MNI US MARKETS ANALYSIS - Treasuries Stabilize Just Below Thurs Highs Pre-Payrolls

US TSYS: Modest Paring Of Risk-Off Gains, Payrolls In The Spotlight

• Cash Tsy yields sit 1-2bps higher on the day having pared some of yesterday’s late rally on geopolitical risk concerns.
• 2s10s at -32.5bps (+1bp) remains within recent ranges.
• TYM4 at 109-30+ (- 05+) has pulled back from yesterday’s geopol risk inspired high of 110-06, with further strong volumes at a cumulative 385k.
• It moved closer to resistance at 110-14 (20-day EMA) but the trend direction remains lower, with support seen at 109-09+ (Apr 3 low) before the round 109-00.
• Focus is firmly on today’s payrolls report – see the full MNI Preview here – before another solid schedule of Fedspeak from the more hawkish leaning members of the FOMC. Elsewhere, Israeli-Iran tension will be eyed after yesterday's headline flow.
• Sensitivity to a relatively small miss in the weekly initial jobless claims data, coupled with outright yield/FOMC-dated OIS levels and recent Fedspeak, suggests that the market is likely to see a more meaningful reaction to a soft release than it would in the case of a firm report.
• Data: Payrolls Mar (0830ET), Consumer credit Feb (1500ET)
• Fedspeak: Collins (0830ET), Barkin (0915ET), Logan (1100ET), Bowman (1230ET) – see STIR.

STIR: Fed Rate Path Close To 2024 Dot Ahead Of Payrolls And Hawkish Fedspeak

• Fed Funds implied rates have unwound about half of yesterday’s geopolitical risk driven decline, leaving a path close to that consistent with the FOMC’s 2024 median dot ahead of payrolls.
• Cumulative cuts from 5.33% effective: 3bp May, 18bp Jun, 28.5bp Jul, 46bp Sep and 73bp Dec.
• Aside from payrolls, today sees a further raft of Fedspeak. We highlight Bowman, who we see with high likelihood as being one of the two dots who didn’t see any rate cuts this year, plus potential post-payrolls reactions from Barkin and a hawkish-leaning Logan.

• 0830ET - Collins (’25) gives opening remarks (no text or Q&A)
• 0915ET - Barkin (’24) speaks on economic outlook – same speech as yesterday but updated to reflected new data, which could possibly include a first take on today’s NFP report (text + Q&A)
• 1100ET - Logan (non-voter) speaks to economic students (text + Q&A)
• 1215ET - Bowman (voter) on risks in monetary policy (text + Q&A)

US TSYS: OI Points To Mix Of Long Setting & Short Cover On Thursday's Geopolitical Angst

The combination of yesterday's late geopolitical risk-driven rally and preliminary OI data points to a combination of net long setting & short cover across the curve.

• Net OI/positioning swings were fairly limited in each contract.
• Weekly jobless claims data also factored into the move earlier in the day.
• Tsys have faded from yesterday's highs ahead of today's NFP release, with wider cross-asset moves pointing to an unwind of some geopolitical risk premium ahead of the data release (more colour is available in our previous Tsy bullets).

OI Suggests Long Setting Dominated In SOFR Futures On Thursday

The combination of yesterday's uptick in SOFR futures and preliminary OI data points to net long setting as the dominant positioning factor through the blues. Some pockets of short cover were also seen.

• The previously flagged geopolitical angst surrounding the Middle East and the weekly initial jobless claims data promoted a light rally in SOFR futures.
• Market pricing moved back towards ~75bp of '24 Fed cuts vs. extremes of ~65bp earlier in the week.
• A reminder that the median Fed dot in the SEP looks for 75bp of cuts in '24 (although it is a 'soft' median).

Iran Response Eyed After Funerals Of 7 IRGC Killed In Embassy Strike

The funerals of seven Islamic Revolutionary Guards Corps (IRGC) officers killed in a strike on the Iranian consulate in Damascus, Syria, have taken place in Tehran. Iran has laid the blame for the strike at Israel's feet, with the Israeli gov't neither confirming nor denying its involvement. The Iranian gov't promised a harsh retaliation that has raised the prospect of a major escalation in regional tensions.

• As MNI noted previously (see 'Israel Bracing For Iranian Retaliation To Embassy Drone Strike', 4 Apr 1531BST), the Israeli gov't has been seen to take precautionary measures involving the cancelling of military leave and scrambling GPS signals over Tel Aviv.
• The exact nature of the response could vary significantly. The most likely perpetrators would be Iran's proxies in the region, such as Hezbollah in Lebanon or Shia militias in Syria. These groups are well armed and could launch sizeable rocket and missile barrages into Israel.
• These groups could also break the recent 'peaceful' period in which there have not been attacks on US bases in the region. The White House has restated its full support for Israel with regard to defending itself against Iran. US NSC Comms Coordinator John Kirby said to CNN "...the security assistance we provide Israel is not just for Gaza...we will continue to help you defend yourself against these multiple threats,"
• The most escalatory action would be an Iranian attack on Israel itself. In this low probability-high impact scenario the chances of direct Iranian-Israeli conflagration would rise significantly.

MNI US Payrolls Preview: Does Prior Household Survey Weakness Hint At A NFP Miss?

EXECUTIVE SUMMARY

• Bloomberg consensus sees nonfarm payrolls growth of 213k in March after a strong 275k in Feb.
• Watch two-month revisions after the February report’s -167k – response rates have improved but are still on the low side historically.
• There has been particularly wide divergence between payrolls and household survey employment growth over the past three months – we expect a bounce in the household survey and potential for a modest downside surprise for March payrolls.
• With increased focus on immigration, the u/e rate should help guide on broader labor market balance. We don’t expect it this month, but it wouldn’t take much of an upside surprise to see expectations of an overshoot of the FOMC’s recently lowered 4.0% forecast for end-2024.
• AHE growth is broadly seen returning to a more trend-like 0.3% M/M after weather distortions through Jan-Feb. UBS do however see upside risk from a calendar effect.
• FOMC pricing is off highs seen after Monday’s ISM manufacturing survey but still only has a first cut coming in July before less than 70bp of cuts for the year.

PLEASE FIND THE FULL REPORT HERE:

USNFPApr2024Preview.pdf

FOREX: USD Index Steadies After Spell of Weakness, NFP On Tap

• Markets trade rangebound ahead of the NFP release, consolidating after sharp volatility in equity markets after the European close on Thursday, as a ratchet higher in Middle-East tensions undermined risk sentiment. The surge in oil prices continues to provide a tailwind for commodity-tied currencies, tipping NOK to the top of the G10 pile, keeping EUR/NOK within range of first support at yesterday's lows of 11.5840.
• The USD Index is more stable after three consecutive sessions of declines, leaving the currency poised for post-jobs report volatility. 103.922 marks the first downside level, the 50-dma, which provided firm support during Thursday trade, so could mark an important level ahead of the weekend.
• CHF is the weakest performer on an intraday basis, however EUR/CHF remains below yesterday's cycle high and bull trigger of 0.9849. Clearance here opens the cross to the highest levels since May last year and 0.9880.
• Focus turns to the March nonfarm payrolls report, at which markets expect 214k jobs added this month, along with a tick lower in the unemployment rate by 0.1ppts. Earnings are expected to slow further, with the Y/Y AHE seen at 4.1% vs. 4.3% previously. The Canadian jobs release is also due, at which markets expected a +25k net change in employment.

FX OPTIONS: Expiries for Apr05 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0800(E1.6bln), $1.0870-80(E652mln), $1.0965-70(E983mln)
• USD/JPY: Y149.00($729mln), Y150.00($611mln), Y152.00($766mln), Y152.50($667mln)
• GBP/USD: $1.2700(Gbp606mln)
• USD/CAD: C$1.3500-10($1.3bln)

EQUITIES: Corrective Cycle at Play in E-mini S&P

• The trend condition in S&P E-Minis remains bullish, however, the recent move lower highlights a corrective cycle and yesterday’s sell-off reinforces this condition. The contract has breached bull channel support drawn from the Jan 17 low, and cleared the 20-day EMA.
• A bullish trend condition in Eurostoxx 50 futures remains intact and the latest pullback is considered corrective. The break of support around the 20-day EMA - at 4965.50 - suggests potential for a deeper retracement near-term.

COMMODITIES: Bull Theme in Oil Boosted by Middle-East Tensions

• The trend condition in Gold remains bullish and the yellow metal is trading closer to this week’s all-time high. The latest rally maintains the price sequence of higher highs and higher lows and note that moving average studies are in a bull-mode condition.
• A bull theme in WTI futures remains intact and this week’s rally reinforces current conditions. The rally has confirmed a resumption of the uptrend. The contract has traded through $84.87, the Sep 15 ‘23 high, paving the way for a climb towards the $90.00 handle further out.