MNI US MARKETS ANALYSIS - Dockworker Deal Exposes Wage Risks
Highlights:
- Dockworker strike hits pause, flagging wage rise risks
- GBP off Bailey lows as Pill strikes a more cautious tone
- Treasuries softer, but shielded relative to EGB, Gilt weakness
- Vote on China EVs exposes deep division in the European Union
US TSYS: Treasuries Outperform European Sell-Off Ahead Of Payrolls
- Treasuries have pushed through yesterday’s lows through 2-10Y benchmark tenors and TY has breached support, but do so lagging a sharper sell-off in EGBs and Gilts in particular.
- This outperformance is likely some reluctance ahead of today’s payrolls report. MNI Preview: https://media.marketnews.com/USNFP_Oct2024_Preview1_bb6bbc0e4e.pdf
- Cash yields sits 0.8-1.8bp higher across the curve, with 3s leading the increase helped by WTI futures extending yesterday’s strong gains on scope for Israel strikes on Iranian oil facilities.
- 2s10s is little changed at 14bps as it remains off ytd highs of 24bps.
- TYZ4 has breached support in an extension of its bear leg, at fresh lows of 113-26+ (- 02+) on reasonable volumes of 340k.
- It’s below support at 113-29+ (50-day EMA) with a more pronounced break here potentially offering scope for a run towards a key support at 113-12 (Sep 3 low). In the event of a soft payrolls report, resistance is seen at 114-18 (20-day EMA).
- There was decent downside option flow in mid-London trade, with TYZ4 112.50/111.50ps, bought for 15 in 10k and TYZ4 112.00/111.00ps, bought for 12 in 10k.
- Data: Payrolls Sep (0830ET)
- Fedspeak: Williams (0900ET), Goolsbee on media round (1000ET, 1030ET, 1600ET)
STIR: Dockworker Strike Yields Large Wage Increases Ahead Of Payrolls
- Fed Funds implied rates have continued to push higher overnight, primarily through European hours and we move closer to the nonfarm payrolls report (for which the Bloomberg whisper number has drifted higher again from yesterday to 151k).
- Cumulative cuts from 4.83% effective: 34bp Nov, 66bp Dec, 95bp Jan and 151bp June.
- Dockworkers overnight unexpectedly agreed to end a major strike along East and Gulf coasts after just three days. Work will restart today along with negotiations on a long-term agreement that will include a pay increase of ~62% over 6 years (although the market impact was initially limited, possibly by a previous offer of 50% being rejected).
- Fed Chair Powell has previously said that “it seems unlikely that the labor market will be a source of elevated inflationary pressures anytime soon”. This settlement is a reminder of upside risks here though, both from the angle of passing through costs and the impact it can have on wage expectations elsewhere (but granted this sector has outsized union representation).
- A characteristically dovish Goolsbee (’25 voter) spoke on local radio yesterday and is set for three separate appearances today. That leaves NY Fed’s Williams (voter) in focus in the off chance of more in-depth comments as part of his opening remarks at a jobs conference at 0900ET.
US TSY FUTURES: Long Cover Dominated On Thursday
OI suggests that long cover dominated during yesterday’s sell off, with only a modest round of net short setting in UXY futures breaking the wider trend.
- This provides a better balance in positioning ahead of today’s NFP data (which we will cover in greater detail ahead of the release).
| 03-Oct-24 | 02-Oct-24 | Daily OI Change | OI DV01 Equivalent Change ($) |
TU | 4,445,209 | 4,455,293 | -10,084 | -386,866 |
FV | 6,332,314 | 6,366,437 | -34,123 | -1,490,610 |
TY | 4,857,446 | 4,927,876 | -70,430 | -4,671,590 |
UXY | 2,163,402 | 2,154,423 | +8,979 | +827,817 |
US | 1,745,685 | 1,757,555 | -11,870 | -1,624,871 |
WN | 1,716,465 | 1,720,034 | -3,569 | -767,472 |
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| Total | -121,097 | -8,113,593 |
STIR: Long Cover Dominated On SOFR Strip Again On Thursday
OI points to long cover dominating on the SOFR strip during Thursday's sell off, with only some pockets of short setting seen.
- That paints a similar positioning picture to what was seen in the long end, with a rally in oil and data promoting the removal of some Fed rate cut premium.
- Cumulative cuts from 4.83% effective: 34bp Nov, 66bp Dec, 95bp Jan and 151bp June.
- There seems to be a better balance in positioning ahead of today’s NFP data (which we will cover in greater detail ahead of the release).
| 03-Oct-24 | 02-Oct-24 | Daily OI Change |
| Daily OI Change In Packs |
SFRU4 | 1,307,340 | 1,309,779 | -2,439 | Whites | -63,586 |
SFRZ4 | 1,337,585 | 1,349,855 | -12,270 | Reds | -42,692 |
SFRH5 | 1,059,539 | 1,078,242 | -18,703 | Greens | -12,394 |
SFRM5 | 886,381 | 916,555 | -30,174 | Blues | -6,390 |
SFRU5 | 714,355 | 704,506 | +9,849 |
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SFRZ5 | 1,017,551 | 1,013,615 | +3,936 |
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SFRH6 | 627,068 | 677,667 | -50,599 |
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SFRM6 | 619,025 | 624,903 | -5,878 |
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SFRU6 | 548,806 | 554,641 | -5,835 |
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SFRZ6 | 598,971 | 596,853 | +2,118 |
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SFRH7 | 364,075 | 371,969 | -7,894 |
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SFRM7 | 320,870 | 321,653 | -783 |
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SFRU7 | 258,282 | 259,258 | -976 |
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SFRZ7 | 221,659 | 226,227 | -4,568 |
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SFRH8 | 184,919 | 185,299 | -380 |
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SFRM8 | 153,144 | 153,610 | -466 |
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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
- Comments from the EU Commission hitting wires: Negotiations with China are ongoing...We continue to negotiate with China because we are open to finding a solution.
- The divergence between France and Germany on such a high-profile issue will add further credence to the view that Berlin and Paris will continue to pull in very different directions when it comes to how the EU should operate when it comes to trade, industry, and competitiveness.
- As Politico notes, "...despite all the leaders’ rhetoric about having Europe’s best interests at heart, both Scholz and Macron have their eyes firmly on domestic concerns. “We just don’t have the same interests,” said French Senator Ronan Le Gleut, president of the Franco-German Senate friendship group. “We don’t have the same priorities, France’s automobile industry doesn’t export in China, or very little … whereas things like the crisis at Volkswagen worry everyone in Germany.”
FOREX: GBP Recovers as Pill Retains Cautious Approach to BoE Rate Cuts
- JPY is the strongest performing currency in G10, pressuring AUD/JPY back toward Y100.00 to fade the Ishiba-triggered move mid-week. As a result, yesterday's USD/JPY high at 147.24 remains intact, allowing the USD/JPY strength to press pause.
- GBP trades well, partially reversing the Bailey-inspired sell-off on Thursday. BoE's Pill added to the recent BoE policy mix, tilting hawkish in his view that the Bank should be cautious and avoid cutting rates "too far or too fast". As a result, GBP/USD is back above 1.3150, facing next intraday resistance at 1.3174, the 38.2% retracement for the downleg posted off the midweek high.
- NZD is at the bottom of the G10 pile, just underperforming against the EUR.
- Focus for the duration of Friday trade turns to the US jobs report, at which markets expect the US to have added 150k jobs over the month, keeping the unemployment unchanged at 4.2%. Nonetheless, there remain upside risks to unemployment - which could further trigger a dovish response via pricing for a 50bps November Fed rate cut.
OPTIONS: Expiries for Oct04 NY cut 1000ET (Source DTCC)
- EUR/USD: $1.0950-70(E814mln), $1.1000(E1.9bln), $1.1040-50(E610mln), $1.1100(E941mln)
- USD/JPY: Y146.25($880mln), Y146.50($730mln), Y148.00($818mln)
- AUD/USD: $0.6850(A$784mln)
- USD/CAD: C$1.3350-73($2.2bln), C$1.3500-05($1.2bln), C$1.3530-45($813mln), C$1.3595-00($822mln)
EQUITIES: Stock Pullback Shallow
A bull cycle in S&P E-Minis remains intact and the latest shallow pullback appears to be a correction. Recent gains reinforce a bullish theme and note that moving average studies are in a bull-mode setup, highlighting a dominant uptrend. Eurostoxx 50 futures recently breached resistance at 5024.00, the Sep 3 high. This confirms a resumption of the bull leg that started Aug 5 and cancels a recent bearish theme. It also suggests that the pullback this week is likely a correction.
- Japan's NIKKEI closed higher by 83.56 pts or +0.22% at 38635.62 and the TOPIX ended 10.36 pts higher or +0.39% at 2694.07.
- Across Europe, Germany's DAX trades higher by 6.89 pts or +0.04% at 19022.86, FTSE 100 lower by 6.58 pts or -0.08% at 8275.76, CAC 40 up 41.5 pts or +0.56% at 7519.28 and Euro Stoxx 50 up 9.21 pts or +0.19% at 4930.54.
- Dow Jones mini down 6 pts or -0.01% at 42313, S&P 500 mini up 2.75 pts or +0.05% at 5752.25, NASDAQ mini up 24 pts or +0.12% at 20013.5.
COMMODITIES: Brent, WTI Building on Recent Gains
Gold is in consolidation mode. The trend condition is unchanged and bulls remain in the driver’s seat. Recent gains confirm a resumption of the primary uptrend and maintain the bullish price sequence of higher highs and higher lows.WTI futures traded higher Thursday, extending the rally that started on Oct 1. Short-term gains appear to be corrective, however, the break of the 50-day EMA suggests potential for an extension near-term.
- WTI Crude up $0.74 or +1% at $74.37
- Natural Gas up $0.01 or +0.27% at $2.977
- Gold spot up $4.09 or +0.15% at $2659.6
- Copper down $0.05 or -0.01% at $455.45
- Silver up $0.01 or +0.03% at $32.0068
- Platinum up $10.2 or +1.02% at $1004.69
RATINGS: Stable Outlooks Up For Review This Evening
Rating reviews of note scheduled for after hours on Friday include:
- Moody’s on the European Union (current rating: Aaa; Outlook Stable)
- Scope Ratings on Estonia (current rating A+; Outlook Stable) & Switzerland (current rating: AAA; Outlook Stable)
Date | GMT/Local | Impact | Country | Event |
04/10/2024 | 1230/0830 | *** | US | Employment Report |
04/10/2024 | 1300/0900 | US | New York Fed's John Williams | |
04/10/2024 | 1310/1510 | EU | ECB's Elderson Speech at Change in Leadership event | |
04/10/2024 | 1400/1000 | * | CA | Ivey PMI |