EXECUTIVE SUMMARY
MNI FED: 50's Out For Nov, But Still On Course For Back-To-Back 25s
MNI FED: Strong Jobs Could Build Support For Two-Phase Rate Cut Approach
MNI US DATA: Strong Beat For Payrolls And July Weak Patch Revised Away
US
MNI FED: 50's Out For Nov, But Still On Course For Back-To-Back 25s
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.
- That's even before the Nov 1 release of October payrolls, which had previously been seen as the key to determining the size of November's Fed move of either 25bp or 50bp - either way, 50bp the following week looks out of the question now.
- As for a hold, that will require more evidence, perhaps substantially so. If anything, the payrolls report was an outlier in the broader labor market context. We suspect dovish-leaning FOMC members (which include Chair Powell) will highlight the signal from broader measures, such as the Kansas City Fed's Labor Conditions Index (which includes data ranging from JOLTS to Challenger job cuts and showed negative momentum in August) as a pretext to keep "recalibrating" rates.
MNI FED: Strong Jobs Could Build Support For Two-Phase Rate Cut Approach
Recent data including the GDP/GDI revisions cited by Powell are signaling to the Fed that downside risks are less prevalent - but more needs to be seen to convince them that upside risks are coming into view. Indeed the fact that inflation has been coming down more swiftly in recent months than previously anticipated seems suggestive to Fed leadership that a soft landing remains within reach.
- Next week's September CPI print suddenly becomes more interesting, whereas it had almost been an afterthought given the increased emphasis on the labor market. It will take a very strong upside CPI surprise (that translates into PCE terms), not just a failure to decelerate as expected (by 0.1pp vs August for both headline and core, per BBG consensus) to force the FOMC to consider holding.
NEWS
MNI US: Unexpected End To Port Strikes As Dockworkers Accept 62% Pay Increase
In a somewhat unexpected development overnight, the International Longshoremen’s Association representing dockworkers along the eastern seaboard reached an agreement with port operators to end a three-day strike that, if extended, would risk a notable hit to the US economy. WSJ reports that according to people familiar with the matter the offer of a 62% increase in wages over six years was enough to clinch a deal. A previous offer of 50% was rejected. President Joe Biden offered his support for the deal, saying “Collective bargaining works, and it is critical to building a stronger economy from the middle out and the bottom up.”
MNI SECURITY: Iran Calls For Simultaneous Gaza/Lebanon Ceasefire
Iranian foreign minister Abbas Araqchi said in Beirut today that Iran would support a ceasefire in Lebanon if it were backed by Hezbollah and paired with a ceasefire in Gaza: "We support efforts for a ceasefire on the condition that it would be acceptable to the Lebanese people, acceptable to the resistance, and thirdly, it would be synchronized with a ceasefire in Gaza."
MNI CHINA-EU: Permanent Tariffs On EVs Pass 10 Votes To 5, 12 Abstentions
The EU Commission will be enabled to impose sizeable tariffs on Chinese-made electric vehicles for a period of five years after member states approved the measures by 10 votes to five, with twelve abstentions. The measures had widely been expected to pass, given the support from France, Italy, Poland and Greece. However, Germany's 'no' vote shows the significant divisions still evident within the bloc. Hungary, seen as a keen cheerleader for China in the EU, was a stated no vote before the decision, while Sweden announced its abstention earlier this morning.
MNI EU: China EV Tariff Vote Highlights Deep Divisions At EU Core
The vote on whether to impose swingeing tariffs on Chinese-made electric vehicles, which passed earlier this morning (see 'CHINA-EU: Permanent Tariffs On EVs Pass 10 Votes To 5, 12 Abstentions', 1010BST) has exposed some notable faultlines between EU member states that could cloud relations. The confirmations of which way each country voted are coming out sporadically, but Jorge Liboreiro at Euronews reports the following split:
- In Favour: Italy, France, Netherlands, Estonia, Lithuania, Latvia, Poland, Denmark, Bulgaria, Ireland
- Abstaining: Belgium, Czechia, Greece, Spain, Croatia, Cyprus, Luxembourg, Austria, Portugal, Romania, Sweden, Finland
- Against: Germany, Hungary, Malta, Slovenia, Slovakia
MNI PHILIPPINES: Tensions w/China In South China Sea Remains Prominent
Wires carrying comments from National Security Council adviser Eduardo Año regarding the situation in the South China Sea. Año says that the Philippines strongly condemns the "violent, illegal actions" of Chinese maritime authorities against Vietnamese fishermen on 29 Sep. Says "We stand with Vietnam in denouncing this egregious act and call for accountability." Año: "China must cease all hostile activities that endanger the lives and livelihoods of civilian mariners." Calls the "unjustified assault" an "alarming act with no place in international relations".
US TSYS
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.
OVERNIGHT DATA
MNI US DATA: Strong Beat For Payrolls And July Weak Patch Revised Away
- 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).
- Strong two-month revisions of 72k were mostly concentrated in the public sector with the private sector revised up by 21k.
- The upward revisions in turn were concentrated in July rather than August, which is more positive than it sounds as it revises away what was a particularly weak patch - what was seen as 89k after last month’s revisions is now 144k for less sign of recent deterioration.
- The three-month average for total payrolls is 186k and a six-month of 167k.
MNI US DATA: Unemployment Status Flows Increasingly Encouraging After Weak July
- 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%.
- The net flows continue to show upward pressure on the unemployment rate from the labor supply, adding 0.08pps vs heavy net flows from unemployed to employed lowering the u/e rate by 0.26pps.
- Taking a step back, net employed-unemployed flows have only pushed the u/e rate higher once in the past twelve months (in July, by 0.05pps) with no sign of broader job loss pressures.
- Net flows between those not in the labor force and unemployment (i.e. crude estimate of labor supply flows) increased from a +0.04pp to +0.08pp contribution in Sept but that’s lower than the +0.15pps averaged through 1H24. If maintained, that offers a reduced tailwind for future unemployment rate increases.
MNI US DATA: Strong Household Survey Behind Surprise U/E Rate Decline
- On the household survey, the unemployment rate was far lower than expected at 4.05% after 4.22% in Aug and 4.25% in July. It almost rounded down to 4.0%, vs consensus was 4.2 and with some analysts looking for 4.3.
- It's a swift move away from the Fed's recently upward revised 4Q24 forecast of 4.4% (revised from 4.0% in its June SEP).
- It came as employment surged 430k, it’s most since March after some softer months, easily outpacing the 150k increase in the labor force.
MNI US DATA: AHE Unrounded - Sep'24
A beat for AHE and with an upward revision for Aug (but not for non-supervisory)
Total AHE:
M/M (SA): 0.369% in Sep (cons 0.3) from 0.456% in Aug (initial 0.399%)
Y/Y (SA): 3.969% in Sep (cons 3.8) from 3.893% in Aug
AHE Non-Supervisory:
M/M (SA): 0.264% in Sep from 0.298% in Aug (initial 0.365%)
Y/Y (SA): 3.941% in Sep from 3.988% in Aug
Source: Bloomberg, MNI
MARKETS SNAPSHOT
- Key market levels of markets in late NY trade:
- DJIA up 315.47 points (0.75%) at 42328.43
- S&P E-Mini Future up 47.25 points (0.82%) at 5796.75
- Nasdaq up 198 points (1.1%) at 18117.76
- US 10-Yr yield is up 13.3 bps at 3.9788%
- US Dec 10-Yr futures are down 34/32 at 112-27
- EURUSD down 0.0054 (-0.49%) at 1.0977
- USDJPY up 1.9 (1.29%) at 148.83
- WTI Crude Oil (front-month) up $0.87 (1.18%) at $74.57
- Gold is down $6.78 (-0.26%) at $2649.19
- European bourses closing levels:
- EuroStoxx 50 up 33.61 points (0.68%) at 4954.94
- FTSE 100 down 1.89 points (-0.02%) at 8280.63
- German DAX up 105.52 points (0.55%) at 19120.93
- French CAC 40 up 63.58 points (0.85%) at 7541.36
US TREASURY FUTURES CLOSE
3M10Y +9.594, -65.455 (L: -76.975 / H: -64.222)
2Y10Y -8.75, 5.087 (L: 4.477 / H: 14.925)
2Y30Y -13.203, 33.85 (L: 33.226 / H: 48.678)
5Y30Y -9.286, 45.57 (L: 45.044 / H: 57.701)
Current futures levels:
Dec 2-Yr futures down 14/32 at 103-17.375 (L: 103-17 / H: 104-00.5)
Dec 5-Yr futures down 26.25/32 at 108-25 (L: 108-24 / H: 109-22.25)
Dec 10-Yr futures down 1-02/32 at 112-27 (L: 112-26 / H: 114-01.5)
Dec 30-Yr futures down 1-16/32 at 121-30 (L: 121-25 / H: 123-22)
Dec Ultra futures down 1-29/32 at 130-4 (L: 129-31 / H: 132-10)
MNI US 10YR FUTURE TECHS: (Z4) Bear Leg Extends
- RES 4: 116-07 1.764 proj of the Aug 8 - 21 - Sep 3
- RES 3: 115-31+ 1.618 proj of the Aug 8 - 21 - Sep 3
- RES 2: 115-00+/23+ High Oct 1 / 11 and the bull trigger
- RES 1: 113-29+/114-18 50-day EMA / 20-day EMA
- PRICE: 112-31 @ 1340 ET Oct 4
- SUP 1: 112-30+ Low Oct 4
- SUP 2: 112-18 Low Aug 1
- SUP 3: 112-14+ 38.2% retracement of the Apr - Sep bull cycle (cont)
- SUP 4: 112-00 Round number support
Treasuries traded sharply lower Friday in response to the solid September jobs report. This extends the bear cycle that started Sep 11. The move lower has resulted in a break of the 50-day EMA and this has been followed by a breach of 113-12, the Sep 3 low. The move down undermines the recent bullish theme and instead highlights potential for a continuation lower. Sights are on 112-18, the Aug 1 low. Initial resistance is at 113-29+, the 50-day EMA.
SOFR FUTURES CLOSE
- Dec 24 -0.160 at 95.760
- Mar 25 -0.265 at 96.130
- Jun 25 -0.285 at 96.395
- Sep 25 -0.270 at 96.570
- Red Pack (Dec 25-Sep 26) -0.26 to -0.22
- Green Pack (Dec 26-Sep 27) -0.205 to -0.15
- Blue Pack (Dec 27-Sep 28) -0.14 to -0.115
- Gold Pack (Dec 28-Sep 29) -0.105 to -0.09
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.
EGBS
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
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) |