MNI US MARKETS ANALYSIS - Assets Seen Sensitive to Any Labor Market Strength

US TSYS: Belly-Led Cheapening Ahead Of Payrolls

• Cash Tsys trade 2.5-3.5bp cheaper, led by the belly, to pare gains seen after US data yesterday at the front end and more than reverse gains further out the curve.
• Major tenors are all within the week’s range, awaiting today’s payrolls report (full preview here) but with further event risk from the U.Mich report later on after inflation expectations surprised higher in both preliminary and final November reports.
• TYH4 at 110-24 (-13) is close to the day’s recent lows of 110-22+, the low end of the past two days but the middle of the week’s range. The trend direction remains higher though, with the week’s high of 111-09+ marking initial resistance before 111-19 (Fibo projection of Oct-Nov price swing).
• Data: Payrolls Nov (0830ET), U.Mich consumer survey Dec prelim (1000ET)
• No issuance.

MNI US Payrolls Preview: Looking Beyond The Post-Strike Boost

EXECUTIVE SUMMARY

• Bloomberg consensus sees nonfarm payrolls growth of 186k in November, up from the 150k in October owing to a 38k fewer striking workers meaning strike adjusted gains should trend lower.
• AHE is seen accelerating a tenth from the 0.2% M/M in October, but elsewhere consensus mostly looks for a consolidation of October’s softening.
• That includes an unemployment rate of 3.9% which would see greater likelihood of the FOMC raising its near-term unemployment forecast next week, although there is a mild analyst skew to a lower rate.
• We expect large sensitivity to surprises in either direction but perhaps asymmetrical risk of a stronger report which sees markets question whether the five cuts priced for 2024 is excessive, at least for now.

PLEASE FIND THE FULL REPORT HERE:

USNFPDec2023Preview.pdf

STIR: Fed Implied Rates Nudge Higher Pre-Payrolls

• Fed Funds implied rates have drifted higher in pre-payrolls trade, trimming cumulative cut pricing to 16.5bp for March, 34bp for May and 122bp for Dec’24 (from 125bp yesterday).
• Expectations of cut timing and size will likely be heavily influenced by today’s payrolls report, which as we wrote in the preview could see markets question whether roughly five cuts priced for 2024 is excessive. Full report here: https://roar-assets-auto.rbl.ms/files/58364/USNFPDec2023Preview.pdf

SOFR: OI Indicates Long Setting Continues To Dominate On SOFR Strip

The combination of the light uptick in prices across most of the SOFR strip and preliminary OI data point to the following net positioning swings on Thursday:

• Whites: Long setting appeared dominate on a net pack basis, although SFRM4 was seemingly subjected to short cover.
• Reds: Long setting once again seemed to dominate on a net pack basis, although pockets of short cover were also seemingly apparent.
• Greens: Little net movement in pack OI with apparent rounds of long setting and short cover effectively offsetting.
• Blues: A marginal bias towards long setting in net pack terms.
• When it came to price action, pre-NY Thursday price action was shaped by feedthrough from hawkish speculation surrounding the BoJ, before a recovery, aided by softer-than-expected German industrial data.
• Net long setting has been the dominant theme on the SOFR strip over the last couple of weeks, given the dovish repricing that we have seen for most of the major global central banks, including the Fed. This has been further aided by the general tone of the U.S. data.
• Today’s NFP print presents the key macro risk ahead of the weekend.

FOREX: JPY Off Week's Best Levels as BoJ-Inspired Moves Seen Overextended

• Following yesterday's sharp rally, the JPY remains in focus as USD/JPY holds below the Y145.00 handle having printed a new pullback low at 141.71 in late US hours. The market moves increase the focus on the 200-dma, crossing at 142.34, which has acted as a magnet for prices.
• Recovery from lows has also been aided by a Reuters article citing sources in reporting that the comments from Ueda earlier this week were over-interpreted by markets - helping keep JPY from being the strongest performer in G10 for a second session.
• Downtrodden commodity-tied currencies have bounced modestly early Friday, with AUD and CAD among the strongest performers this morning as oil prices rebound very slightly off the Thursday pullback low.
• Focus turns to the November US nonfarm payrolls release, for which markets expect the US to have added 183k jobs over the month, keeping the unemployment rate unchanged at 3.9%. Average hourly earnings are seen slowing to 4.0% from 4.1% previously. UMich sentiment survey follows to round off the week.

FX OPTIONS: Expiries for Dec08 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0700(E502mln), $1.0745-50(E2.1bln), $1.0785-00(E1.9bln), $1.0845-50(E1.0bln), $1.0900(E1.6bln)
• USD/JPY: Y145.00($1.1bln), Y145.45-50($832mln), Y146.00($900mln), Y146.50($830mln), Y148.00($1.7bln)
• AUD/USD: $0.6595-00(A$698mln)
• USD/CAD: C$1.3575($1.8bln), C$1.3590-10($1.3bln), C$1.3685($530mln)
• USD/CNY: Cny7.1810($1.4bln)

EQUITIES: Bullish equity backdrop persists

• A bullish theme in S&P e-minis remains intact and the contract continues to trade closer to its recent highs. Since the October 27 reversal, corrections have been shallow - this is a bullish signal. Note too that moving average studies are in a bull-mode position.
• A bullish theme in Eurostoxx 50 futures remains intact and the contract has traded higher this week. Resistance at 4387.00, Nov 24 high, was breached on Nov 30 . The break confirms a resumption of the uptrend and maintains the price sequence of higher highs and higher lows.

COMMODITIES: WTI Hits New Pullback Low, Reinforces Bearish Condition

• Gold traded in a volatile manner Monday. The trend condition is bullish and Monday’s initial gains reinforce this theme. The precious metal touched a fresh all-time high of $2135.4 and this signals potential for a climb towards $2177.6 next, a Fibonacci projection.
• Bearish conditions in WTI futures remain intact and Wednesday’s sell-off reinforces this condition. The contract has cleared support at $72.37, the Nov 16 low. The break lower confirms a resumption of the downtrend and note too that moving average studies are in a bear-mode position.