MNI ASIA OPEN: Tsys Shrug Off Strong Unit Labor Costs

US

INTERVIEW (MNI): Fed Cuts Timeline Pushed Back - Reinhart: The Federal Reserve is likely to cut interest rates once this year in December, and if inflation remains sticky the central bank will delay easing further, Vincent Reinhart, a former director of the Fed's division of monetary affairs, told MNI.

• The case for even two cuts this year is weak after months of sideways inflation data, and officials are likely to push back the timing of the first move to December, he said. In March the 19 Fed officials were nearly evenly split between two and three cuts this year, but firmer-than-expected inflation data have likely shifted the timing.
• The FOMC statement Wednesday noted "a lack of further progress” in getting inflation back to its 2% target in recent months, an indication the Fed is rethinking the timing of rate cuts, Reinhart said. However the committee also noted risks have moved toward better balance over the past year, signaling it still thinks interest rates are at their cycle peak, he said.

FED REVIEW (MNI): May 2024: High (But Not Higher) For Longer: The May FOMC outcome leaned dovish, with markets relieved by three aspects in particular: the maintenance of the Committee’s bias toward the next move being a rate cut; Chair Powell describing a rate hike as “unlikely”; and a more aggressive reduction to balance sheet runoff than had been expected.

• While the FOMC’s confidence in the progress of disinflation has faltered following recent CPI/PCE data disappointments, they continue to see policy as being restrictive and in a “good place”.
• Though the bar to cuts has been set a little higher, the bar to hikes appears to remain about as high as ever.

US Payrolls Preview (MNI): Fed Sensitive To An Unexpected, Meaningful Weakening: Bloomberg consensus sees nonfarm payrolls growth of 241k in April after another strong 303k in March.

• Private payrolls are seen increasing 190k, implying government job creation at its softest since Nov but still almost more than two and a half times the average pace seen in 2019.
• Markets will be mindful of household survey volatility but with continued focus on immigration-driven supply side strength, the u/e rate should help guide on broader labor market balance.

NEWS

INTERVIEW (MNI): BOC Set To Start Cuts In June - Senator Gignac: Conditions are already in place for the Bank of Canada to lower interest rates at the next decision in June and holding off because the Federal Reserve isn't ready to cut yet would risk major job-market damage, Senator Clement Gignac said in an interview after pressing BOC Governor Tiff Macklem at a committee hearing.

UK (MNI): Conservatives See Worst YouGov Poll Score Since Jun-19, Local Elections To Set Tone: Prime Minister Rishi Sunak's centre-right Conservative party has recorded its lowest level of support in a YouGov poll since the June 2019. The news comes on the same day that voters across England and Wales go to the ballot box for local elections.

EU (MNI): Scholz & Macron To Meet Ahead Of Xi's Europe Visit: French President Emmanuel Macron is set to host German Chancellor Olaf Scholz in Paris for private talks ahead of Chinese President Xi Jinping's visit to Europe - taking in Hungary, Serbia, and France - from 5 May onwards.

ISRAEL (MNI): Hamas Agree w/Qatar To Continue Truce Talks: Wires reporting that Hamas have agreed with Qatar to continue talks on a truce in Gaza. Comes after reports that Egypt is set to invite Israel and Hamas to talks in Cairo in an effort to bridge the remaining gaps between the two sides on a hostage-for-temporary ceasefire deal.

ISRAEL (MNI): Sky Arabiya-Egypt Source: Positive Progress On Truce Negotiations: Sky News Arabiya posts on X: "Egyptian official source: Positive progress in the truce negotiations in Gaza."

TURKEY (MNI): Turkey Halts All Trade w/Israel: Officials: Bloomberg reporting that according to Turkish officials the country has halted all trade with Israel. BBG: "Trade between the two countries was worth $6.8 billion in 2023, of which 76% was Turkish exports, according to the Turkish statistical institute."

US TSYS Risk-On Tone Builds Despite Friday Headline Data Risk

• Risk-on tone continued to gain momentum late Thursday, Treasuries back to mid-April levels (TYM4 108-10, +6.5), curves bull steepening (2s10s +2.785 at -30.611) in the aftermath of Wednesday's steady FOMC dovish (at least not hawkish) hold.
• Despite the upcoming data risk, stocks continue to extend session highs ahead of Friday's April employment data (not to mention likely lower liquidity with Japan closed for extended holiday Friday and Monday, as well as South Korea, UK and Ireland on Monday.
• Rates shrugged off this morning's higher than expected Unit Labor Costs (4.7% vs. 4.0% est, prior down-revised to 0.0% from 0.4%) and Nonfarm Productivity miss (0.3% vs. 0.5% est, prior up-revised to 3.5%).
• Meanwhile, Initial Jobless Claims slightly lower than expected (208k vs. 211k est, 207k prior up-revised to 208k) and Continuing Claims (1.774M vs. 1.790M est, 1.781M prior down-revised to 1.774M). Trade Balance (-$69.4B vs. -$69.7B est).
• Projected rate cut pricing gained traction vs. late Wednesday levels: June 2024 at -15% vs. -10% earlier w/ cumulative rate cut -3.8bp at 5.298%, July'24 at -24bp vs. -22% earlier w/ cumulative at -9.8bp at 5.238%, Sep'24 cumulative -19.7bp (-17.3bp earlier), Nov'24 cumulative -27.6bp (-24bp earlier).

OVERNIGHT DATA

US DATA (MNI): Stronger Than Expected Unit Labor Costs In Q1: Productivity growth: 0.3% annualized (cons 0.5) in Q1 preliminary release after an upward revised 3.5% in Q4 (from the recently corrected 3.3%).

• Unit labor costs growth: 4.7% annualized (cons 4.0) after a downward revised 0.0% in Q4 (from the recently corrected 0.4%).
• The Q1 revisions take off some of the sting for the Fed but the net takeaway leans hawkish, with ULC growth bouncing to 4.7% for its fastest since 1Q23 after two flat quarters.

US DATA (MNI): Another Beat For Jobless Claims Data: Initial jobless claims were lower than expected at a seasonally adjusted 208k (cons 211k) in the week to Apr 27 after a slightly upward revised 208k (initial 207k).

• The four-week average dropped 4k to 210k, its lowest since early March. It sits between lows of 201k in January and the 2019 average of 218k.
• Continuing claims were also lower than expected at 1774k (cons 1790k) in the week to Apr 20, and as with initial claims were unchanged on the week after a downward revised 1774k (initial 1781k).
• It leaves seasonally adjusted continuing claims at their lowest since the turn of the year and before that Jul’23.

US DATA (MNI): No Further Escalation In Challenger Layoffs: Challenger job cut announcements amounted to 64.8k in April, -3% Y/Y compared to the 67.0k of Apr’23.

• It’s a good number following the 1% Y/Y increase in March, seeing as Mar’23 saw the last of the particularly large tech layoffs and had been biasing recent Y/Y rates up until Mar’24 lower.
• Ex-tech layoffs meanwhile increased 8% Y/Y after a particularly strong 51% Y/Y in March from what had been a spike in financial activity-related layoffs.

CANADA DATA (MNI): March Trade Balance Surprises With Deficit Of -CAD2.3B: Trade balance was expected to be +CAD0.9B, the deficit is the largest since June 2023.

• Feb trade balance revised down to +CAD0.5B from +CAD1.4B
• Exports -5.3% MOM and -4.7% in volume as gold exports fell after reaching record highs last month. Imports -1.2% vs +5.2% in Feb.
• Exports -1.5% YOY; imports +3%.
• Q1 imports +0.4% while exports -1.4%.
• US surplus narrowed to +CAD6.5B from +CAD8.5B as exports to the US -5% in March.
• Weakness in trade comes after a flat flash estimate for March GDP.

MARKETS SNAPSHOT

• Key market levels of markets in late NY trade:
• DJIA up 269.99 points (0.71%) at 38173.26
• S&P E-Mini Future up 38.75 points (0.77%) at 5085
• Nasdaq up 218.5 points (1.4%) at 15823.04
• US 10-Yr yield is down 5.1 bps at 4.5769%
• US Jun 10-Yr futures are up 6/32 at 108-9.5
• EURUSD up 0.0012 (0.11%) at 1.0724
• USDJPY down 1.32 (-0.85%) at 153.25
• WTI Crude Oil (front-month) up $0.05 (0.06%) at $79.05
• Gold is down $17.15 (-0.74%) at $2302.40
• European bourses closing levels:
• EuroStoxx 50 down 30.61 points (-0.62%) at 4890.61
• FTSE 100 up 50.91 points (0.63%) at 8172.15
• German DAX down 35.67 points (-0.2%) at 17896.5
• French CAC 40 down 70.28 points (-0.88%) at 7914.65

US TREASURY FUTURES CLOSE

• 3M10Y -4.009, -83.415 (L: -85.921 / H: -76.202)
• 2Y10Y +2.783, -30.613 (L: -34.597 / H: -29.011)
• 2Y30Y +5.415, -15.775 (L: -22.442 / H: -14.816)
• 5Y30Y +4.933, 14.994 (L: 9.329 / H: 15.315)
• Current futures levels:
• Jun 2-Yr futures up 3.375/32 at 101-19.75 (L: 101-14.375 / H: 101-20.25)
• Jun 5-Yr futures up 5.5/32 at 105-12 (L: 105-00.25 / H: 105-13.25)
• Jun 10-Yr futures up 6/32 at 108-9.5 (L: 107-25 / H: 108-12)
• Jun 30-Yr futures down 1/32 at 115-0 (L: 114-02 / H: 115-05)
• Jun Ultra futures down 10/32 at 120-24 (L: 119-17 / H: 120-31)

US 10Y FUTUE TECHS (M4) Trend Needle Points South

• RES 4: 109-15+ Channel top drawn from the Feb 1 low
• RES 3: 109-11 50-day EMA High Apr 10
• RES 2: 108-22+ High Apr 19
• RES 1: 108-10 20-day EMA
• PRICE: 108-08 @ 15:15 BST May 2
• SUP 1: 107-04 Low Apr 25
• SUP 2: 106-27 2.764 proj of Dec 27 - Jan 19 - Feb 1 price swing
• SUP 3: 106-09 Base of a bear channel drawn from the Feb 1 low
• SUP 4: 106-08 3.00 proj of Dec 27 - Jan 19 - Feb 1 price swing

Treasuries are in consolidation mode and remain above recent lows. The trend outlook is unchanged and the primary direction remains down . Fresh cycle lows recently and a bear mode set-up in moving average studies, highlight a clear downtrend. Sights are on 106-27 next, a Fibonacci projection. Firm resistance is 108-10, the 20-day EMA. A clear breach of the average would signal scope for a stronger short-term correction.

SOFR FUTURES CLOSE

• Jun 24 +0.015 at 94.710
• Sep 24 +0.035 at 94.870
• Dec 24 +0.050 at 95.070
• Mar 25 +0.070 at 95.290
• Red Pack (Jun 25-Mar 26) +0.065 to +0.080
• Green Pack (Jun 26-Mar 27) +0.025 to +0.055
• Blue Pack (Jun 27-Mar 28) +0.020 to +0.025
• Gold Pack (Jun 28-Mar 29) +0.015 to +0.020

SOFR FIXES AND PRIOR SESSION REFERENCE RATES

SOFR Benchmark Settlements:

• 1M +0.00263 to 5.32284 (+0.00711/wk)
• 3M +0.00321 to 5.33593 (+0.00643/wk)
• 6M +0.00201 to 5.32846 (+0.01424/wk)
• 12M -0.00571 to 5.25742 (+0.01362/wk)

• Secured Overnight Financing Rate (SOFR): 5.32% (-0.02), volume: $1.955T
• Broad General Collateral Rate (BGCR): 5.31% (+0.00), volume: $708B
• Tri-Party General Collateral Rate (TGCR): 5.31% (+0.00), volume: $693B
• (rate, volume levels reflect prior session)

• Daily Effective Fed Funds Rate: 5.33% (+0.00), volume: $83B
• Daily Overnight Bank Funding Rate: 5.32% (+0.00), volume: $250B

FED Reverse Repo Operation

• RRP usage continues to recede after falling well below $500B yesterday, currently $428.680B vs. $438.148B Wednesday. Compares to $327.066B on Monday, April 15 -- the lowest level since mid-May 2021.
• Meanwhile, the latest number of counterparties inches up to 70 vs. 69 prior.

PIPELINE $3.85B Foundry JV Holdco 4Pt Launched

• Date $MM Issuer (Priced *, Launch #)
• 5/2 $3.85B Foundry JV $850M +5Y +135, $1B +7Y +160, $1.2B +10Y +170, $800M +13Y +185
• 5/2 $750M SS&C Technologies 8NC3

EGBs-GILTS CASH CLOSE: Bunds Return From Holiday On Front Foot

Gilts yields more than retraced the prior session's rise, while core EGBs strengthened in their return from Wednesday's May Day holiday.

• A more dovish-than-expected Federal Reserve decision late Wednesday spilled over into a constructive start across the European FI space.
• Bunds continued to gain on a weak Italian Manufacturing PMI reading, but the move retraced after upward revisions to final Eurozone PMIs elsewhere. Largely solid US data didn't really move the needle, with most attention on Friday's US employment report.
• Periphery EGB spreads narrowed earlier in the session as equities gained, but reversed to close relatively flat after stocks retreated late.
• The UK and German curves leaned bull steeper.
• ECB's Lane speaks after the cash close. Aside from the US payrolls report which is the key highlight, Friday's schedule includes the Norges Bank decision, French industrial production, Eurozone unemployment, and final UK services PMI.

Closing Yields / 10-Yr Periphery EGB Spreads To Germany

• Germany: The 2-Yr yield is down 4.4bps at 2.99%, 5-Yr is down 4.5bps at 2.571%, 10-Yr is down 4.3bps at 2.541%, and 30-Yr is down 4.5bps at 2.645%.
• UK: The 2-Yr yield is down 8.5bps at 4.426%, 5-Yr is down 9.2bps at 4.173%, 10-Yr is down 8bps at 4.286%, and 30-Yr is down 5.4bps at 4.75%.
• Italian BTP spread down 1bps at 132.3bps / Spanish up 0.4bps at 77.4bps

FOREX Dovish Leans Post FOMC Further Weigh on Greenback, NFP in Focus

• With the May FOMC outcome leaning dovish, a further decline for US yields has moderately weighed on the USD index on Thursday. G10 gains have been concentrated in CHF and JPY, with similar advances seen for Antipodean FX and the Canadian dollar.
• Naturally, the focus was once again on the Japanese yen, following the suspected intervention late Wednesday, which likely takes the BOJ’s net USD selling to roughly $60 billion, a similar amount to that deployed in 2022 to support the local currency. USDJPY recovered back to 156.28 in APAC trade, however, has since consistently traded with a downward bias. The pair is now down 0.5% on the session, and sits just 75 pips from the 153.00 lows.
• This week’s volatile session highlights the start of a possible corrective cycle and yesterday’s sharp sell-off reinforces this theme. The pair has traded through support at the 20-day EMA - at 154.58 - exposing the 50-day EMA at 152.39, a key support. Note that trendline support drawn from the Dec 28 low, lies at 151.05.
• The CHF remains one of the best performers, reversing a small part of recent weakness as data this morning confirmed the stickiness of CPI, which came in well ahead of expectations (1.4% vs. Exp. 1.1% Y/Y). As a result, USD/CHF has reversed further below 0.92 and might be lining up a test of next support at the 0.9088 level.
• EURUSD and GBPUSD remain close to unchanged and have been relatively insulated to the broader greenback moves as market participants may be sitting on the sidelines ahead of the key US employment report scheduled on Friday.
• Few analysts look for an upside surprise for the u/e rate, but we wouldn’t rule one out with risk of a dovish reaction. At 3.83% in March, it doesn’t take much to move closer to the FOMC’s 4.0% end-2024 forecast. Following the data, US ISM Services PMI will round off the week’s calendar.

FRIDAY DATA CALENDAR

Date	GMT/Local	Impact	Flag	Country	Event
03/05/2024	0645/0845	*		FR	Industrial Production
03/05/2024	0700/0300	*		TR	Turkey CPI
03/05/2024	0800/1000	***		NO	Norges Bank Rate Decision
03/05/2024	0900/1100	**		EU	Unemployment
03/05/2024	1230/0830	***		US	Employment Report
03/05/2024	1400/1000	***		US	ISM Non-Manufacturing Index
03/05/2024	1700/1300	**		US	Baker Hughes Rig Count Overview - Weekly