MNI US MARKETS ANALYSIS - Tsy Curve Flattens Pre-ISM

Highlights: 

• Treasury curve twist flatter as US returns from public holiday
• ISM data kicks off key week for data, with NFP due Friday
• USD/JPY reverses lower with commodities as risk-off flows dominate European morning

US TSYS: Twist Flatter With ISM Mfg Starting A Heavy Week For Data

• Treasuries sit twist flatter with the US coming back from Labor Day, with the front-end fading solid declines in energy and industrial metals.
• ISM manufacturing is in macro focus today whilst there is heavy bill issuance.
• Cash yields sit between 1.7bp higher (3s) to 0.4bp lower (30s).
• 2s10s at -2.0bps (-1bp) holds close to Friday’s latest high of +0.5bp, itself close to the +2bps seen briefly in global risk-off spillover the Monday after last month’s payrolls.
• TYZ4 at 113-17+ is little changed from Friday’s settle having lifted from yesterday’s holiday low of 113-12. The contract is in retracement mode with support at that low before 113-00 (Aug 8 low), whilst resistance is seen at 114-19+ (Aug 21 high).
• Data: S&P Global US Mfg PMI Aug f (1000ET), ISM mfg Aug (1000ET), Construction spending Jul (1000ET)
• Bill issuance: US Tsy to sell $76bn 13-W bills, $70bn 26-W bills (1130ET), $46bn 52-W bills, $65bn 42-D CMB (1300ET)

STIR: Keeping To Circa 100bp Of Fed Cuts Over Three Meetings

• Fed Funds implied rates for near-term meetings are relatively little changed from Friday’s close as US desks filter in after Labor Day, up to only 1.5bp higher for meetings in mid-2025.
• Cumulative cuts from 5.33% effective: 32.5bp Sep, 65bp Nov, 99bp Dec, 127bp Jan and 187bp June.
• There’s no Fedspeak scheduled today, and aside from tomorrow’s Beige Book we are currently only set to see Williams and Waller with post-payrolls reactions on Friday.
• Today’s macro focus is on ISM manufacturing where we expect more attention than usual on employment after a particularly sharp 5.9pt decline to just 43.4 in July (but manufacturing only accounts for a small share at about 10% of payrolls).  

MNI NBP Preview - Sept 2024: On Hold Until '25

Executive Summary:

• NBP highly likely to keep policy unchanged
• No easing expected this year, but rhetoric is softening for rate cuts in 2025
• Glapinski's tone in Thursday's press conference likely of more market interest than Wednesday's policy announcement

Full preview including summary of sell-side views here: MNINBPPrevSep24.pdf

• It is highly unlikely that any of the ten members of the Monetary Policy Council (MPC) will cast their vote in favour of a rate cut this week, with the National Bank of Poland (NBP) widely expected to stand pat on rates at least through the end of 2024.
• That being said, a growing number of members have been flagging the potential for interest-rate cuts in 2025, with Governor Adam Glapiński eventually softening his hawkish forward guidance. The official may provide a more formal update on the interest-rate outlook during the upcoming press conference, taking stock of weaker-than-expected macroeconomic data at the start of Q3.

FOREX: JPY Reverses Monday Weakness as US Returns to Soft Equity Trade

• JPY is outperforming all others in G10 to wholly reverse the entirety of yesterday's weakness. USD/JPY is back below the Y146.00 handle and through yesterday's low to return trade back to broadly neutral after Monday's soft start. Equities are turning softer headed into the NY crossover, with volumes picking up as the US returns from Labor Day public holiday market closures. the e-mini S&P is already off by 0.5% ahead of the cash open, taking European stock markets with it.
• Infitting with the risk-off theme, Antipodean and growth-led currencies are underperforming and tipping AUD and NZD offered. This returns NZD back below the $0.62 mark and through first support at 0.6198 - the 23.6% retracement for the upleg off the August low.
• EUR/USD's correlation with risk has pressed the pair through overnight lows into NY hours. As a result, the USD trades well and the USD Index is now north of last week's highs - extending the bounce off the mid-August low to just over 1.3%.
• ISM data is set to take focus for the duration of Tuesday trade, with markets expecting manufacturing to have ticked up to 47.5 from 46.8 previously. Last week's MNI Chicago PMI came in modestly ahead of expectations, which may be setting the tone here. 

EQUITIES: Bullish Theme in E-Mini S&P Intact With Contract at Recent Highs

• Eurostoxx 50 futures traded higher last week and the contract is holding on to its latest gains. This means all key retracement points of the Jul 12 - Aug 5 bear leg have been cleared. Sights are on 4997.00 next, the Jul 17 high, where a break would open 5087.00, the Jul 12 high. Initial firm support to watch is seen at 4888.95, the 20-day EMA. A break of this average would signal scope for a corrective pullback.
• A bullish theme S&P E-Minis remains intact and the contract is trading at its recent highs. A resumption of gains would pave the way for a climb towards key resistance and the bull trigger at 5721.25, the Jul 16 high. Clearance of this level would resume the primary uptrend. Support to watch lies at 5518.91, the 50-day EMA. A clear breach of it is required to instead highlight a potential bearish threat.

COMMODITIES: Risk-Off Bleeds into Energy, Industrial Metals

• We noted the pullback in equities across the European morning, and the fade in risk is also being felt across commodities, with Brent and WTI crude futures both sharply lower. Brent crude futures now lower by just over 2% to approach the August lows and horizontal support at $74.62 and $75.10.
• Intraday weakness is building on the already bearish backdrop stemming from the risk of a market surplus via weak demand and the expectation of additional supply from OPEC+ from Q4 onwards. Broader industrial metals are also under pressure, with Dalian-listed iron ore off by 3.7% at the close and Shanghai Steel Rebar lower by 1.7%.
• USD strength will also be playing a part, with today's EUR/USD through yesterday's lows helping trigger the best print in the USD Index since Aug 20th - all weighing on the broader commodities complex.

MNI (LONDON)

Date	GMT/Local	Impact	Country	Event
03/09/2024	1245/1345		GB	BOE's Breeden moderating ECB and European Banking Authority panel
03/09/2024	1345/0945	***	US	S&P Global Manufacturing Index (final)
03/09/2024	1400/1000	***	US	ISM Manufacturing Index
03/09/2024	1400/1000	*	US	Construction Spending
03/09/2024	1530/1130	*	US	US Treasury Auction Result for 13 Week Bill
03/09/2024	1530/1130	*	US	US Treasury Auction Result for 26 Week Bill
03/09/2024	1700/1300	**	US	US Treasury Auction Result for 52 Week Bill
03/09/2024	1700/1300	*	US	US Treasury Auction Result for Cash Management Bill
04/09/2024	0130/1130	***	AU	Quarterly GDP
04/09/2024	0700/0900		EU	ECB's Elderson at Joint European Banking Authority and ECB conference
04/09/2024	0900/1100	**	EU	PPI
04/09/2024	1100/0700	**	US	MBA Weekly Applications Index
04/09/2024	-	***	US	Domestic-Made Vehicle Sales
04/09/2024	1230/0830	**	US	Trade Balance
04/09/2024	1230/0830	**	CA	International Merchandise Trade (Trade Balance)
04/09/2024	1255/0855	**	US	Redbook Retail Sales Index
04/09/2024	1345/0945	***	CA	Bank of Canada Policy Decision
04/09/2024	1400/1000	**	US	Factory New Orders
04/09/2024	1400/1000	***	US	JOLTS jobs opening level
04/09/2024	1400/1000	***	US	JOLTS quits Rate
04/09/2024	1400/1000		US	MNI Connect Video Conference on the U.S. Fiscal Policy Outlook
04/09/2024	1430/1030		CA	BOC Governor Press Conference
04/09/2024	1800/1400		US	Fed Beige Book