MNI (LONDON) - Highlights:
- CAD jobs the data highlight Friday, expected to show new post-pandemic high in U/E
- Currency markets contained, but S/T USD chart looks constructive
- Treasury curve holds bull flatter, but newsflow limited
US TSYS: Bull Flatter Ahead Of Rare Empty Docket, Potential CAD Jobs Spillover
- Treasuries sit bull flatter as US desks filter in, with cash yields 1-4bp lower on the day as the long end more earnestly retraces losses seen after another disappointing long-end auction yesterday (this time with 30s tailing by 2.5bp after 10s tailed by 3bps on Wed).
- The long-end bid matches that seen in EGBs.
- TYU4 at 112-29 (+ 08) is just a few ticks off session highs as it continues to lift from yesterday’s low of 112-16+, but it remains firmly with ranges. Volumes are reasonable at 285k but pale into comparison with extremely strong overnight sessions seen so far this week.
- Support is seen at 112-00 (20-day EMA) and declines are deemed corrective with resistance at 114-03 (Aug 6 high).
- With no notable data on today, broader risk sentiment should set the tone against a backdrop of overnight Fed commentary cautioning on overemphasizing the latest labor data – see STIR bullet.
- Canadian employment for July headlines the North American docket and could see more spillover than usual if there is a continued climb in the unemployment rate.
- No data, scheduled Fedspeak or issuance today.
STIR: Fed Implied Rates Close To Post-Payrolls Highs
- Fed Funds implied rates have lifted through European hours back close to yesterday’s latest post-payrolls highs courtesy of lower-than-expected initial jobless claims.
- Cumulative cuts from 5.33% effective: 41bp Sep, 73bp Nov, 104bp Dec and 126bp Jan.
- There have been multiple unscheduled FOMC ’25 voter appearances overnight, with a broad theme of cautioning overemphasizing latest data. Goolsbee meanwhile explicitly noted some unease starting rate cuts close to the election.
- Boston Fed’s Collins (’25): if the data continue the way that I expect, I do believe that it will be appropriate soon to begin adjusting policy and easing how restrictive the policy is. […] But exactly how much and what the timing and pace of those adjustments [over the next few years] would be will really have to be determined by the data. [See earlier bullet for her cautioning re latest labor data].
- KC Fed’s Schmid (’25): growth and demand still strong despite July jobs report and the labor market still appears broadly healthy. The Fed should be “looking for the worst” in inflation data.
- Chicago Fed’s Goolsbee (’25): The question is if the job market will hold or keep worsening. If too tight for too long, then need to watch the real economy. “We’ve got to watch a lot more than just the payrolls jobs numbers and we’ve got to watch it for a lot more than one month”.
- It makes him “a little” uncomfortable that the Fed may start cutting interest rates close to the US presidential election in November, but added that elections come regularly.
US TSY FUTURES: OI Points To Mix Of Net Short Setting & Long Cover During Thursday's Sell Off
OI suggests that yesterday’s weekly jobless claims-driven sell off was facilitated by a mix of net short setting and long cover.
- Note that the net curve DV01 swing was limited.
- We flagged the recent, sizeable build up of longs as a risk to the market around the data release.
- Market positioning still seems long at this stage, with next week’s PPI & CPI data set to provide the next round of meaningful fundamental inputs.
| 08-Aug-24 | 07-Aug-24 | Daily OI Change | OI DV01 Equivalent Change ($) | |
| TU | 4,412,720 | 4,394,582 | +18,138 | +658,477 |
| FV | 6,701,911 | 6,640,427 | +61,484 | +2,604,412 |
| TY | 4,879,699 | 4,893,743 | -14,044 | -913,196 |
| UXY | 2,157,620 | 2,154,547 | +3,073 | +281,669 |
| US | 1,722,056 | 1,742,037 | -19,981 | -2,725,182 |
| WN | 1,675,512 | 1,671,167 | +4,345 | +981,956 |
| Total | +53,015 | +888,136 |
STIR: OI Shows Mix Of Short Setting & Long Cover In SOFR Futures On Thursday, Market Still Long
In a similar fashion to Tsys, OI data suggests that SOFR futures saw a mix of net short setting and long cover during Thursday’s data-driven sell off, as some Fed rate cut premium was removed from STIRs.
- Fed funds futures now price ~41bp of cuts for September and ~104bp of cumulative cuts through the Dec meeting.
- Market positioning still seems long at this stage, with next week’s PPI & CPI data set to provide the next round of meaningful fundamental inputs.
| 08-Aug-24 | 07-Aug-24 | Daily OI Change | Daily OI Change In Packs | ||
| SFRM4 | 1,119,099 | 1,127,748 | -8,649 | Whites | -15,369 |
| SFRU4 | 1,061,616 | 1,077,279 | -15,663 | Reds | -7,769 |
| SFRZ4 | 1,143,938 | 1,127,609 | +16,329 | Greens | +35,776 |
| SFRH5 | 879,980 | 887,366 | -7,386 | Blues | +12,315 |
| SFRM5 | 798,026 | 814,635 | -16,609 | ||
| SFRU5 | 673,899 | 662,845 | +11,054 | ||
| SFRZ5 | 890,571 | 882,095 | +8,476 | ||
| SFRH6 | 613,229 | 623,919 | -10,690 | ||
| SFRM6 | 570,441 | 561,112 | +9,329 | ||
| SFRU6 | 537,111 | 531,107 | +6,004 | ||
| SFRZ6 | 468,419 | 452,993 | +15,426 | ||
| SFRH7 | 253,154 | 248,137 | +5,017 | ||
| SFRM7 | 233,735 | 235,534 | -1,799 | ||
| SFRU7 | 208,262 | 206,404 | +1,858 | ||
| SFRZ7 | 243,213 | 237,844 | +5,369 | ||
| SFRH8 | 157,914 | 151,027 | +6,887 |
SECURITY: Ukrainian Military Operation In Kursk Enters Fourth Day
A Ukrainian military incursion into Russian territory remains active today, with fighting continuing around the key gas hub at Sudzha in the Kursk region.
- Fitch wrote this morning that the incursion, “does not have material implications for Europe’s gas supply,” noting market volatility around military operations in Sudzha.
- Yaroslav Trofimov at the Wall Street Journal notes, “Ukrainian forces continue to hold the city of Sudhza and operate in a large swath of Kursk region,” with Ukrainian forces extending as far as 35kms into Russian territory, according to the Institute for the Study of War.
- Bloomberg reports the governor of the Russian Lipetsk region, around 500km from the Ukrainian border, ordered the evacuation of several towns following a Ukrainian drone strike on a military airfield that houses a fleet of Russian warplanes, although it is unclear if the strike caused significant damage.
- Military strategist Mick Ryan notedon X yesterday that the incursion, “constitutes the biggest advance by any side in this war since late 2022,” and is likely designed to, “seiz[e] ground and destro[y] Russian ground and aerial forces,” and “reconsider their force dispositions elsewhere on the front line.”
- The UK Ministry of Defence said in a statement that Russia is achieving “further tactical advances with operations” along multiple frontlines in central Donetsk, suggesting the Kursk incursion hasn’t significantly decreased the intensity of fighting elsewhere on the front.
- Interfax reports, per Russian MOD: "Reserves transferred to Kursk region."
- Oliver Carroll at the Economist reports that a Russian attack Kostyantinyvka, Donetsk, appearing to target civilians, may be a retaliatory strike for Kursk. Should the Kursk operation continue, further Russian strikes may be likely.
Sanguine Friday Trade So Far, But S/T Outlook More Constructive for USD
- Friday trade has been sanguine so far, with currency markets broadly respecting their recent ranges and showing little signs of a convincing breakout in either direction. GBP trades to the better, with GBP/USD continuing to reverse a very small part of the sharp pull lower off 1.30. The pair is now within range of the 50-dma resistance, today crossing at 1.2787.
- The USD Index trades inside the Thursday range so far, but is firming very slightly off the pullback low. The daily chart shows four consecutive sessions of higher lows, making for a more constructive short-term outlook relative to the post-NFP pull lower in prices.
- Stocks sit slightly firmer, with US equity futures in minor positive territory and indicating a higher open on Wall Street later today. The somewhat firmer risk backdrop is supporting growth proxies and keeping NZD toward the top of the G10 pile.
- The Canadian jobs report is the focus for the duration of the Friday session, with markets expecting Canada to have added 25k jobs over the month, while the unemployment rate ticks higher to 6.5% - marking a fresh post-pandemic high.
Bear Threat in WTI Futures Remains Present Despite Recent Recovery
A bear threat in WTI futures remains present despite this week’s recovery - a correction. Short-term gains are allowing an oversold condition to unwind. A resumption of weakness would again expose the next key support at $72.23, the Jun 4 low. It has been pierced, a clear break would reinforce bearish conditions and pave the way for an extension towards $70.73, the Feb 5 low. Key resistance is seen at $78.88, the Aug 1 high. Recent weakness in Gold appears to be a correction. Note that the yellow metal has managed to pierce support at the 50-day EMA - currently at $2377.6. A clear break of this EMA would signal scope for a deeper retracement towards $2277.4, the May 3 low and a key support. For bulls, a resumption of gains would open $2483.7, the Jul 17 high and a bull trigger. Clearance of this hurdle would resume the uptrend.
- WTI Crude up $0.1 or +0.13% at $76.29
- Natural Gas up $0.04 or +2.02% at $2.17
- Gold spot down $2.97 or -0.12% at $2424.37
- Copper up $7.75 or +1.96% at $403.6
- Silver down $0 or -0.02% at $27.5538
- Platinum down $3.94 or -0.42% at $932.89
Short-Term Gains for E-Mini S&P Considered Corrective
A bear threat in Eurostoxx 50 futures remains present and the contract traded lower Monday, reinforcing current conditions. Recent weakness resulted in a breach of 4846.00, the Apr 19 low. This highlights a stronger reversal and signals scope for an extension towards 4478.81 next, a Fibonacci projection. Firm resistance is 4895.81, the 50-day EMA. First resistance is 4720.53, a Fibonacci retracement. S&P E-Minis traded lower Monday and this confirmed an extension of the bear cycle. The move down has resulted in a print below 5185.50, 76.4% of the Apr 19 - Jul 16 bear leg. A clear break of this level would open 5092.00 next, the May 2 low. Short-term gains are - for now - considered corrective and the 50-day EMA marks a firm resistance, at 5460.55. Clearance of this average is required to alter the picture.
- Japan's NIKKEI closed higher by 193.85 pts or +0.56% at 35025 and the TOPIX ended 21.6 pts higher or +0.88% at 2483.3.
- Elsewhere, in China the SHANGHAI closed lower by 7.707 pts or -0.27% at 2862.194 and the HANG SENG ended 198.4 pts higher or +1.17% at 17090.23.
- Across Europe, Germany's DAX trades higher by 83.15 pts or +0.47% at 17764.63, FTSE 100 higher by 42.75 pts or +0.52% at 8187.69, CAC 40 up 60.04 pts or +0.83% at 7307.3 and Euro Stoxx 50 up 28.97 pts or +0.62% at 4697.78.
- Dow Jones mini up 80 pts or +0.2% at 39683, S&P 500 mini up 22.5 pts or +0.42% at 5370.75, NASDAQ mini up 122.5 pts or +0.66% at 18645.5.
| Date | GMT/Local | Impact | Country | Event |
| 09/08/2024 | 1230/0830 | *** |  CA | Labour Force Survey |
| 09/08/2024 | 1700/1300 | ** |  US | Baker Hughes Rig Count Overview - Weekly |