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
- US DATA: Notable Decline In Job Openings, Quits Confirm Latest Moderation
- MNI BANK OF CANADA WATCH: Third Straight Cut And Signals More Are Coming
US TSYS: Short End Leads Post-JOLTS Rally
The short end of the curve led a sizeable Treasury rally Wednesday, as soft job openings data rekindled speculation of a 50bp Fed cut two weeks from now.
- With Friday's crucial nonfarm payrolls report intensifying the focus on labor market indicators, the July JOLTS report saw Treasuries jump as job openings fell to 7.673m (cons 8.10m) in July after a downwardly-revised 7.91m (initial 8.184m) in June.
- Adding to the dovish tone was a Bank of Canada rate cut (as expected) and a Fed Beige Book that highlighted softer economic activity alongside moderating inflation and employment.
- For the first time since mid-August, STIR markets briefly showed around 50/50 implied probability of a 50bp cut in September - with 112bp of total cuts this year - though those extremes faded by a couple of basis points (last 36bp, ie 44% prob of 50bp Sept cut, and 110bp respectively).
- With the short end leading the rally, 2s10s notably disinverted intraday for just the second session since July 2022.
- The parade of labor market data continues Thursday with Challenger Job Cuts, ADP private payrolls, nonfarm productivity, and weekly jobless claims. Additionally we get ISM Services (including its Employment component), and final August PMIs.
- Latest levels: Dec 10-Yr futures (TY) up 18.5/32 at 114-18.5 (L: 114-0.5 / H: 114-19.5) The 2-Yr yield is down 10.1bps at 3.7621%, 5-Yr is down 7.8bps at 3.5611%, 10-Yr is down 7bps at 3.7609%, and 30-Yr is down 6.3bps at 4.0604%.
NEWS
BANK OF CANADA (MNI): The Bank of Canada lowered interest rates for a third consecutive meeting on Wednesday and again signaled further moves can be justified given a broad inflation slowdown that officials see as creating a growing risk that prices fade too much. "We care as much about inflation being below the target as we do above," Governor Tiff Macklem said in the text of an opening press conference statement from Ottawa. "With inflation getting closer to the target, we need to increasingly guard against the risk that the economy is too weak and inflation falls too much."
FED (MNI): Federal Reserve Bank of Atlanta President Raphael Bostic said Wednesday he's now equally concerned about attaining full employment as he is about keeping inflation under control. "Right now, I am not quite prepared to declare victory over inflation. Though they have declined significantly, risks to meeting our price stability mandate remain," he said in an essay published on the Atlanta Fed website. "At the same time, we must not maintain a restrictive policy stance for too long. I believe we cannot wait until inflation has actually fallen all the way to 2% to begin removing restriction because that would risk labor market disruptions that could inflict unnecessary pain and suffering."
FED (MNI): A growing number of Federal Reserve districts reported stalled or slowing economic activity, while business contacts indicated they expect inflation to stay at current levels or decline further in the near term, the Fed's Beige Book said Wednesday. "Economic activity grew slightly in three Districts, while the number of Districts that reported flat or declining activity rose from five in the prior period to nine in the current period. Consumer spending ticked down in most Districts, having generally held steady during the prior reporting period," the report said. Prices increased modestly but there is an expectation of moderate inflation pressures ahead. "Looking ahead, contacts generally expected price and cost pressures to stabilize or ease further in the coming months," said the Beige Book report, which combines anecdotal evidence from across the Fed's 12 districts.
FED (MNI): Philadelphia Fed notify markets that they formally begin the search for a new Fed President from June of next year. That is little more than a formality - we already knew Harker was set to retire from his position in June of next year. Incoming Philly Fed President will take over from a pretty neutral voice on the FOMC, but won't rotate into a voting position until 2026.
CANADA (MNI): Canadian Liberal Prime Minister Justin Trudeau lost an agreement Wednesday with an opposition party to pass confidence votes like budgets, though NDP Leader Jagmeet Singh declined to say he will quickly seek to force an early election. The so-called supply and confidence agreement was supposed to run well into next year and would have allowed the Liberals to remain in office for a regular four-year term before an election next fall. “I have ripped up the supply and confidence agreement” NDP Jagmeet Singh said in a video message Wednesday. “The Liberals have let people down, they don’t deserve another chance,” he said. “They cannot stop the Conservatives. We can.”
BANK OF SPAIN/ECB (MNI): Incoming Bank of Spain Governor Jose Luis Escriva is seen as more dovish than his more centrist predecessor Pablo Hernandez de Cos, but is likely to take a collegial approach to monetary policy discussions on the European Central Bank’s Governing Council, sources in and outside Spain told MNI.
OVERNIGHT DATA
US DATA: Notable Decline In Job Openings, Quits Confirm Latest Moderation
- MNI: US BLS: JOLTS OPENINGS RATE 7.673M IN JUL
- MNI: US BLS: JOLTS QUITS RATE 2.1% IN JUL
- The JOLTS report for July saw notably weaker than expected job openings whilst quit rates technically rounded a tenth higher but only after a downward revision having already returned to well below levels seen shortly before the pandemic.
- • Job openings fell to 7.673m (cons 8.10m) in July after a downward revised 7.91m (initial 8.184m) in June.
• The rate to unemployed fell to 1.07 after another downward revised 1.16 (initial 1.20) in June, with the decline on the month boosted by last month’s large 352k rise in the level of unemployed to 7.16m.
• It’s the lowest since May-2021 after averaging 1.21 in Q2 for close to the 1.19 seen in 2019. It’s still elevated for pre-pandemic years, for example with the 2017-18 av of 1.00, but has seen swift downward momentum recently.
• Quits rate: 2.06% after a downward revised 2.03% (initial 2.07) in June. 2019 av 2.33, 2017-18 av 2.20.
• Private quits: 2.28% after 2.25% (initial 2.32) in May. 2019 av
US DATA: Trend Reluctance For New Purchase Mortgage Applications
- MBA composite mortgage applications increased 1.6% (sa) last week after 0.5%.
- New purchases outperformed refis for a third week running as they lag what had been a particularly sharp increase in refi activity on lower rates.
- Purchases are however still yet to claw back the -5.2% in the week to Aug 23 with a 0.9% and 3.3% increase since then.
- The 30Y conforming mortgage rate at 6.43% (-1bp) broadly stabilized having fallen ~85bps since recent high from April.
- Note that the spread to jumbo loans continues to imply some relative tightening, as it held at -30bps after the widening to -31bp the prior week.
US DATA: Factory Orders Pick Up In July, But Broader Dynamics Remain Poor
- MNI: US JUL FACTORY ORDERS +5.0%; EX-TRANSPORT NEW ORDERS +0.4%
- US JUL DURABLE ORDERS +9.8%
- US JUL NONDEFENSE CAP GOODS ORDERS EX AIRCRAFT -0.1%
- US factory orders came in slightly stronger than expected in July, rising 5.0% M/M (0.1pp above consensus). That more than reversed two consecutive monthly declines (including -3.3% in June) to set an 8-month high in terms of the seasonally-adjusted nominal level of orders. Ex-transport orders also picked up but not nearly as dramatically, to 0.4% M/M (0.1% prior - there was no consensus). Elsewhere in the report, final durable goods orders saw only modest revisions vs the advance reading.
- Despite this pickup, broader manufacturing sector dynamics remain poor. The pullback and rebound in manufactured goods orders growth was driven by volatile aircraft orders - as flagged by the durable goods report previously released, and reflected by the ex-transport orders figure. The 3M/3M annualized rate of growth in factory orders was -2.3% in July, the slowest rate of growth since March.
While the sector may be nearing a trough, there is little relief in sight in the near term. August's ISM Manufacturing report showed a stockbuilding-driven 0.4 point increase to 47.2, still very much in contractionary territory with new orders down a 5th consecutive month (down 2.8 points to 44.6). Manufacturing activity will likely continue to contract in coming months but the risks of a harder landing appear smaller now that interest rates are on their way down, ISM survey chair Timothy Fiore told MNI Tuesday.
MARKETS SNAPSHOT
Below gives key levels of markets in afternoon NY trade:
- DJIA down 37.66 points (-0.09%) at 40891.33
- S&P E-Mini Future down 18 points (-0.32%) at 5523
- Nasdaq down 67.4 points (-0.4%) at 17066.17
- US 10-Yr yield is down 7 bps at 3.7609%
- US Dec 10-Yr futures (TY) are up 19/32 at 114-19
- EURUSD up 0.0036 (0.33%) at 1.1079
- USDJPY down 1.6 (-1.1%) at 143.87
- WTI Crude Oil (front-month) down $1.29 (-1.83%) at $69.03
- Gold is down $0.37 (-0.01%) at $2492.70
Prior European bourses closing levels:
- EuroStoxx 50 down 64.34 points (-1.31%) at 4848.18
- FTSE 100 down 28.86 points (-0.35%) at 8269.6
- German DAX down 155.26 points (-0.83%) at 18591.85
- French CAC 40 down 74.13 points (-0.98%) at 7500.97
US TREASURY FUTURES CLOSE
Curve update:
* 3M10Y -3.297, -132.594 (L: -133.114 / H: -125.746)
* 1Y10Y +8.427, -46.244 (L: -57.615 / H: -45.273)
* 2Y10Y +3.085, -0.328 (L: -4.897 / H: 0.464)
* 2Y30Y +4.05, 29.625 (L: 24.631 / H: 30.974)
* 5Y30Y +1.683, 49.93 (L: 47.751 / H: 51.526)
Current futures levels:
* Dec 2-Yr futures (TU) up 8/32 at 104-03 (L: 103-27.625 / H: 104-03.375)
* Dec 5-Yr futures (FV) up 14/32 at 110-2.5 (L: 109-21 / H: 110-03.25)
* Dec 10-Yr futures (TY) up 19/32 at 114-19 (L: 114-0.5 / H: 114-19.5)
* Dec 30-Yr futures (US) up 35/32 at 125-08 (L: 124-02 / H: 125-09)
* Dec Ultra futures (WN) up 50/32 at 134-27 (L: 133-06 / H: 134-29)
US 10YR FUTURE TECHS: (Z4) Reversal Signal
- 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: 114-19+ High Aug 21
- PRICE: 114-14+ @ 15:51 BST Sep 04
- SUP 1: 113-12 Low Sep 3
- SUP 2: 113-00 Low Aug 8
- SUP 3: 112-22+ 50-day EMA
- SUP 4: 111-28+ High Jul 17
Treasuries traded sharply higher Tuesday, and again on Wednesday. The contract is holding well on to its latest gains. The bounce, from below the 20-day EMA, highlights a bullish 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, Aug 5 high. Initial resistance to watch is 114-19+, Aug 21 high. A deeper retracement would instead expose 112.22+, the 50-day EMA.
SOFR FIXES AND PRIOR SESSION REFERENCE RATES
US: SOFR FIX - 04/09/24- Source BBG/CME
- 1M 5.16249 -0.01146
- 3M 4.99442 -0.01711
- 6M 4.68496 -0.02322
- 12M 4.19385 -0.03134
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: $100B
- Daily Overnight Bank Funding Rate: 5.33%, 0.01%, volume: $238B
REPO REFERENCE RATES (rate, change from prev. day, volume):
- Secured Overnight Financing Rate (SOFR): 5.34%, 0.02%, $2403B
- Broad General Collateral Rate (BGCR): 5.33%, 0.01%, $783B
- Tri-Party General Collateral Rate (TGCR): 5.33%, 0.01%, $757B
- SOFR increased 2bps yesterday after Friday's month-end but remains within recent ranges.
FED: RRP Usage Continues Post Month-End Pullback
- RRP usage continued to pullback today, with a $12bn decline to $337bn after Tuesday’s $83bn decline away from the climb to $433bn at month-end on Friday.
- It remains a little above the low $300bn figures run at earlier in August.
- The number of counterparties also fell by 5 to 64.
EGBs-GILTS CASH CLOSE: Rally Continues On Low US Job Openings
European bonds rallied Wednesday as the first key US labour market data of the week came in on the soft side.
- Gilts and Bunds edged higher in the morning session in a continuation of Tuesday's risk-off price action. Then global FI rallied in European mid-afternoon trade as US job openings came in lower than expected, spurring a bull-steepening Treasury rally.
- 10Y Gilt and Bund yields dropped about 2bp on the data, though closed off the lows.
- There was relatively little impact on market pricing for next week's ECB decision, which remains firmly anchored to a 25bp cut, with about 38bp of cuts through the remainder of the year beyond that (up a couple of basis points on the day).
- Periphery EGB spreads tightened, led by BTPs and GGBs.
- Thursday's calendar starts with German factory orders data, with the BoE’s Decision Maker Panel (DMP) survey and Eurozone retail sales out later in the morning, along with an appearance bny ECB's Holzmann.
Closing Yields / 10-Yr Periphery EGB Spreads To Germany
- Germany: The 2-Yr yield is down 5.7bps at 2.323%, 5-Yr is down 6bps at 2.111%, 10-Yr is down 5.3bps at 2.224%, and 30-Yr is down 3.6bps at 2.471%.
- UK: The 2-Yr yield is down 5.1bps at 4.031%, 5-Yr is down 4.9bps at 3.833%, 10-Yr is down 5.5bps at 3.935%, and 30-Yr is down 4.2bps at 4.468%.
- Italian BTP spread down 3bps at 143.6bps / Spanish down 1.1bps at 81.7bps
FOREX: USDJPY Extends Weekly Decline Amid Weak US JOLTS Data
- Weaker-than-expected JOLTS jobs data in the US has assisted broad greenback weakness on Wednesday. A weaker close for the USD index today would be the first in six sessions, and snap the mini-recovery posted off the mid-August lows. The associated lower core yields have further bolstered the Japanese Yen, and USDJPY (-0.90%) is consolidating roughly 300 pips below the Tuesday high as we approach the APAC crossover.
- A close at current levels of 144.20 keeps attention on the first firm support at 143.45 - while the bear trigger of 141.70 remains more medium-terms significance.
- Moderately outperforming its G10 counterparts, the Euro showed signs of life in the aftermath of the data, with EURUSD (+0.39%) rising to a fresh weekly high of 1.1095 from a 1.1039 low.
- While daily ranges have been relatively contained this week, price action today confirms that recent weakness appears corrective. While the 20-day EMA, at 1.1049, was pierced on the way lower, moving average studies remain in a bull-mode position, highlighting a primary uptrend. A resumption of gains would set the scene for a climb towards 1.1234, a Fibonacci projection.
- USDCAD (-0.25%) had a moderately negative response to today’s BOC rate decision, where the statement suggested little appetite for accelerating rate cuts beyond the current 25bp pace.
- RBA Governor Bullock is due to speak at the Anika Foundation, in Sydney overnight before German factory orders and Eurozone retail sales headline the European docket. More jobs information from the US is scheduled, in the form of jobless claims and ADP, however the main event will be US ISM Services PMI data for August.
MNI (NEW YORK)
| Date | GMT/Local | Impact | Country | Event |
| 05/09/2024 | 0130/1130 | ** |  AU | Trade Balance |
| 05/09/2024 | 0545/0745 | ** |  CH | Unemployment |
| 05/09/2024 | 0600/0800 | ** |  DE | Manufacturing Orders |
| 05/09/2024 | 0730/0930 | ** |  EU | S&P Global Final Eurozone Construction PMI |
| 05/09/2024 | 0830/0930 | ** |  GB | S&P Global/CIPS Construction PMI |
| 05/09/2024 | 0830/0930 | GB | BOE DMP Data | |
| 05/09/2024 | 0900/1100 | ** | EU | Retail Sales |
| 05/09/2024 | 0900/1000 | ** | GB | Gilt Outright Auction Result |
| 05/09/2024 | 1215/0815 | *** |  US | ADP Employment Report |
| 05/09/2024 | 1230/0830 | *** | US | Jobless Claims |
| 05/09/2024 | 1230/0830 | ** | US | Non-Farm Productivity (f) |
| 05/09/2024 | 1400/1000 | *** | US | ISM Non-Manufacturing Index |
| 05/09/2024 | 1430/1030 | ** | US | Natural Gas Stocks |
| 05/09/2024 | 1500/1100 | ** | US | DOE Weekly Crude Oil Stocks |
| 05/09/2024 | 1530/1130 | ** | US | US Bill 04 Week Treasury Auction Result |
| 05/09/2024 | 1530/1130 | * | US | US Bill 08 Week Treasury Auction Result |
| 06/09/2024 | 0130/1130 | ** | AU | Lending Finance Details |
| 06/09/2024 | 0600/0800 | ** | DE | Trade Balance |
| 06/09/2024 | 0600/0800 | ** | DE | Industrial Production |
| 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 |
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.