOSE: Rally Extends Amid Mixed US Jobs Data
Core European yields fell for a third consecutive session Thursday, with US labour market data continuing to guide direction ahead of Friday's key nonfarm payrolls release.
- Bunds and Gilts started on the back foot, with EGBs weighed down by heavy Spanish and French supply, and a stronger-than-expected headline German factory orders reading.
- US data including a below-expected ADP private payrolls figure helped boost global core FI in early afternoon trade, with Bund and Gilt futures hitting session highs, but the rally was pared later in the session due in part to a solid US ISM Services report.
- The German and UK curves bull steepened onthe day, with Gilts outperforming slightly overall.
- Periphery EGB spreads were little changed, with BTPs rising from intraday tights set after the announcement of Michel Barnier as the new French PM.
- Most focus Friday will be on the US employment report; we also get German and French industrial production data, and the final reading of Eurozone Q2 GDP which will include key details on labour costs ahead of next week's ECB meeting.
Closing Yields / 10-Yr Periphery EGB Spreads To Germany
- Germany: The 2-Yr yield is down 2.7bps at 2.296%, 5-Yr is down 1.6bps at 2.095%, 10-Yr is down 1.6bps at 2.208%, and 30-Yr is down 1.5bps at 2.456%.
- UK: The 2-Yr yield is down 2.5bps at 4.006%, 5-Yr is down 2.5bps at 3.808%, 10-Yr is down 2bps at 3.915%, and 30-Yr is down 2.5bps at 4.443%.
- Italian BTP spread down 0.4bps at 143.2bps / Spanish down 0.5bps at 81.2bps
FOREX: Another Punchy USDJPY Range, Daily G10 Adjustments Contained
- Sensitivity to the plethora of US data and movements in major equity benchmarks kept the Japanese Yen in significant focus Thursday, with USDJPY exhibiting another punchy 140pip range on the session.
- Early USDJPY weakness was exacerbated by a soft US ADP release, and the pair reached as low as 142.85, an impressive sell-off from the 147.21 highs registered just on Tuesday. However, slightly better jobless claims data and an all-around solid ISM services report helped USDJPY extend its intra-day recovery, rising the best part of 1% to a 144.23 session high.
- Late weakness for equities dragged the pair back down into negative territory on the day and keeps markets on high alert ahead of the key US employment data on Friday, where short-term parameters appear well defined ahead of the event. On the downside, 142.85 and 141.70 provide support, while stronger US labour market dynamics should bolster the recovery towards the 20-day EMA at 146.20 and the week’s high at 147.21.
- Even greater volatility for MXNJPY was a key component of currency developments on Thursday, where a souring global and domestic picture helped USDMXN to rise as highs as 20.1491. This pair looks set to close at the highest level since late 2022 and developments for both the Yen and equity markets on Friday may be key to extend the peso’s woes.
- Despite the late equity weakness, the likes of EUR, GBP, AUD and NZD are all moderately rising on the session as traders await tomorrow’s US data for the next driver of greenback direction.
- Nonfarm payrolls growth is expected to see a partial bounce in August to 165k after a particularly soft 114k, with continued questions over the extent to which the latter was driven by one-off factors. This is expected to be a key ingredient to the Fed’s Sep 18th decision.
MNI (NEW YORK)
| Date | GMT/Local | Impact | Country | Event |
| 06/09/2024 | 0600/0800 | ** |  DE | Trade Balance |
| 06/09/2024 | 0600/0800 | ** | DE | Industrial Production |
| 06/09/2024 | 0600/0700 | * |  GB | Halifax House Price Index |
| 06/09/2024 | 0645/0845 | * |  FR | Industrial Production |
| 06/09/2024 | 0645/0845 | * | FR | Foreign Trade |
| 06/09/2024 | 0700/0900 |  EU | ECB's Elderson speech at ESCB Conference | |
| 06/09/2024 | 0900/1100 | *** | EU | GDP (final) |
| 06/09/2024 | 0900/1100 | * | EU | Employment |
| 06/09/2024 | 0900/1100 | * |  IT | Retail Sales |
| 06/09/2024 | 1230/0830 | *** |  US | Employment Report |
| 06/09/2024 | 1230/0830 | *** |  CA | Labour Force Survey |
| 06/09/2024 | 1230/0830 | ** | US | WASDE Weekly Import/Export |
| 06/09/2024 | 1245/0845 | US | New York Fed's John Williams | |
| 06/09/2024 | 1400/1000 | * | CA | Ivey PMI |
| 06/09/2024 | 1500/1100 | US | Fed Governor Christopher Waller | |
| 06/09/2024 | 1700/1300 | ** | US | Baker Hughes Rig Count Overview - Weekly |
| 09/09/2024 | 2350/0850 | ** |  JP | GDP (r) |
| 09/09/2024 | 0130/0930 | *** |  CN | CPI |
| 09/09/2024 | 0130/0930 | *** | CN | Producer Price Index |
| 09/09/2024 | 1400/1000 | ** | US | Wholesale Trade |
| 09/09/2024 | 1530/1130 | * | US | US Treasury Auction Result for 13 Week Bill |
| 09/09/2024 | 1530/1130 | * | US | US Treasury Auction Result for 26 Week Bill |
| 09/09/2024 | 1900/1500 | * | US | Consumer Credit |
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.