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MNI US MARKETS ANALYSIS - US Payrolls Revision in Focus

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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.

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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.

Keep reading...Show less