MNI US MARKETS ANALYSIS - Equities Drift Pre-Payrolls

US TSYS SUMMARY: Treasuries Pause For Breath Ahead of Payrolls, ISM

• Cash Tsys have paused for breath ahead of payrolls, with very little action overnight although cheapening slightly in recent trade despite S&P Emini moving back towards the session low.
• 2YY +2.5bps at 2.654%, 5YY +2.1bps at 2.930%, 10YY +1.3bps at 2.920% and 30YY +1.0bps at 3.085%. 2s10s sits within its recent range at 27bps.
• TYU2 sits down just 2 ticks at 118-25 in a particularly tight range for the session and within well yesterday’s range. Volumes are even softer than yesterday with the second day of the UK bank holiday. Support is eyed at 118-16+ whilst initial resistance is seen at the 50-day EMA of 120-09+.
• Data: Payrolls is the main event at 0830ET (https://marketnews.com/mni-us-payrolls-preview-softer-jobs-growth-eyed) but also followed by the finalised S&P Global Composite PMI at 0945ET before ISM Services at 1000ET. The ISM manufacturing report on Wed was strong except for employment which showed a pull back supposedly on a slight improvement in labour churn as quits dipped.
• Fedspeak: Repeat appearances from Brainard (no text) and Mester (CNBC interview on payrolls reaction).
• No issuance today.

STIR FUTURES: Fed Hike Pricing Waiting On Payrolls

• FOMC-dated Fed Funds implied hikes have largely tracked sideways since late Wednesday. They hold at 51bp for Jun and 101bp for Jul with only Sep softening marginally to 141.5bps with 197bps to year-end.
• Mester (’22 voter) maintained her view of seeing 2x50bp hikes as of today instead of joining another hawk in Waller (voter) seeing 50bp moves at several meetings, but still sees rates probably needing to go above the longer-run neutral level.
• Payrolls at 0830ET and ISM services at 1000ET before repeat appearances from both Vice Chair Brainard and Mester. Brainard yesterday noted a pause in September was “very hard to see”.

Source: Bloomberg

BOND SUMMARY: Yields remain elevated in Europe

• A very quiet start for cross assets, but EGBs and German are nonetheless still elevated and multi year highs.
• Peripheral spread are all tighter against the German 10yr.Greece is in the lead by 2.8bps.
• French, German and EU final CPIs were revised lower, but had no impact on markets.
• Looking ahead, US NFP and ISM Services Index will be in focus.
• SPEAKERS; Include ECB Holzmann and Fed Brainard (Discusses community reinvestment Act).
• US Treasuries are stable, with Tnotes flat on the day, ahead of the Data.
• June contract:
• Bund futures are down -0.22 today at 150.04 with 10y Bund yields up 1.1bp at 1.245% and Schatz yields up 0.4bp at 0.617%.
• BTP futures are down -0.04 today at 125.53 with 10y yields down -0.1bp at 3.295% and 2y yields up 0.7bp at 1.154%.
• OAT futures are down -0.28 today at 142.58 with 10y yields up 1.7bp at 1.774% and 2y yields up 0.1bp at 0.450%.

EUROPE ISSUANCE UPDATE: 

Belgian ORI Auction

• Sells €480mln of the 4.00% Mar-32 OLO, average yield 1.765%, bid-to-cover 1.10, weighted average price: 119.962

FOREX: USD Index Again Finds Support at 50-dma

• Currency markets are treading water early Friday, with a second UK public holiday and pre-NFP trade keeping volumes, liquidity and price action generally light. The greenback is modestly firmer, but gains are muted as the USD Index finds support again at the 50-dma (currently crossing at 101.65).
• JPY is one of the poorer performers in FX space, with USD/JPY just through the overnight highs ahead of the NY crossover. Potential is seen for a continuation higher. Price remains above the 50-day EMA, at 126.49 today. This week's move higher signals the end of a recent corrective pullback and highlights the point that corrections in USDJPY are shallow - a bullish signal. The move higher signals scope for a climb towards the bull trigger at 131.35, May 9 high.
• Nonfarm payrolls seen at 325k in May as the pace eases further from 428k in both March and April, down from the 600k in the prior six-month average but still twice the pace of the monthly gain through 2019. Inflation concerns clearly remain key though so it’s not the rate of jobs growth as much as labour market tightness that continues to matter.

FX OPTIONS: Expiries for Jun03 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0500(E946mln), $1.0650(E618mln), $1.0750-55(E933mln)
• USD/JPY: Y128.60-75($550mln), Y131.90($575mln)
• AUD/USD: $0.7150(A$557mln)
• USD/CAD: C$1.2630($1.1bln), C$1.2700($782mln)

Price Signal Summary - Bearish Extension In Bunds

• In the equity space, S&P E-Minis remain firm following recent gains. The contract has this week briefly traded above the 50-day EMA, currently at 4184.37. A clear break of this average would strengthen short-term bullish conditions and signal scope for a climb towards key resistance at 4303.50, Apr 26/28 high. Gains are still considered corrective and the primary trend direction is down. First support to watch is 3960.50, May 26 low. The short-term outlook in EUROSTOXX 50 futures remain bullish following recent gains and the break above the 50-day EMA. Attention is on resistance at 3883.00, Apr 21 high and the key resistance at 3944.00, Mar 29 high. A break of the latter would strengthen bullish conditions. Short-term support has been defined at 3576.00, May 19 low. Initial support lies at 3720.30, the 20-day EMA.
• In FX,EURUSD continues to trade below resistance at 1.0778. This is the top of a bear channel drawn from the Feb 10 high. The channel top marks a key short-term resistance where a break would highlight a strong bullish outlook. A reversal lower would open 1.0533 initially, the May 20 low. GBPUSD maintains a firmer short-term tone and the current corrective bull cycle is still in play. Attention is on key resistance at the 50-day EMA, at 1.2705 today. Initial firm support is at 1.2438, May 20 low. USDJPY is holding on to this week’s gains. The focus is on a climb towards 131.35, May 9 high and the bull trigger. Key short-term support has been defined at 126.36, May 24 low.
• On the commodity front, Gold traded higher yesterday and is once again above the 20-day EMA. A firmer resistance however is at the 50-day EMA, which intersects at $1876.6 today. A break of the 50-day average is required to suggest scope for a stronger recovery. On the downside, a reversal lower would refocus attention on the key support and bear trigger at $1787.0, May 16 low. Initial support lies at $1828.6, Jun 1 low. In the Oil space, WTI futures remain in an uptrend. The contract this week cleared resistance at $116.43, the Mar 7 high and the former contract high. This confirms a resumption of the primary uptrend and opens the $120.00 handle, and potentially beyond. Initial firm support is seen at $110.18, the 20-day EMA.
• In the FI space, Bund futures maintain this week’s softer tone and the contract continues to weaken. Price has traded below support at 150.97, May 9 low and a bear trigger. This signals a resumption of the primary downtrend and the continuation lower has exposed the psychological 150.00 handle. Initial firm resistance is at 153.39, the 20-day EMA.