MNI US MARKETS ANALYSIS - Markets Eye 490k Gain for NFP

US TSYS: Treasuries Bear Steepen Ahead Of Payrolls

• Bear steepening in cash Tsys, with yields swinging their way to currently sit 4-6bps higher ahead of payrolls whilst larger hike are re-priced in. Russia’s Lavrov has said that there is movement forward in talks with Ukraine but it has largely been faded.
• 2YY +4.1bps at 2.375%, 5YY +4.8bps at 2.508%, 10YY +5.9bps at 2.397%, 30YY +5.8bps at 2.505%.
• TYM2 is down 19 ticks at 122-09 on marginally above average volumes as it continues a week of large moves with a range from 120-30+ (the bear trigger) to 123-04 (initial resistance higher at 123-12).
• Fedspeak: Chicago Fed’s Evans (2023 voter) speaks on the economy and monetary policy at 0905ET.
• Data: Payrolls is the clear main event at 0830ET (cons 490k after 678k, u/e rate down a tenth to 3.7%, AHE bouncing to +0.1% M/M) but also followed by the March manufacturing PMI (final) and ISM surveys (new) at 0945 and 1000 respectively.

Source: Bloomberg

STIR FUTURES: Fed Hike Expectations Firm Ahead Of Payrolls

• Fed hike expectations have firmed further in a move kickstarted in late US hours, back pricing 210bps of hikes to come this year and more than fully pricing a shift to 2.25-2.5%.
• Pricing for May holds at the 44 +/-1bp range seen this week as it awaits a catalyst, potentially NFP later.
• Chicago Fed’s Evans (2023 voter) speaks afterwards at 0905ET on the economy and monetary policy, with text and Q&A from both the audience and media.
• He said on Mar 24 that he was in line with the median dot for 175bps of tightening in 2022 (to 1.75-2.0%) and was comfortable with 25bps each meeting but open minded to a 50bp hike if it helps. Since then, Dec’22 Fed Funds pricing has increased 20bps with a similar increase in 2Y Tsys, whilst 10Y yields are largely unchanged.

FOMC-dated Fed Funds cumulative pricing for meetingsSource: Bloomberg

MNI US Payrolls Preview - Eyes On Wages, Slack

• March nonfarm payrolls are expected to have risen by 490k according to the Bloomberg median. There are a few much softer forecasts although the majority of views are relatively tightly packed between 450-550k and the primary dealer median sits at 520k.
• Watch average hourly earnings to see how much of a bounce there is after the surprising pause in February, in conjunction with other measures of slack.
• We see two-sided risks to May pricing for Fed hikes and somewhat asymmetric risk to the downside for the broader rate path, but acknowledge that there's a long way to go between this report and the next FOMC decision on May 4, especially in the current geopolitical climate.

https://marketnews.com/mni-us-payrolls-preview-eyes-on-wages-slack

EUROPE OPTION FLOW SUMMARY

Eurozone:
SX5E 20th May 4250c, traded 5.70 in 10k
SX7E 17th June 100/110cs, bought for 1.25 in 12k vs CAM2 1,920 at 88.60

BoE: JP Morgan adds 75bp more BOE hikes to base case

• JP Morgan has updated its BOE view and now looks for 100bp more in terms of hikes this year (25bp hikes in May, June, August and November). This is up from two 25bp hikes in May and August.
• It also now looks for an extra hike in the middle of next year (Feb, May and Aug) to take rates to 2.50% by next summer.
• JP Morgan notes that "this forecast still embodies a more moderate pace of tightening from the BoE as growth slows during the course of this year, but we no longer anticipate this to lead to an extended pause after August."
• "We very tentatively assume an effective equilibrium rate of around 1.5%, and so now expect the BoE to take rates into a restrictive setting with the intention of tempering building labor market pressures."
• JP Morgan cites 3 reasons: 1) "Momentum in growth and the labor market has been much stronger than expected at the start of this year." 2) "A purchasing power squeeze that results in weak but positive growth probably isn’t enough for the BoE." 3) "The external backdrop is shifting in a way that argues for higher rates."
• JP Morgan also notes that "we downplay the BoE’s dovish rhetoric as a guide to the rate path, and instead focus on the consumer and labor market data." Note that Broadbent's speech earlier this week suggested market participants do just that - and that markets overemphasise the importance of speakers relative to the economic data.

FOREX: AUD Nears Key Resistance Ahead of NFP

• JPY is trading weaker as markets partially reverse the recovery off the week's multi-year low, running in contrast with the softer equity market after the risk-off wave pushing stocks lower into Thursday's quarterly close.
• AUD is trading more favourably, with AUD/USD back above $0.7500 and narrowing the gap with the cycle high at 0.7540 printed on Mar28. Progress through here opens 0.7556, the Oct 28 High and a key resistance.
• Markets remain on watch for any further steps toward a ceasefire made at new negotiations between Russian and Ukrainian representatives today. Comments from Lavrov today suggest there has been movement forward between the two sides, and that Russia has seen "much more understanding" from the Ukrainian side.
• Nonfarm payrolls for March takes focus going forward, with markets expecting job gains of 490k - a slightly slower pace of job gains relative to the 678k seen in February. Full MNI preview here: https://marketnews.com/mni-us-payrolls-preview-eye...
• ISM Manufacturing data follows 90 minutes later, with prices paid subcomponent seen rising once again to 80.0. ECB's De Cos, Makhlouf and Fed's Evans are due to speak.

FX OPTIONS: Expiries for Apr01 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.1085-00(E844mln)
• USD/JPY: Y120.00($575mln), Y121.50-60($930mln)
• AUD/USD: $0.7525(A$522mln), $0.7550(A$564mln), $0.7600(A$551mln)
• USD/CAD: C$1.2660-80($1.1bln)
• USD/CNY: Cny6.3800($525mln)

Price Signal Summary - FI Trend Needle Still Points South

• In the equity space, short-term pullbacks in S&P E-Minis are considered corrective in nature. The bull cycle that started Mar 15, remains intact. The focus is on 4663.50, Jan 18 high. Watch initial resistance at 4633.44, 76.4% of the Jan 4 - Feb 24 downleg. Key support is at the 50-day EMA, at 4440.90. EUROSTOXX 50 futures breached resistance this week at the 50-day EMA. The break higher confirms a resumption of the bull cycle that started Mar 7. Also, the move higher has confirmed a bull flag breakout on the daily chart. The focus is on 3965.50 next, the Feb 23 high.
• In FX, EURUSD is lower this morning but maintains a firmer short-term tone following this week’s gains and the break of key near-term resistance at 1.1137, Mar 17 high. The break paves the way for strength towards 1.1232 initially, 61.8% of Feb 10-Mar 7 sell-off. Note that the pair also traded above the 50-day EMA, at 1.1147, but has failed to remain above the average. This is a potential concern for bulls. Key support to watch is at 1.0945, the Mar 28 low. GBPUSD still appears vulnerable following the pullback from 1.3298, Mar 23 high. Prices have this week breached 1.3120, the Mar 22 low and this opens 1.3000, Mar 15 low and the bear trigger. Key resistance remains the 50-day EMA, at 1.3299 today. A break would signal a reversal. USDJPY remains in a corrective cycle following the pullback from Monday’s 125.09 trend high. Initial support has been established at 121.28, Thursday’s low. A break of this level would allow for an extension lower and open 120.95, the Mar 24 low ahead of the 120.00 handle. Initial resistance is seen at 123.20, the Mar 30 high.
• On the commodity front, Gold is consolidating but remains vulnerable. The yellow metal traded lower Tuesday but recovered from the day low. Key support is seen at the 50-day EMA, at $1905.8, just ahead of the Mar 15 low of $1895.3. Both have been probed this week, a clear break would signal scope for a deeper pullback. Initial resistance is at $1966.1, Mar 24 high. In the Oil space, WTI has traded lower today and through Tuesday’s low of $98.44. The focus is on 50-day EMA at $97.30. A break would signal scope for a deeper pullback.
• In the FI space, Bund futures remain bearish despite yesterday’s gains. A resumption of weakness would refocus attention on the 156.00 handle. Resistance is at 160.46, the 20-day EMA. Gilts are consolidating - this is still seen as a pause in the downtrend. The focus is on 119.75, 123.6% retracement of the Feb 15 - Mar 1 climb. Resistance is at 121.70, the 20-day EMA.

EQUITIES: Energy And Financials Leading Gains, Tech Lagging

• Asian markets closed mixed: Japan's NIKKEI closed down 155.45 pts or -0.56% at 27665.98 and the TOPIX ended 2.13 pts lower or -0.11% at 1944.27. China's SHANGHAI closed up 30.514 pts or +0.94% at 3282.717 and the HANG SENG ended 42.7 pts higher or +0.19% at 22039.55.
• European equities are a little higher, with the German Dax up 13.87 pts or +0.1% at 14427.12, FTSE 100 up 32.95 pts or +0.44% at 7538.68, CAC 40 up 28.55 pts or +0.43% at 6668.36 and Euro Stoxx 50 up 9.23 pts or +0.24% at 3908.15.
• U.S. futures are higher, with the Dow Jones mini up 133 pts or +0.38% at 34751, S&P 500 mini up 16.75 pts or +0.37% at 4547.5, NASDAQ mini up 47.25 pts or +0.32% at 14916.

COMMODITIES: WTI Below $100

• WTI Crude down $0.92 or -0.92% at $99.38
• Natural Gas up $0 or +0.04% at $5.633
• Gold spot down $3.5 or -0.18% at $1931.97
• Copper down $4.75 or -1% at $470.3
• Silver down $0.08 or -0.32% at $24.7052
• Platinum up $3.16 or +0.32% at $988.99