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MNI ASIA OPEN: Solid US Data Sets Stage For Nonfarm Payrolls

EXECUTIVE SUMMARY


US TSYS: Week Ends On A Soft Note, With Long Weekend And Payrolls Eyed

Treasury yields rose Friday to cap a negative week, as solid economic data continued to set a cautious tone ahead of next week's key nonfarm payrolls report.

  • Treasuries saw a modest sell-off in early trade as solid activity data weighed again. Core PCE inflation was in line but consumer spending and MNI Chicago PMI surprised to the upside (softer UMichigan consumer inflation expectations helped limit the hawkish follow-through).
  • The sell-off resumed in the afternoon as volumes picked up sharply after the European cash market close, characterized by bear steepening in the curve.
  • There was no obvious evident catalyst outside of the aforementioned solid data, but some desks speculated on the impact of month-end dynamics and position squaring ahead of the long weekend and next Friday's payrolls.
  • 10Y yields were set for their highest weekly close in 3 weeks, having fully erased the Powell-Jackson Hole rally from last Friday.
  • All that being said, Dec TY futures traded in a relatively narrow 14 point range on the day, with a sense of a "holding pattern" prevailing ahead of a busy week. Dec 24 T-Note future is down 10/32 at 113-18, having traded in a range of 113-16.5 to 113-30.5.
  • Next week's holiday-shortened calendar (U.S. markets close for Labor Day Monday) is highlighted by Friday's employment report, the outcome of which will more or less cement market expectations for either a 25bp or 50bp Fed cut two weeks later. Payrolls are preceded by a slew of employment data (jobless claims, JOLTS, ADP), as well as the ISM Services and Manufacturing surveys.
  • Cash yields: the 2-Yr yield is up 3.3bps at 3.9268%, 5-Yr is up 4.7bps at 3.7131%, 10-Yr is up 4.8bps at 3.9092%, and 30-Yr is up 4.7bps at 4.1928%.

 

NEWS

BANK OF CANADA (MNI): Canada's central bank will lower interest rates for a third consecutive meeting on Wednesday and likely signal more relief is coming as inflation moves back to target and the economy lags policymakers' third-quarter forecasts. The overnight rate is seen falling another quarter point to 4.25% in a decision due 9:45am EST, according to all 22 economists surveyed by MNI. 

FED (MNI): Risks of new inflationary shocks and a higher neutral rate mean the Federal Reserve is likely to cut U.S. interest rates gradually and not all that much, Ricardo Reis, London School of Economics economist and academic consultant at the Richmond Fed, told MNI.  “There's not a particular reason for the cuts to be all that fast,” he said in the latest episode of MNI's FedSpeak Podcast. 

US:MNI POLITICAL RISK - US Elections Weekly: Swing States Tighten
 
  • Vice President Kamala Harris successfully navigated her first press interview since assuming the presumptive Democratic nomination last month. She competently navigated some tricky questions on policy ‘flip-flops’ and trod a relatively safe line between defending the Biden administration’s record while calling for a break from the past.

US-CHINA (MNI London): The United States Trade Representative is poised to approve tariff increases on around USD$18 billion dollars of Chinese goods, "in the coming days", according to a USTR spokesperson quoted by Bloomberg. The tariffs are likely to come into effect in around two weeks. Bloomberg reports: “The [USTR] is set to make a final determination on the proposed increases that President Joe Biden announced in May on products including electric vehicles, semiconductors and batteries to solar cells and critical minerals. The USTR move — considered a formality — had been repeatedly put off, delaying the date the tariffs go into effect.”

 

OVERNIGHT DATA

US DATA (MNI):  MNI AUGUST CHICAGO BUSINESS BAROMETER 46.1 VS JULY 45.3

  • MNI CHICAGO: AUGUST PRICES PAID 66.0 VS JULY 55.8
  • MNI CHICAGO: AUGUST EMPLOYMENT 39.5 VS JULY 41.9
  • MNI CHICAGO: AUGUST PRODUCTION 47.9 VS JULY 46.4
  • MNI CHICAGO SURVEY PERIOD AUGUST 1 TO 19
  • The Chicago Business Barometer, produced with MNI progressed 0.8 points to 46.1 in August. The marginal move means it remains in contractionary territory for the ninth consecutive month, although is comfortably above the year-to-date average of 42.9.
  • The marginal rise was due to three of the five subcomponents improving. The  marginal upward movement was driven by New Orders, followed by Production and  Supplier Deliveries. Whilst small reductions in Order Backlogs and Employment  capped the upside move.

US DATA (MNI): Core PCE inflation has now seen three consistently soft months up to July, for an average of just 1.7% annualized.

  • The Y/Y did indeed come in a tenth lower than what was out-dated consensus of 2.7% but that had been a close call even prior to yesterday’s softer revisions.
  • At 2.62% Y/Y, it drifted fractionally higher from 2.58% in June and 2.59% in May and should see some more notable upside pressure from base effects later this year.
  • Meanwhile, note that the six-month rate eased from 3.3% to 2.6% annualized, its first month below the Y/Y since January (after Powell originally cautioned when it was running higher), and with the three-month suggesting further downward momentum ahead.
  • Non-housing core services inflation at 0.21% M/M is also part of an increasingly favorable trend. It’s running at 2.0% annualized over three months whilst the six-month rate slowed from 3.9% to 2.8% and the Y/Y from 3.34% to 3.25%.


US DATA (MNI): July's personal income and spending data came out close to expectations, but the internals highlighted strong consumer activity despite deteriorating real incomes. The inflation developments in the report help the case for Fed cuts, but the continued resilience of the US consumer could be viewed as a sign that aggregate demand remains strong despite prior rate hikes.

  • Personal income rose by 0.3% M/M, a bit higher than the 0.2% expected (and 0.2% prior), with employee compensation growth steady at 0.3%. After-tax real disposable income grew by 0.1% for a second consecutive month, in line with the 2024 monthly average gain - resulting in soft Y/Y growth of 1.1% in July compared with the 4+% average in 2024.
  • Even though real incomes have downshifted, personal spending growth remained robust at 0.5% M/M (in line with consensus) as nominal goods purchases accelerated (0.7% from 0.1% prior) and services consumption remained steady (0.4%, same prior). On a real basis, total personal spending picked up to 0.4% M/M (0.3% prior rev up from 0.2%).

US DATA (MNI): U.Mich inflation expectations were revised down a tenth for the 1Y (for now the lowest since Dec 2020) but were unrevised for the 5-10Y in the final August release:

  • 1Y: 2.8% (prelim/cons 2.9) in Aug after 2.9% in July.
  • 5-10Y: 3.0% (prelim/cons 3.0) in Aug after 3.0% in July.
  • Consumer sentiment meanwhile disappoints consensus a touch but still increases fractionally more than first thought with 67.9 (cons 68.1, prelim 67.8) in Aug after 66.4 in July.


CANADA DATA (MNI): Canadian second-quarter gross domestic product rose 2.1% led by government spending and overall capital investment, a bit faster than the central bank's projection, while a flash estimate showed third-quarter GDP stumbling as output stalled for a second month in July.

  •  Economic growth was slightly better than the first-quarter pace of 1.8% with growth from April to June lifted by a 6% gain in government spending and the 11% rise in non-residential structures, machinery and equipment. The second quarter pace was faster than the economist consensus of 1.7% and the Bank of Canada's forecast of 1.5%.

     

MARKETS SNAPSHOT

Below gives key levels of markets in Friday afternoon  NY trade:
- DJIA  down 0.28 points (0%) at 41336.24
- S&P E-Mini Future up 19.75 points (0.35%) at 5630.5
- Nasdaq up 102.2 points (0.6%) at 17623.01
- US  10-Yr yield is up 5 bps at 3.9111%
- US Dec 10-Yr futures (TY) are down 10/32 at 113-18    
- EURUSD  down 0.0026 (-0.23%) at 1.1052
- USDJPY up 1.14 (0.79%) at 146.13
- WTI Crude Oil (front-month)  down $2.43 (-3.2%) at $73.50
- Gold is  down $20.94 (-0.83%) at $2499.96

Prior European bourses closing levels:
- EuroStoxx 50  down 8.29 points (-0.17%) at 4957.98
- FTSE 100  down 3.01 points (-0.04%) at 8376.63
- German DAX  down 5.65 points (-0.03%) at 18906.92
- French CAC 40  down 10 points (-0.13%) at 7630.95
 

 

US TREASURY FUTURES CLOSE

  • Dec 2-Yr futures (TU) down 2.875/32  at 103-24.625 (L: 103-24.5 / H: 103-27.25)
  • Dec 5-Yr futures (FV) down 7/32  at 109-12.25 (L: 109-12.25 / H: 109-19.75)
  • Dec 10-Yr futures (TY) down 10/32  at 113-18 (L: 113-17.5 / H: 113-30.5)
  • Dec 30-Yr futures (US) down 22/32  at 123-03 (L: 123-01 / H: 124-04)
  • Dec Ultra futures (WN) down 33/32  at 131-30 (L: 131-26 / H: 133-16)
     
US 10YR FUTURE TECHS: (Z4) Bull Cycle Remains In Play
 
  • RES 4: 116-00   Round number resistance 
  • RES 3: 115-19   High Aug 5 and the bull trigger
  • RES 2: 114-31+ 76.4% of the Aug 5 - 8 pullback
  • RES 1: 114-19+ High Aug 21
  • PRICE:‌‌ 113-25+ @ 16:55 BST Aug 30
  • SUP 1: 113-22/21+ Low Aug 30 / 20-day EMA  
  • SUP 2: 113-00   Aug 8 low
  • SUP 3: 112-19+ 50-day EMA      
  • SUP 4: 111-28+ High Jul 17 

Treasuries are in consolidation mode. A bull cycle remains in play and the latest sideways move is seen as a pause in the uptrend. Moving average studies are in a bull-mode position - this continues to highlight positive market sentiment. A resumption of gains would refocus attention on the key resistance and bull trigger at 115-19, Aug 5 high. Initial resistance to watch is 114-19+, the Aug 21 high. Support to watch is 113-21+, the 20-day EMA.

 

SOFR FIXES AND PRIOR SESSION REFERENCE RATES

US: SOFR FIX - 30/08/24 - Source BBG/CME

  • 1M 5.19535 -0.0052
  • 3M 5.01662 0.00093
  • 6M 4.70877 0.01055
  • 12M 4.21768 0.02063

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

  • Secured Overnight Financing Rate (SOFR): 5.33%, -0.02%, $2088B
  • Broad General Collateral Rate (BGCR): 5.32%, -0.02%, $777B
  • Tri-Party General Collateral Rate (TGCR): 5.32%, -0.02%, $745B
Source: NY Fed

 

STIR: Effective Fed Funds Rate -  New York Fed EFFR for prior session (rate, chg from prev day):

  • Daily Effective Fed Funds Rate: 5.33%, no change, volume: $97B
  • Daily Overnight Bank Funding Rate: 5.32%, -0.01%, volume: $260B

ON RRP: RRP uptake climbed $50bn today to $433bn for a typical month-end increase.

  • It’s above the $413bn from Jul 31 but below the $665bn from Jun 28 (further boosted by quarter-end) and similar to the $440bn from May 31.
  • The number of counterparties increased by 3 to 72.  

 


EGBs-GILTS CASH CLOSE: Bunds Weaken As EZ Services HICP Proves Sticky

Core EGB curves flattened to close the week and month Friday, with Gilts outperforming Bunds.

  • Short-end German yields reversed Thursday's fall, as ECB cut pricing faded on an acceleration in Eurozone August services inflation and an unexpected fall in Eurozone unemployment to all-time lows.
  • Hawkish-leaning comments by ECB's Schnabel also weighed.
  • U.S. data in the afternoon weighed on global core FI once again, with PCE inflation in line but consumer spending strong and MNI Chicago PMI surprising to the upside (though softer UMichigan consumer inflation expectations helped limit bond downside).
  • The German curve bear flattened on the day, with the UK's leaning bull flatter, with outperformance in the 5Y and 30Y tenors.
  • Periphery EGB spreads closed wider by 1-2bp, with BTPs and GGBs underperforming. Portugal's credit rating is under review by S&P  after the close (PGB spreads were marginally wider).
  • Next week's docket includes final August PMIs, and the Eurozone Q2 GDP final estimate which will help inform 

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

  • Germany: The 2-Yr yield is up 3.4bps at 2.391%, 5-Yr is up 3.3bps at 2.189%, 10-Yr is up 2.5bps at 2.299%, and 30-Yr is up 2.2bps at 2.546%.
  • UK: The 2-Yr yield is down 0.3bps at 4.109%, 5-Yr is down 0.7bps at 3.912%, 10-Yr is down 0.4bps at 4.015%, and 30-Yr is down 1.3bps at 4.531%.
  • Italian BTP spread up 2.2bps at 140.2bps / Portuguese up 1bps at 61.2bps


FOREX: Higher US Yields Assist Greenback Recovery, USDJPY Above 146.00

  • The USD index extended its most recent bounce on Friday, with higher yields in the US assisting the more positive greenback sentiment. U.S. data weighed on global core FI once again, with PCE inflation in line but consumer spending strong and MNI Chicago PMI surprising to the upside.
  • The movement in yields has notably weighed on the Japanese Yen, with USDJPY gradually moving higher throughout the session and retaking the 146 handle. Session gains total 0.85% and the pair looks set to secure a close above the 100-week moving average of 144.62.
  • A positive weekly close this week is only the second since late June, but may signal a consolidative phase, rather than any firm bounce while prices continue to trade below the Aug 15 high and the 20-day EMA - key upside levels for USDJPY.
  • An accompanying, albeit brief, bout of risk off in equities weighed on the likes of AUD and NZD, while EURUSD continued the weakness seen across much of Wednesday and Thursday. Although this week’s move lower in EURUSD appears corrective and a bullish theme remains intact, the pair is hovering in close proximity of short-term support at 1.1047, the 20-day EMA.
  • In similar vein, GBPUSD has moved 0.4% lower on Friday, and is set to close lower on the week, after printing at the highest level since March 2022 earlier in the week. Overall, a bullish theme remains in place and the latest shallow pullback is considered corrective. Firm support is not seen until 1.3019, the 20-day EMA.
  • Final Eurozone PMIs will cross on Monday with volumes expected to be light owing to the US Labour Day holiday.

 

MNI (NEW YORK)

 

DateGMT/LocalImpactCountryEvent
02/09/20242300/0900**au AUS&P Global Manufacturing PMI (f)
02/09/20240030/0930**jp JPS&P Global Final Japan Manufacturing PMI
02/09/20240130/1130*au AUBuilding Approvals
02/09/20240145/0945**cn CNS&P Global Final China Manufacturing PMI
02/09/20240615/0815**ch CHRetail Sales
02/09/20240715/0915**es ESS&P Global Manufacturing PMI (f)
02/09/20240745/0945**it ITS&P Global Manufacturing PMI (f)
02/09/20240750/0950**fr FRS&P Global Manufacturing PMI (f)
02/09/20240755/0955**de DES&P Global Manufacturing PMI (f)
02/09/20240800/1000**it ITPPI
02/09/20240800/1000***it ITGDP (f)
02/09/20240800/1000**eu EUS&P Global Manufacturing PMI (f)
02/09/20240830/0930**gb GBS&P Global Manufacturing PMI (Final)
03/09/20242301/0001*gb GBBRC-KPMG Shop Sales Monitor
03/09/20240130/1130 au AUBalance of Payments: Current Account
03/09/20240630/0830***ch CHCPI
03/09/20240700/0300*tr TRTurkey CPI
03/09/20240700/0900***ch CHGDP
03/09/20241245/1345 gb GBBOE's Breeden moderating ECB and European Banking Authority panel
03/09/20241345/0945***us USS&P Global Manufacturing Index (final)
03/09/20241400/1000***us USISM Manufacturing Index
03/09/20241400/1000*us USConstruction Spending
03/09/20241530/1130*us USUS Treasury Auction Result for 13 Week Bill
03/09/20241530/1130*us USUS Treasury Auction Result for 26 Week Bill
03/09/20241700/1300**us USUS Treasury Auction Result for 52 Week Bill
03/09/20241700/1300*us USUS Treasury Auction Result for Cash Management Bill
03/09/2024- ca CABank of Canada Meeting
04/09/20240130/1130***au AUQuarterly GDP
04/09/20240700/0900 eu EUECB's Elderson at Joint European Banking Authority and ECB conference
04/09/20240900/1100**eu EUPPI
04/09/20241100/0700**us USMBA Weekly Applications Index
04/09/2024-***us USDomestic-Made Vehicle Sales
04/09/20241230/0830**us USTrade Balance
04/09/20241230/0830**ca CAInternational Merchandise Trade (Trade Balance)
04/09/20241255/0855**us USRedbook Retail Sales Index
04/09/20241345/0945***ca CABOC Policy Decision
04/09/20241400/1000**us USFactory New Orders
04/09/20241400/1000***us USJOLTS jobs opening level
04/09/20241400/1000***us USJOLTS quits Rate
04/09/20241400/1000 us USMNI Connect Video Conference on the U.S. Fiscal Policy Outlook
04/09/20241430/1030 ca CABOC Governor Press Conference
04/09/20241800/1400 us USFed Beige Book
05/09/20240130/1130**au AUTrade Balance
05/09/20240545/0745**ch CHUnemployment
05/09/20240600/0800**de DEManufacturing Orders
05/09/20240730/0930**eu EUS&P Global Final Eurozone Construction PMI
05/09/20240830/0930**gb GBS&P Global/CIPS Construction PMI
05/09/20240830/0930 gb GBBOE DMP Data
05/09/20240900/1100**eu EURetail Sales
05/09/20240900/1000**gb GBGilt Outright Auction Result
05/09/20241215/0815***us USADP Employment Report
05/09/20241230/0830***us USJobless Claims
05/09/20241230/0830**us USNon-Farm Productivity (f)
05/09/20241400/1000***us USISM Non-Manufacturing Index
05/09/20241430/1030**us USNatural Gas Stocks
05/09/20241500/1100**us USDOE Weekly Crude Oil Stocks
06/09/20240130/1130**au AULending Finance Details
06/09/20240600/0800**de DETrade Balance
06/09/20240600/0800**de DEIndustrial Production
06/09/20240645/0845*fr FRIndustrial Production
06/09/20240645/0845*fr FRForeign Trade
06/09/20240700/0900 eu EUECB's Elderson speech at ESCB Conference
06/09/20240900/1100***eu EUGDP (final)
06/09/20240900/1100*eu EUEmployment
06/09/20240900/1100*it ITRetail Sales
06/09/20241230/0830***us USEmployment Report
06/09/20241230/0830***ca CALabour Force Survey
06/09/20241230/0830**us USWASDE Weekly Import/Export
06/09/20241245/0845 us USNew York Fed's John Williams
06/09/20241400/1000*ca CAIvey PMI
06/09/20241500/1100 us USFed Governor Christopher Waller
06/09/20241700/1300**us USBaker Hughes Rig Count Overview - Weekly
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