MNI US MARKETS ANALYSIS - Markets Look for US Economy to Keep Jobs Pace

US TSYS: Twist Flattening Ahead Of Eagerly Awaited Payrolls Report

• Cash Tsys have twist flattened as later dated Fed implied rates have lifted - more on that in the separate bullet – and with the pivot only after 10s. It follows yesterday’s large bear steepening and sees 2s10s pullback to -74bps from yesterday’s multi-week highs of -69bps. The July nonfarm payrolls report is firmly the focus of the US session – see the MNI Preview here.
• 2YY +4.9bp at 4.930%, 5YY +3.2bp at 4.324%, 10YY +1.5bp at 4.190% and 30YY -0.6bp at 4.285%
• TYU3 trades 4+ ticks lower at session and fresh YTD lows of 110-03 after clearing a key support at yesterday’s low of 110-05+, and with no meaningful technical support until the Nov 8, 2022 low of 109-14. An earlier 2,790 lot block trade, which looked like a buyer at 110-04+ (DV01 ~$182K), is probably helping to prevent further cheapening impulses with cumulative volumes on the lower side at 260k vs most recent averages.
• Data: Payrolls Jul (0830ET)
• No scheduled Fedspeak, no issuance

STIR FUTURES: Fed Implied Rates Push Higher But Near-Term Meetings Await NFPs

• After yesterday’s bear steepening for Treasuries, it’s the front ends turn to lead the sell-off today. It’s led by a decent push higher in 2024 implied Fed rates even if near-term meeting expectations remain stubbornly at levels seen since the Jul 26 FOMC decision, awaiting today’s payrolls report.
• Cumulative hikes: +4.5bp in Sep (+0.5bp), +10bp in Nov to 5.43% terminal (+0.5bp)
• Cuts from Nov terminal: 2bp to Dec (from 4bp yesterday close), 53bp to Jun’24 (from 58bp) and 120bp to Dec’24 (from 127bp).
• No scheduled Fedspeak today with Bostic (’24 voter) and Bowman (voter) next up on Monday, with Bowman of note having last spoken on Jun 22.

US Payrolls Preview: Can The Recent Goldilocks Theme Continue?

We have published and e-mailed to subscribers the MNI Payrolls Preview for tomorrow's release. Find the full report here including MNI analysis and previews from fifteen sell side analysts: https://marketnews.com/mni-payrolls-preview-can-the-recent-goldilocks-theme-continue

Analysts Skewed For Hawkish Surprise In U/E Rate And AHE

• The unemployment rate is seen holding at 3.6% in tomorrow’s July release after the 3.57% of June.
• However, primary dealer analysts show a sizeable skew towards a 3.5% print with no one pencilling in an increase back to May’s 3.65% that marked the first rounded 3.7% since Oct’22.
• Bear in mind though whilst that this skew has in the past proven a useful guide, it was notably incorrect in last month’s June report as it suggested a push higher in contrast to the decline seen.
• For AHE, hawkish analyst skew is less pronounced than for the u/e rate but still sees a handful call for 0.4% M/M and none for 0.2% M/M.
• UBS stand out with 0.45% M/M, derived from the same calendar effect that they attribute to the Jul’22 increase of 0.47% M/M, although note that if this materializes it would simply be reversed with a softer reading for August landing ahead of the September FOMC decision.
• [The table is a repeat from the MNI Payrolls Preview published earlier today but also now includes NatWest].

Ukraine Warns Of 'False Flag' To Draw Belarus Into Conflict

Wires reporting comments from Ukraine's SBU Security Service warning, "Russia is preparing a 'false flag' operation at Belarusian oil refinery" in order to "try to draw Belarus into war."

• The comments follow an uptick in tension between Belarus and neighboring Poland and Lithuanian who have accused Minsk of “provocations” including breaches of airspace and a buildup of Wagner Group forces around the strategically important Suwalki Gap.
• The Belarussian MOD said on Telegram: “The accusations of violating the border of Poland by [...] Belarusian Air Force and Air Defense Forces are far-fetched...”
• Semafor reports that Lt. Gen. Viktor Khrenin, a close ally of Belarussian President Alexander Lukashenko, conducted a meeting with his Iranian counterpart Tehran on Monday which, "set off alarm within NATO" about growing cooperation with Iran.
• According to Semafor, Ukrainian intelligence and the Belarusian underground, have reported evidence Minsk is "preparing to green light" a Iranian drone production facility in Belarus.
• The specter of Minsk entering the conflict as a combatant aligned with Moscow has intensified since Lukashenko reportedthe delivery of Russian tactical nuclear weapons and negotiated a resolution to Wagner rebellion in June.

FOREX: G10 FX Subdued Ahead of July Payrolls Print

• Markets are generally treading water and respecting recent ranges ahead of the NFP print later today, with FX options markets pricing a relatively more muted response to today's payrolls release, with the vol premium added ahead of NFP among the lowest of the year so far.
• EUR/USD overnight vols peaked at 12.9 points yesterday, below the 2023 pre-NFP average of 15.5, and following the pattern of lower highs in implied vol ahead of payrolls across the year. Markets priced the largest swing in EUR/USD ahead of the January payrolls report (February 3rd) - with implied topping out at 19.8 points. Overnight straddle break-evens price a ~45 pip swing in EUR/USD for today's NY cut - notably lower than the ~70 pip average pricing of a pre-payrolls swing so far in 2023.
• CHF is the poorest performer so far in G10, trimming the week's risk-driven rally, while AUD and NZD regather after trading poorly since Monday. A lifting of Chinese Barley tariffs on Australian produce has helped the theme, with AUD/USD comfortably off the Thursday lows.
• The US payrolls release takes precedence going forward, with markets expecting 200k jobs added across July, keeping pace with the June figure. The unemployment rate is expected unchanged at 3.6%, after which attention turns to average hourly earnings. The Canadian jobs report is also due as well as a speech from BoE's Pill, set to be talking to agents from 1215BST/0715ET.

Overnight Vols See Relatively Muted Pre-NFP Interest

• FX options markets are pricing a relatively more muted response to today’s payrolls release, with the vol premium added ahead of NFP among the lowest of the year so far.
• EUR/USD overnight vols peaked at 12.9 points yesterday, below the 2023 pre-NFP average of 15.5, and following the pattern of lower highs in implied vol ahead of payrolls across the year. Markets priced the largest swing in EUR/USD ahead of the January payrolls report (February 3^rd) - with implied topping out at 19.8 points.
• Overnight straddle break-evens price a ~45 pip swing in EUR/USD for today’s NY cut – notably lower than the ~70 pip average pricing of a pre-payrolls swing so far in 2023.
• This keeps focus on the more sizeable strikes rolling off at the cut today. EUR/USD sees over E2bln roll off between $1.0950-$1.1000 at the 10am NY cut.

FX OPTIONS: Expiries for Aug04 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0950(E545mln)
• USD/JPY: Y142.00($1.1bln), Y143.00($870mln)
• GBP/USD: $1.2700(Gbp711mln)
• EUR/GBP: Gbp0.8575-80(E890mln)
• AUD/USD: $0.6590-00(A$500mln)
• USD/CAD: C$1.3300-05($2.2bln), C$1.3390-00($1.1bln)

EQUITIES: Break of 20-Day EMA Highlights Bearish Threat in E-Mini S&P

• Eurostoxx 50 futures gains stalled at 4513.00 on Monday, and the contract has traded sharply lower this week. Price has cleared both the 20- and 50-day EMAs, highlighting a stronger bearish threat. Yesterday’s move lower resulted in a break of key support at 4331.00, the Jul 26 low. This strengthens a bearish theme and opens 4220.00, the Jul 7 low and a reversal trigger. Initial resistance is at 4424.00, Wednesday’s high.
• The E-mini S&P contract continues to trade below 4634.50, the Jul 27 high. This week’s move lower reinforces a bearish theme and has resulted in a break of support around the 20-day EMA. The recent failure at the top of the bull channel and the break of the 20-day average, highlights a developing bearish threat. A continuation lower would open 4452.13, the 50-day EMA. First key resistance is at 4634.50, the Jul 27 high.

COMMODITIES: WTI Futures Pare Gains Following Wednesday's Move Lower

• The uptrend in WTI futures remains intact and Wednesday’s move lower is likely a correction. The trend condition is overbought and a short-term pullback would allow this to unwind. The next key short-term support lies at the 20-day EMA, which intersects at $77.72. For bulls, a break above $82.43, Wednesday’s high, would confirm a resumption of the uptrend and open $83.59, the Nov 7 2022 high.
• Gold traded lower this week and the yellow metal remains at its recent lows. This confirms an extension of the bear cycle that started Jul 20 and highlights potential for a continuation lower near-term. The focus is on $1924.5, the Jul 11 low. Clearance of this level would signal scope for an extension towards the key support at $1893.1, the Jun 29 low. Key resistance is at $1987.5, the Jul 20 high. A break would reinstate a bullish theme.