MNI US MARKETS ANALYSIS - Stocks Set for Lower Open Pre-NFP

Highlights:

• NFP in focus, US expected to have added 175k jobs over July
• 4.1% unemployment rate would bring US closer to tripping Sahm rule recession signal
• Tech names slide on Intel weakness, triggering softer futures Friday

US TSYS: Extending Gains Ahead NFP

• Treasuries continue to climb in the lead-up to this morning's headline employment data for July, Sep'24 10Y futures up to early February levels (TYU4 113-02.5 high), 10Y yield marking 3.9281% low (Feb 2 level). Tsy curves little flatter after late Thursday bull steepening, 2s10s -1.033 at -18.662, 5s30s -.097 at 43.790.
• Carry-over support from Thursday's softer economic data followed the midweek dovish hold from the FOMC, while continued geopolitical risk in the Middle East provided additional safe haven support.
• Today's Nonfarm payrolls are expected to moderate further in July (175k est) after the slight beat in June was more than offset by large negative revisions to the prior two months. Hurricane Beryl is likely to have the largest impact on the establishment survey, clouding the underlying trends with expected negative impacts on payrolls and hours worked but some upside for AHE growth.
• Initial technical resistance at 113-06.5 (high Feb 1) followed by 113-12 (high Dec 27 ‘23 (cont) and a key resistance). On the flipside, support to watch is 112-01.5 (Low Aug 1) followed by 111-04/110-18 (20- and 50-day EMA values).
• Additional data at 1000ET Factory and Durable Goods Orders. Fed speak resumes with Chicago Fed Goolsbee Bbg TV interview at noon, Richmond Fed Barkin public TV interview at 2030ET. Will be alert for unscheduled Fed speakers particularly if this morning's data is off consensus.

MNI: US Payrolls Preview: Hurricane Beryl To Add A Layer Of Confusion

• We have published and e-mailed to subscribers the MNI US Payrolls Preview.
• Please find the full report including MNI analysis and views from 19 analysts here: https://roar-assets-auto.rbl.ms/files/65559/USNFPAug2024Preview.pdf

STIR: OI Suggests Long Setting Dominated In SOFR Futures On Thursday

OI data points to net long setting dominating in SOFR futures during Thursday's rally.

• The only exception to the theme came via apparent net short cover in SFRM4 through Z4.
• Yesterday's dovish repricing in Fed Funds futures leaves ~108bp of cuts priced over the next 4 FOMC decisions, with ~33bp of easing showing for the Sep meeting.
• As we noted in our Tsy OI monitor, the combination of the recent run of apparent long setting, outright yield levels and degree of imminent Fed easing priced suggests that a “hawkish” NFP report presents the greatest risk to prevailing market positioning.
• Furthermore, our preview of today's NFP release notes that "hurricane impact adds asymmetrical risk to reaction in payrolls surprises: a 20-30k miss could easily be faded whilst a beat would be an outright positive surprise. Revisions will be particularly important."

US TSY FUTURES: OI Points To Sizeable Net Long Setting During Thursday's Rally

OI data points to sizeable net long setting across the futures curve during Thursday’s risk-off rally.

• Over $16mn of net OI DV01 equivalent was added across the curve, with the largest positioning swing coming in FV futures.
• The combination of the recent run of apparent long setting, outright yield levels and degree of imminent Fed easing priced suggests that a “hawkish” NFP report presents the greatest risk to prevailing market positioning.
• Furthermore, our preview of today's NFP release notes that "hurricane impact adds asymmetrical risk to reaction in payrolls surprises: a 20-30k miss could easily be faded whilst a beat would be an outright positive surprise. Revisions will be particularly important."

EUROPEAN INFLATION: Detailed Swiss July Data Suggests Lower Services Price Pressure

Swiss July Headline CPI came in in line with both expectations and June's print at 1.3% Y/Y. Looking at the data in more detail, it appears that there was a relatively broad-based decrease in pressures in the services categories (overall services 2.2% Y/Y vs 2.4% prior) - pp contributions to headline decreased in all of healthcare, transport, communication, and recreation, and only increased in the hospitality category.

• While the decreases in contributions were helped by volatile package holidays (6.0%Y/Y to 4.2%Y/Y), they support the view that inflationary pressures decreased slightly this month compared to last month.
• We note that there was a Taylor Swift concert in Zurich on 10 July and this may have led to some upward pressure on the hospitality category (as we have seen in some other European countries such as Portugal and Sweden). Data is collected for Swiss CPI in the first half of the month but there are no exact dates given.
• Stronger contributions from goods-heavy categories partly outweighed these increases. Note that the SNB appears to have put less weight on the goods categories in their assessment of inflationary pressures in recent times.

EURGBP Extends Post-BOE Strength, Retests 0.8500 Pivot

• Lower yields in the UK are moderately weighing on the pound Friday, which sits roughly 0.3% in the red against the euro and the Japanese yen. EURGBP has swung back to retest the July 1 high, which matches closely with the multi-year pivot level at 0.8500.
• This level remains a key hurdle for bulls and clearance would undermine the recent bearish theme and highlight a potential short-term reversal. Note that price is also above the 50-day EMA. Highs at 0.8525 and 0.8541 are the next points of interest on the topside, and should closely coincide with downtrend resistance, drawn from the 2022 highs.
• Further bullish technical developments might signal scope for a move back towards the double top at 0.8645.
• As a reminder, HSBC were timely in putting out a short recommendation on the pound Thursday, suggesting the BOE’s rate cut should not be taken lightly, in the context of how crowded long-GBP carry trades are. As a reminder, they look for a move lower in GBPAUD, with a price target of 1.9000.
• Cable trades broadly unchanged as we await the US employment report this afternoon. The clear break of the 50-day EMA and trendline support (drawn from the Apr 22 low), suggests scope for an extension towards the 1.2672, a Fibonacci projection, should the data beat expectations. Below here, 1.26, the Jun 27 low remains a key support.

EUR Recovers Off Lows, While Trend in USD/JPY Remains Lower

• Despite softer stocks, lower US yields and a general risk-off theme, currency markets are more sanguine early Friday, treading water ahead of the key US jobs release later today. The single currency is among the strongest performers in G10, recovering off lows posted yesterday at 1.0778 to keep EUR/USD above the 1.08 handle ahead of the NY crossover.
• JPY benefits from the cautious backdrop, however USD/JPY is yet to print a new pullback low - still intact from yesterday at 148.51. Clearance here puts the pair to fresh multi-month lows.
• Elsewhere, equities markets are backtracking, with the e-mini S&P and broader US equity futures space pointing to a deeply negative open on Wal Street later today. Intel's after-market earnings on Thursday were the core trigger, with a very disappointing set of results driving their share price lower by over 20% ahead of the opening bell. As a result, global chipmakers and tech names are heavy, prompting notable underperformance in the NASDAQ future and Dutch stock indices - home to semiconductor name ASML.
• Currency markets are on watch for today's NFP print (currently expected at +175k, with a whisper number of +170k), with renewed concerns on the pace of the deterioration in the US labour market. The unemployment rate is of interest, and any further tick higher in the rate this month will put the rate at a new post-pandemic high.

Expiries for Aug02 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0770(E557mln), $1.0800(E533mln), $1.0850(E617mln)
• USD/JPY: Y151.00($871mln), Y151.41($2.0bln), Y153.00($798mln), Y155.00($2.6bln)
• EUR/GBP: Gbp0.8420-25(E819mln), Gbp0.8460(E723mln)
• AUD/NZD: N$1.1025(A$545mln)
• USD/CAD: C$1.3895-00($638mln)
• USD/CNY: Cny7.2600($549mln)

E-Mini S&P Sharply Reverses This Week's Prior Gains

A bear threat in Eurostoxx 50 futures remains present and the contract traded lower Thursday. Price has recently breached 4846.00, the Apr 19 low. The clear break of this level paves the way for an extension towards 4711.10 next, a Fibonacci projection. Note that price has also pierced the 200-dma, reinforcing a bearish theme. Initial firm resistance to watch is 4951.89, the 50-day EMA. S&P E-Minis traded lower between Jul 16 - 25, resulting in a break of the 20- and 50-day EMAs. The breach does highlight a short-term bearish threat - a corrective cycle. Yesterday’s move lower and today’ extension reinforces the short-term bearish theme and this has opened 5370.62, a Fibonacci retracement. Resistance to watch is 5600.75, the Aug 1 high. Clearance of this level would highlight a bullish break and signal the end of the correction.

• Japan's NIKKEI closed lower by 2216.63 pts or -5.81% at 35909.7 and the TOPIX ended 166.09 pts lower or -6.14% at 2537.6.
• Elsewhere, in China the SHANGHAI closed lower by 27.05 pts or -0.92% at 2905.337 and the HANG SENG ended 359.45 pts lower or -2.08% at 16945.51.
• Across Europe, Germany's DAX trades lower by 185.8 pts or -1.03% at 17897.43, FTSE 100 lower by 22.76 pts or -0.27% at 8259.56, CAC 40 down 31.6 pts or -0.43% at 7338.85 and Euro Stoxx 50 down 52.67 pts or -1.11% at 4713.05.
• Dow Jones mini down 236 pts or -0.58% at 40278, S&P 500 mini down 53.25 pts or -0.97% at 5426.25, NASDAQ mini down 309 pts or -1.62% at 18710.75.

Gold Narrows Gap to Bull Trigger at $2483.7

A bear threat in WTI futures remains present and Wednesday’s strong bounce is considered corrective - for now. The recent breach of both the 20- and 50-day EMAs, reinforces a bear theme. A continuation lower would open $72.23, the Jun 4 low and the next key support. For bulls, a reversal higher would instead refocus attention on the key resistance points at $83.58, the Jul 5 high, and $84.36, the Apr 12 high. Gold has traded higher this week. The recent move down appears to have been a correction. The yellow metal did manage to pierce support at the 50-day EMA - at $2370.3. A clear break of this average would signal scope for a deeper retracement towards $2277.4, the May 3 low and a key support. For bulls, this week’s gains are constructive. Sights are on $2483.7, the Jul 17 high, and a bull trigger. Clearance of this hurdle resumes the uptrend.

• WTI Crude up $0.5 or +0.66% at $76.81
• Natural Gas up $0.02 or +0.76% at $1.983
• Gold spot up $16.14 or +0.66% at $2462.59
• Copper up $2.55 or +0.62% at $410.9
• Silver up $0.37 or +1.28% at $28.891
• Platinum up $10.22 or +1.06% at $974.02

Date	GMT/Local	Impact	Country	Event
02/08/2024	1115/1215		GB	BOE's Pill at National MPC Agency Briefing
02/08/2024	1230/0830	***	US	Employment Report
02/08/2024	1400/1000	**	US	Factory New Orders
02/08/2024	1430/1030		CA	BOC market participants survey
02/08/2024	1700/1300	**	US	Baker Hughes Rig Count Overview - Weekly