Highlights:
- US seen adding 240k jobs over April, with Fed seen sensitive to downside surprises
- USD/JPY holding post-intervention losses, but options point to demand for upside
- Norges Bank tilts hawkish in unchanged rate decision
US TSYS: TY Probing Resistance Ahead Of Payrolls, ISM Services
- Treasuries see the front end consolidate yesterday’s rally ahead of payrolls and ISM services, but from the belly onwards rally a little further along with EGBs.
- After a late open due to a Japan holiday, cash yields range from just 0.2bp higher (2s) to 2bp lower (10s through to 30s), mostly bull flattening with 2s10s at -31.2bps (-2.2bps) to chip away at the week’s steepening.
- TYM4 has recently pushed half a tick above yesterday’s high with 108-12+ on below average volumes of just over 250k.
- The contract is probing resistance at 108-10 (20-day EMA) after which lies 108-22+ (Apr 19 high), whilst the trend outlook is still lower with support at 107-04 (Apr 25 low).
- Data: Nonfarm payrolls Apr (0830ET), S&P Global US serv/comp Apr f (0945ET), ISM services Apr (1000ET)
- Fedspeak: Goolsbee (’25 voter) on BBG TV (1030ET), Goolsbee & Williams (voter) in panel discussion at 1945ET incl text.
STIR: Fed Rates Hold Post-FOMC Decline Ahead Of Payrolls & ISM Services
- Fed Funds implied rates are little changed from yesterday’s close, having continued a post-FOMC decline despite some stronger than expected labor releases.
- Cumulative cuts from 5.33% effective: 3bp Jun, 9bp Jul, 19bp Sep, 27bp Nov, 40bp Dec and 49bp Jan.
- Today’s NFP report is firmly in focus (preview here) but it's also follows by ISM services.
- Goolsbee (’25) offers first post-blackout Fedspeak with a potential reaction to NFPs on Bloomberg TV at 1030ET before he appears along with Williams (voter) in a panel late on at 1945ET.
- Goolsbee said Apr 19 that it makes sense to wait to get more clarity before moving rates as the first three months of 2024 inflation data can’t be dismissed. Williams meanwhile said Apr 18 that a hike isn’t in his baseline but it’s possible if the data warrants it.
US TSY FUTURES: OI Points To Notable Post-FOMC Long Setting Across Much Of Curve
The combination of yesterday’s rally in Tsy futures and preliminary open interest data points to meaningful net long setting in the wake of the FOMC decision, after Fed Chair Powell played down the likelihood of a rate hike and the Fed decided to go with a more aggressive QT taper than many expected.
- An apparent round of net short cover in WN futures broke the broader theme, but the curve still saw a net 0I DV01 equivalent of over $12mn fresh longs added.
- A reminder that net positioning is seen as short across all contracts, albeit with some skew from basis trade activity,
| 02-May-24 | 01-May-24 | Daily OI Change | OI DV01 Equivalent Change ($) | |
| TU | 4,156,462 | 4,108,983 | +47,479 | +1,701,371 |
| FV | 6,072,735 | 6,005,138 | +67,597 | +2,770,041 |
| TY | 4,439,537 | 4,382,650 | +56,887 | +3,601,095 |
| UXY | 2,117,640 | 2,078,351 | +39,289 | +3,348,722 |
| US | 1,585,427 | 1,573,027 | +12,400 | +1,558,996 |
| WN | 1,642,582 | 1,646,893 | -4,311 | -828,615 |
| Total | +219,341 | +12,151,610 |
STIR: OI Points To Further Post-Fed Short Cover In SOFR Whites & Reds On Thursday
The combination of yesterday’s rally in SOFR futures and preliminary OI data points to another round of net short covering in the whites and reds following the FOMC decision, as the market-implied path for Fed policy rates moved away from recent hawkish extremes.
- Pockets of long setting did seem to show up in those packs, but were comfortably outweighed.
- Further out the strip, a solitary round of apparent short cover in SFRM7 broke a run of what seemed to be net long setting in all of the remaining green and blue contracts.
| 02-May-24 | 01-May-24 | Daily OI Change | Daily OI Change In Packs | ||
| SFRH4 | 912,363 | 922,811 | -10,448 | Whites | -10,693 |
| SFRM4 | 1,123,703 | 1,123,316 | +387 | Reds | -31,702 |
| SFRU4 | 997,636 | 989,889 | +7,747 | Greens | +11,217 |
| SFRZ4 | 1,210,229 | 1,218,608 | -8,379 | Blues | +8,907 |
| SFRH5 | 741,050 | 748,535 | -7,485 | ||
| SFRM5 | 830,942 | 848,479 | -17,537 | ||
| SFRU5 | 715,846 | 713,164 | +2,682 | ||
| SFRZ5 | 806,633 | 815,995 | -9,362 | ||
| SFRH6 | 485,000 | 482,592 | +2,408 | ||
| SFRM6 | 521,291 | 518,501 | +2,790 | ||
| SFRU6 | 395,613 | 390,786 | +4,827 | ||
| SFRZ6 | 354,137 | 352,945 | +1,192 | ||
| SFRH7 | 239,510 | 237,350 | +2,160 | ||
| SFRM7 | 182,235 | 183,579 | -1,344 | ||
| SFRU7 | 168,294 | 163,389 | +4,905 | ||
| SFRZ7 | 145,129 | 141,943 | +3,186 |
UK: Another Major Con->Lab By-Election Swing Shows Scale Of Challenge For PM
With results from local and mayoral elections across England and Wales set to filter through over the coming 24 hours, the most noteworthy result overnight came from a parliamentary by-election in the Blackpool South constituency in northern England. Labour won the seat from the Conservatives with a swing of 26%, the third-largest Conservative-to-Labour Swing in a by-election since 1945.
- It is not only the scale of the swing that indicates how low the Conservative vote has fallen, but the recent consistency in significant swings. Of the 10 largest Conservative-to-Labour by-election swings since 1945, five have taken place within the past 10 months.
- With counting set to continue into Saturday, the main result coming through today will be the Tees Valley mayoralty at around 1230BST. The mayoralty is held by Conservative peer Ben Houchen, but he faces a stiff challenge from Labour. His loss - following a landslide win in 2021 with 73% of the vote - would be another clear signal of Conservative struggles in the 'red wall' of former Labour seats in northern England won under former PM Boris Johnson in 2019.
- Even with major losses expected, it appears the chances of an immediate leadership challenge to PM Rishi Sunak may be waning. John Stevens at The Mirror posted earlier on X: "Andrea Jenkyns - the first Tory MP to publicly submit a letter of no confidence in Rishi Sunak - say it's "unlikely" her colleagues will follow her and trigger a leadership election."
NORGES BANK: Little Specific Guidance Provided In Press Conference
Norges Bank’s press conference has concluded. The main message is that Governor Wolden Bache was not prepared to provide any specific guidance re: potential rate cut timing without a revised set of forecasts to hand.
- The line that “a tight monetary policy stance may be needed for somewhat longer than previously envisaged” was repeated several times.
- Updated forecasts (and presumably updated guidance) will be available at the June 20 decision.
FOREX: USD/JPY Remains Under Pressure, Holding Entirety of Post-Intervention Losses
- The greenback is modestly lower early Friday as the pullback off the cycle high at 106.517 continues, making for a ~1.2% slip off the pre-Fed highs. JPY is modestly firmer, helping keep USD/JPY below the Y153.50 level, thereby holding the bulk of the post-intervention losses.
- NOK is the session's outperformer, rallying against all others following the Norges Bank rate decision. While rates were kept unchanged, the bank made a hawkish tweak to the policy statement, adding that “The data so far could suggest that a tight monetary policy stance may be needed for somewhat longer than previously envisaged”.
- Overall, Norges Bank continues to lean hawkish, and today’s decision suggests that the current consensus for a September rate cut may need to be pushed back somewhat.
- Focus Friday turns to the payrolls report for April, at which markets expect 240k jobs to be added, a step lower from March's 303k. Average hourly earnings will again be a focus, seen rising 0.3% on the month, and 4.0% on the year. ISM services data follows 90 minutes later. Fed's Goolsbee will be the first FOMC member to speak following the decision on Wednesday, appearing on Bloomberg TV.
OPTIONS: Demand for USDJPY Calls Rebuff Weakness in Spot
- Thursday saw the highest FX options markets turnover since April 12th, with over $130bln notional traded via the DTCC. Solid demand for JPY, CNY and EUR/JPY hedges countered a slightly quieter EUR market, and that pattern's being repeated so far this morning.
- Vol markets underwent the usual pre-NFP bid yesterday, although premiums added are of a smaller scale relative to the Fed meeting mid-week. In contrast to spot USD/JPY's sharp sell-off Wednesday and the fade of the post-intervention bounce over the past 36 hours, upside exposure is still in demand via options. Call strikes layered between Y154.50 and Y155.00 are seeing impressive demand (cumulative $1.3bln) as well as interest as high as Y158.00-39 ($900mln).
- AUD hedges are also busier-than-average for this time of day, with sizeable vol hedges a highlight - trades crossed in early European hours consistent with a $0.6034/0.7045 strangle rolling off at end-August, thereby capturing the next three RBA rate decisions.
- Most notable strikes for the post-NFP cut today (coincides with ISM Services Index) include E751mln at $1.0750 in EURUSD, £702mln at 1.2500-15 in GBPUSD and N$780mln at 0.5950 in NZDUSD.
OPTIONS: Expiries for May03 NY cut 1000ET (Source DTCC)
- EUR/USD: $1.0675(E1.2bln), $1.0700-05(E1.4bln), $1.0750(E751mln)
- USD/JPY: Y154.00-20($1.3bln), Y155.00-10($726mln), Y156.50-70($989mln)
- GBP/USD: $1.2500-15(Gbp702mln)
- AUD/USD: $0.6500(A$1.1bln), $0.6525(A$674mln)
- NZD/USD: $0.5950(N$780mln)
- USD/CAD: C$1.3850-55($1.2bln)
EQUITIES: E-Mini S&P Shy of Resistance at 5120.92, the 20-Day EMA
Eurostoxx 50 futures are trading above 4762.00, the Apr 19 low. On the upside, the contract recently traded through the 20-day EMA and resistance at 4990.00, the Apr 15 high. This highlights a potentially stronger reversal. An extension higher would expose the bull trigger at 5079.00, the Apr 2 high. Key support lies at 4762.00, a break would be bearish. Initial support to watch is 4877.90, the 50-day EMA. The short-term trend condition in S&P E-Minis remains bearish and recent gains appear to be a correction. The contract has recently traded through the 50-day EMA, signalling scope for a continuation lower. A resumption of the bear leg would open 4907.57, a Fibonacci retracement. Firm resistance at 5120.92, the 20-day EMA, has been pierced. A clear breach would instead signal a reversal and expose key resistance at 5333.50, Apr 1 high.
COMMODITIES: Gold Trading Close to This Week's Lows, Remains in a Short-Term Bear Cycle
WTI futures traded lower this week. Price has breached key support at the 50-day EMA, at $81.05. The clear breach of this average strengthens a short-term bearish theme and highlights scope for a deeper correction. This has opened $76.07, the Mar 11 low. Key resistance and the bull trigger has been defined at $86.97, the Apr 12 high. Initial firm resistance is at $84.46, the Apr 26 high. Gold traded lower Tuesday and breached initial support at $2291.6, the Apr 23 low. The precious metal has also traded through the 20-day EMA and this highlights a corrective cycle. A continuation lower would signal scope for an extension towards $2245.1, the 50-day EMA. Note that a short-term bear cycle is allowing significant overbought condition to unwind. Key resistance and the bull trigger is at $2431.5, the recent Apr 12 high.
| Date | GMT/Local | Impact | Country | Event | |||||
| 03/05/2024 | 1230/0830 | *** |  US | Employment Report | |||||
| 03/05/2024 | 1400/1000 | *** | US | ISM Non-Manufacturing Index | |||||
| 03/05/2024 | 1700/1300 | ** | US | Baker Hughes Rig Count Overview - Weekly | |||||
| 03/05/2024 | 2345/1945 | US | Chicago Fed's Austan Goolsbee | ||||||
| 03/05/2024 | 0015/2015 | US | New York Fed's John Williams | ||||||
| 04/05/2024 | 1320/0920 | US | Fed Governor Lisa Cook | ||||||
| 04/05/2024 | 1820/1420 | US | Fed Governor Lisa Cook | ||||||