MNI US MARKETS ANALYSIS - US Payrolls Revision in Focus

MNI (LONDON) - Highlights:

• Benchmark payrolls revision expected to show large downward revisions to NFP growth
• July FOMC minutes scheduled later today
• BBDXY moderately recovers after hitting lowest level since March earlier today

US TSYS: Broad Consolidation of Yesterday’s One-Way Rally

• Treasuries have pared latest gains having opened firmer in Asia Pac hours although they don’t materially move away from levels established by yesterday’s rally throughout the US session. 
• We expect heightened sensitivity to preliminary payrolls revisions but feel risk to market pricing is on a smaller preliminary downward revision.
• Cash yields are 0.5-1bp higher across the curve, whilst 2s10s at -17.9bps is within recent ranges having pulled back off post-NFP steeps of +2.1bps. 
• TYU4 is back unchanged at 113-18 off 113-24. Volumes of 325k are mildly boosted by early days for roll activity ahead of the Aug 30 first notice. 
• A bullish theme remains intact with resistance at 114-03 (Aug 6 high) before 114-15 (Fibo retracement of Aug 5-8 pullback) and then a bull trigger at 115-03+ (Aug 5 high). 
• Data: MBA mortgage data Aug 16 (0700ET), BLS preliminary annual payrolls benchmark revision (1000ET). 
• Fedspeak: FOMC minutes (1400ET) 
• Note/bond issuance: US Tsy $16B 20Y bond auction (1300ET) - last month's 20Y was on the screws with solid details. 
• Bill issuance: US Tsy $60B 17W bill & $35B 16D CMB auctions (1130ET)

STIR: Circa 100bp of Fed Cuts Over Three Meetings

• Fed Funds implied rates have lifted ~1bp overnight but mostly hold yesterday’s steady decline seen either side of a helping hand from softer than expected Canadian core CPI.  
• Cumulative cuts from 5.33% effective: 33.5bp Sep, 64bp Nov, 99bp Dec, 124bp Jan and 185bp Jun. 
• The near enough full pricing of 100bp of cuts over the three remaining meetings compares with almost 110bps ahead of last week’s retail sales and jobless claims beats. 
• It comes ahead of today’s preliminary payrolls benchmark revisions (1000ET) and the FOMC minutes (1400ET). Both should be seen in context of jobless claims and flash PMIs tomorrow before Powell’s Jackson Hole speech Friday (1000ET). 

US OUTLOOK: Preliminary Payrolls Revision to Be Taken With Caution

• Released today at 1000ET, there are broad expectations for the preliminary annual payrolls benchmark revision to imply large downward revisions to nonfarm payrolls growth through the 4 quarters to March 2024.
• We've seen estimates of at least 500k with a central guess perhaps at 600k, but historical upward revisions to the underlying QCEW data and their  potential to undercount undocumented labor could see larger downward  revisions faded unless there is a particularly large surprise.
• Instead, we feel risk to market pricing is on a smaller preliminary downward revision. See more here.

ECB: Market-Implied Inflation Expectations Unlikely to Sway Sep Projections

Although market-implied measures of medium-term inflation expectations have continued to moderate through August, we continue believe they will have little impact on the overall pace of the ECB’s easing cycle and are unlikely to garner much attention in the September policy statement, press conference, or macroeconomic projections.

• The EUR 5y5y inflation swap has steadily drifted lower through August, currently 2.1030% (20bps below mid-July levels, and almost 60bps below the April high). 
• Shorter-dated measures (1,2,5-year swaps) also remain below the ECB’s June projection for Q4 2025 headline inflation. 
• However, the ECB will likely be more focused on actual inflation data and developments in wages and productivity in shaping its September guidance, while a 25bps rate cut is already widely expected and fully priced by ESTR OIS.
• Inflation expectations are also unlikely to have a meaningful downward impact on the September projections.
• Citi note that the front-end rates rally since June may mechanically “add to the HICP projections alongside a 18-19% increase in natural gas”, though state that offsetting effects come from a stronger Euro and lower oil prices.
• They also believe that “the ECB may need to revise compensation per employee lower while an overshoot in realized core inflation presents upside risk to near-term HICP”, creating a “mixed picture for HICP forecasts”. 

MNI JACKSON HOLE PREVIEW

At Jackson Hole, Fed Chair Powell is expected to reiterate his July press conference message that a rate cut "could be on the table as soon as September", thus aligning with market pricing for easing at least 25bp at the next meeting. Expect him to emphasize that the progress made on inflation and rising risks to the employment side of the Fed's dual mandate warrant dialling back the restrictiveness of monetary policy. He may tie this into the theme of the Symposium by arguing that the lagged impact of earlier tightening is finally being seen more convincingly. While he's unlikely to deviate from the script too much - emphasizing data dependence and a meeting-by-meeting approach - any reference to the envisaged tempo of cuts or the eventual destination for rates would be market-moving.

USD: Hawkish Outcomes for U.S. Risk Events Present Greatest Risk to Positioning

The BBDXY hit the lowest level since March earlier today.

• Meanwhile, USD downside protection remains in demand, with the 1-month BBDXY risk reversal moving to the lowest level seen since the COVID outbreak.
• This means that a hawkish outcome at the upcoming U.S. risk events presents the greatest risk to market positioning.
• Today’s benchmark payroll revisions are generating greater interest than usual, with the labour market loosening and the Fed more evenly focused on both sides of its dual mandate.
• The July FOMC meeting minutes will also cross later today, although more focus is on Fed Chair Powell’s Friday appearance at Jackson Hole.

FOREX: US BLS Payrolls Revision in focus

• The Dollar has been in positive territory during the early European session, a continuation from what was seen during the overnight session. Nonetheless, overall the Dollar is down for the past half of the Year, with the super Volatile Yen on top for that period, up 10.17%.
• On the EU Cash Govie open, the Yen was the worst performer, down 0.42%, now at -0.55%, but USDJPY sits some 20 pips off the printed high of 146.22 at the time of typing.
• EURUSD and the December high of 1.1139 continues to provide some good resistance, printed a 1.1130 Yesterday and 1.1133 so far today.
• Cable has again found some resistance at 1.3044/52 High Jul 17 and the bull trigger / High Aug 20 today, and has drifted back towards the 1.3000 figure, so far only managed a 1.3011 low.
• Looking ahead, focus is squarely on the US BLS Payrolls revisions, while the FOMC minutes is unlikely to move the needle especially ahead of Powell Friday.

EQUITIES: E-Mini S&P Holding Onto Recent Gains

Eurostoxx 50 futures have traded higher this week and the pair is holding on to its latest gains. The contract has traded through the 50-day EMA, at 4867.59. An extension higher would undermine the recent bearish theme and highlight a stronger reversal. This would open 4951.00 next, the Jul 31 high. For bears, a reversal lower would refocus attention on the bear trigger at 4494.00, the Aug 5 low. S&P E-Minis traded higher Tuesday, reinforcing the current bull cycle and confirms once again an extension of the reversal that started Aug 5. Price has cleared resistance at 2600.75, the Aug 1 high and this signals scope for an extension towards key resistance and the bull trigger at 5721.25, the Jul 16 high. A break would resume the primary uptrend. On the downside, support to watch lies at 5476.18, the 50-day EMA.

COMMODITIES: WTI Futures Trade Lower Tuesday, Key Support Marked at $71.67

WTI futures have been unable to hold on to recent gains and the contract traded lower again Tuesday. The latest move down undermines a recent bullish theme and this has exposed key support at $71.67, the Aug 5 low and the bear trigger. A break would resume the downtrend that started Apr 12. On the upside, initial resistance to watch is $75.60, the 20-day EMA. Key short-term resistance has been defined at $80.16, the Aug 12 high. Gold remains bullish and the yellow metal traded higher Tuesday, delivering another all-time cycle high. The recent breach of resistance at $2483.7, the Jul 17 high, confirmed a resumption of the primary uptrend. Note that moving average studies remain in a bull-mode set-up and this continues to highlight a dominant uptrend. The focus is on a climb towards $2536.4 next, a Fibonacci projection. Initial support to watch lies at $2446.5, the 20-day EMA.

Date	GMT/Local	Impact	Country	Event
21/08/2024	1230/0830	*	CA	Industrial Product and Raw Material Price Index
21/08/2024	1400/1000	*	US	Services Revenues
21/08/2024	1430/1030	**	US	DOE Weekly Crude Oil Stocks
21/08/2024	1530/1130	*	US	US Treasury Auction Result for Cash Management Bill
21/08/2024	1700/1300	**	US	US Treasury Auction Result for 20 Year Bond
21/08/2024	1800/1400	***	US	FOMC Minutes
22/08/2024	2300/0900	***	AU	Judo Bank Flash Australia PMI
22/08/2024	0030/0930	**	JP	Jibun Bank Flash Japan PMI
22/08/2024	0600/0800	**	NO	Norway GDP
22/08/2024	0715/0915	**	FR	S&P Global Services PMI (p)
22/08/2024	0715/0915	**	FR	S&P Global Manufacturing PMI (p)
22/08/2024	0730/0930	**	DE	S&P Global Services PMI (p)
22/08/2024	0730/0930	**	DE	S&P Global Manufacturing PMI (p)
22/08/2024	0800/1000	**	EU	S&P Global Services PMI (p)
22/08/2024	0800/1000	**	EU	S&P Global Manufacturing PMI (p)
22/08/2024	0800/1000	**	EU	S&P Global Composite PMI (p)
22/08/2024	0830/0930	***	GB	S&P Global Manufacturing PMI flash
22/08/2024	0830/0930	***	GB	S&P Global Services PMI flash
22/08/2024	0830/0930	***	GB	S&P Global Composite PMI flash
22/08/2024	1000/1100	**	GB	CBI Industrial Trends
22/08/2024	1130/1330		EU	Account of ECB MonPol meeting in July
22/08/2024	1230/0830	***	US	Jobless Claims
22/08/2024	1230/0830	**	US	WASDE Weekly Import/Export
22/08/2024	1345/0945	***	US	S&P Global Manufacturing Index (Flash)
22/08/2024	1345/0945	***	US	S&P Global Services Index (flash)
22/08/2024	1400/1600	**	EU	Consumer Confidence Indicator (p)
22/08/2024	1400/1000	***	US	NAR existing home sales
22/08/2024	1430/1030	**	US	Natural Gas Stocks
22/08/2024	1500/1100	**	US	Kansas City Fed Manufacturing Index
22/08/2024	1530/1130	*	US	US Bill 08 Week Treasury Auction Result
22/08/2024	1530/1130	**	US	US Bill 04 Week Treasury Auction Result
22/08/2024	1700/1300	**	US	US Treasury Auction Result for TIPS 30 Year Bond