NEWS

MNI PAYROLLS PREVIEW: Can the Recent Goldilocks Theme Continue

Bloomberg consensus sees payrolls growth of 200k in July after the 209k in June was the first miss in fifteen months (when putting aside some notable negative revisions). AHE is seen moderating to 0.3% M/M although it doesn’t take much from an unrounded 0.36% M/M, along with no change in average hours worked. The unemployment rate is seen holding at 3.6% but can easily surprise lower from 3.57% with a decent share of analysts expecting such a move.

ECB (BBG): ECB Says Underlying Inflation in Euro Zone Has Probably Peaked

Underlying inflation in the euro zone has probably peaked, even though its exact level remains difficult to determine, according to the European Central Bank. The recent easing is mainly driven by non-energy industrial goods, the ECB wrote in a prerelease of its economic bulletin published on Friday, adding that a decline for services appears to have started too. At the same time, it said that domestic price pressures are becoming more prominent, echoing the Governing Council’s conclusions last week.

SECURITY (MNI): Positive Signs About Chinese Involvement at Jeddah Talks - Germany Government Official

Reuters reporting comments from a German government officials stating that Germany has, "received positive signals about some kind of Chinese participation in Jeddah Ukraine talks." The National Security Advisor-level talks, which begin tomorrow in Saudi Arabia, are a milestone in efforts to push Russia and Ukraine towards formal peace negotiations. The official said the aim of talks, "is to consolidate the different peace plans on the table, find common denominators." A senior European Commission official said yesterday: "...it's critical that not just India, Brazil, and other key partners are participating but also that China is sitting at the table..."

CHINA (MNI): Balance Growth With Risk Control - PBOC's Zou

MNI (Beijing) The Peoples’ Bank of China will ensure counter cyclical adjustments find balance between growth and risk, according to Zou Lan, director-general, monetary policy department t the central bank. Speaking at a press conference on Friday, Zou said the PBOC will coordinate RRR cuts, open market operations, medium-term lending facilities and various structural monetary-policy tools in future to provide reasonable and sufficient liquidity in the banking system.

CHINA (BBG): PBOC Chief Meets With Property Developers, Vows Funding Help

China’s central bank said it would increase funding support for the private sector after meeting with executives from the property industry, identifying several companies by name in a statement that underscores growing urgency among regulators to boost market confidence.

CHINA/AUSTRALIA (MNI): China Lifts Duties on Australian Barley

China will no longer impose antidumping duties on imported barley from Australia in view of changing circumstances in China’s barley market, the Ministry of Commerce said on Friday. In place since April 2020, the antidumping measures had been under review following an application from the China Liquor Association made in April this year.

RBA (MNI): RBA Forecasts GDP Slowdown

The Reserve Bank of Australia forecasts near-term GDP growth to slump – growing just 0.9% y/y in Dec. 2023, down from the previous 1.2% forecasts and the current 2.3% rate, according to the Statement on Monetary Policy released today. The RBA noted the softer growth reflected the subdued gains in household consumption “as higher interest rates and cost-of-living pressures weigh on real disposable income.”

RBNZ (MNI): More OCR Hikes Possible - Ex-RBNZ Governor

Persistently strong employment may force the Reserve Bank of New Zealand to raise the Official Cash Rate further despite its signaling to the contrary, a former RBNZ governor told MNI. While Don Brash, governor between 1988-2002, said the monetary policy committee (MPC) would rather avoid further rate hikes ahead of the Oct. 14 general election, he saw more tightening as being likely.

COMMODITIES (BBG): Iron Ore Climbs on Signs of Chinese Policy Aid, Low Inventories

Iron ore climbed on more visible signs that China’s authorities are stepping up property-boosting measures that may lift steel consumption, while steel stockpiles fell.The steelmaking staple surged as much as 3.4%, the most in three weeks, before paring gains.

CORPORATE (BBG): Apple Faces Longest Sales Slowdown in Decades as iPhone Slumps

Apple Inc. posted its third straight quarter of declining sales and predicted a similar performance in the current period, hurt by an industrywide slump that has sapped demand for phones, computers and tablets. After the company reported a revenue decline of 1.4% in the fiscal third quarter, Chief Financial Officer Luca Maestri said on a conference call that Apple’s performance would be similar this period. An additional drop would mark the longest streak of declines in two decades — a startling slowdown for the world’s most valuable company.

CORPORATE (BBG): Amazon’s Jassy Spurs Sales, Profit While Cutting Spending Growth

Amazon.com Inc. Chief Executive Officer Andy Jassy pulled off a financial double play this earnings season: generating strong revenue growth in the core e-commerce business while cutting the pace of spending. Wall Street applauded, sending the shares up about 10% in extended trading.

DATA

EUROZONE JUN RETAIL SALES -0.3% M/M, -1.4% Y/Y (MNI)

FRANCE JUN INDUSTRIAL PRODUCTION -0.9% M/M, -0.3% Y/Y (MNI)
FRANCE JUN MANUFACTURING OUTPUT -1% M/M, -0.2% Y/Y (MNI)

ITALY JUN IP +0.5% M/M, -0.8% Y/Y (MNI)

CHINA DATA (MNI): Input Prices Up Over June/July Period - NBS

MNI (Beijing) China saw price increases in 39 out of 50 key production inputs over the mid-June to late July period, according to the National Bureau of Statistics on Friday. The economy experienced price decreases in seven inputs with four remaining flat. Buyers saw prices rises in key inputs such as steel rebar (1.8%), copper (0.3%) and coking coal (6.9%), which were partially offset by falls in prices for Liquefied natural gas (-3.3%).

FOREX: G10 FX Subdued Ahead of July Payrolls Print

• Markets are generally treading water and respecting recent ranges ahead of the NFP print later today, with FX options markets pricing a relatively more muted response to today's payrolls release, with the vol premium added ahead of NFP among the lowest of the year so far.
• EUR/USD overnight vols peaked at 12.9 points yesterday, below the 2023 pre-NFP average of 15.5, and following the pattern of lower highs in implied vol ahead of payrolls across the year. Markets priced the largest swing in EUR/USD ahead of the January payrolls report (February 3rd) - with implied topping out at 19.8 points. Overnight straddle break-evens price a ~45 pip swing in EUR/USD for today's NY cut - notably lower than the ~70 pip average pricing of a pre-payrolls swing so far in 2023.
• CHF is the poorest performer so far in G10, trimming the week's risk-driven rally, while AUD and NZD regather after trading poorly since Monday. A lifting of Chinese Barley tariffs on Australian produce has helped the theme, with AUD/USD comfortably off the Thursday lows.
• The US payrolls release takes precedence going forward, with markets expecting 200k jobs added across July, keeping pace with the June figure. The unemployment rate is expected unchanged at 3.6%, after which attention turns to average hourly earnings. The Canadian jobs report is also due as well as a speech from BoE's Pill, set to be talking to agents from 1215BST/0715ET.

GILTS: Bounce from Cheaps Fades

The early bounce after the opening gap lower has faded, with weight in the wider core global FI space countering any Gilt-specific matters that facilitated the limited recovery. That leaves futures a little above worst levels of the day, -15 or so, while cash trade sees the major benchmarks running ~1bp cheaper in what has been a parallel shift across the curve.

• SONIA futures are flat to -6.0, while BoE-dated OIS shows ~23bp of tightening for next month’s meeting, with terminal policy rate pricing edging closer to 5.85% after yesterday’s limited foray below 5.75%.
• Participants await comments from BoE’s Pill, while cross-market impulses will be eyed ahead of and after the impending U.S. NFP release.

EGBS: Core Curves Twist Flatten, GGBs Tighten

The early session impulses remain in play, even with the drivers of the much firmer than expected German factory orders data pointing to a lack of sustainability, while the market looked through mixed retails sales data (the prior month’s readings saw positive revisions). That leaves Bund futures -40, a little above lows, while the major German cash benchmarks run 2.5bp cheaper to 1.0bp richer as the curve twist flattens.

• The remainder of the core/semi-core EGB curves see similar moves, leaving spreads vs. Bunds little changed.
• Peripherals have generally tightened a little vs. Bunds, with GGBs outperforming, presumably on expectations surrounding the Greek attainment of IG status at Scope Ratings (after achieving that objective at Japanese agency R&I earlier this week). A quick reminder that such a step at Scope would not impact GGB inclusion in ECB purchases/major bond indexes, but would represent the latest positive on Greece’s recovery path. Pre-market musings from DBRS Morningstar on Greece would have done the tightening no harm, although the 10-Year GGB/Bund & GGB/BTP spreads remain off recent tights.
• Recent comments from ECB’s Lane on expected inflation dynamics have gone over old ground, with no visible market impact.
• U.S. NFP data is front and centre into the weekend, with Belgian supply also due.

Curve Twist Flattens, Short End Yields Look Through Yesterday’s Highs

TYU3 operates at new pullback lows, with a heavy start for Bunds applying some pressure, although bears have only managed an incremental look through yesterday’s low thus far. Twist flattening remains evident on the cash curve, with the major benchmarks running 5bps cheaper to 0.5bp richer, as 20+Year paper firms a touch vs. yesterday’s closing levels. Further forward on the curve, 2- to 7-Year yields have looked through yesterday’s highs.

• FOMC-dated OIS shows a terminal rate of ~5.43%, come November, beyond there, ~58bp of cuts are priced through June ’24.
• The latest NFP release presents the highlight of the NY docket, coming on the heels of the much firmer than expected ADP reading (the usual correlation caveats apply). Click for our full preview of today’s NFP release.

EQUITIES: Break of 20-Day EMA Highlights Bearish Threat in E-Mini S&P

Eurostoxx 50 futures gains stalled at 4513.00 on Monday, and the contract has traded sharply lower this week. Price has cleared both the 20- and 50-day EMAs, highlighting a stronger bearish threat. Yesterday’s move lower resulted in a break of key support at 4331.00, the Jul 26 low. This strengthens a bearish theme and opens 4220.00, the Jul 7 low and a reversal trigger. Initial resistance is at 4424.00, Wednesday’s high. The E-mini S&P contract continues to trade below 4634.50, the Jul 27 high. This week’s move lower reinforces a bearish theme and has resulted in a break of support around the 20-day EMA. The recent failure at the top of the bull channel and the break of the 20-day average, highlights a developing bearish threat. A continuation lower would open 4452.13, the 50-day EMA. First key resistance is at 4634.50, the Jul 27 high.

• Japan's NIKKEI closed higher by 33.47 pts or +0.1% at 32192.75 and the TOPIX ended 6.28 pts higher or +0.28% at 2274.63.
• Elsewhere, in China the SHANGHAI closed higher by 7.621 pts or +0.23% at 3288.084 and the HANG SENG ended 118.59 pts higher or +0.61% at 19539.46.
• Across Europe, Germany's DAX trades higher by 23.77 pts or +0.15% at 15931.65, FTSE 100 higher by 8.48 pts or +0.11% at 7540.13, CAC 40 up 26.63 pts or +0.37% at 7295.9 and Euro Stoxx 50 up 17.78 pts or +0.41% at 4328.11.
• Dow Jones mini up 62 pts or +0.18% at 35380, S&P 500 mini up 15.75 pts or +0.35% at 4538.75, NASDAQ mini up 73 pts or +0.47% at 15518.

COMMODITIES: WTI Futures Pare Gains Following Wednesday's Move Lower

The uptrend in WTI futures remains intact and Wednesday’s move lower is likely a correction. The trend condition is overbought and a short-term pullback would allow this to unwind. The next key short-term support lies at the 20-day EMA, which intersects at $77.72. For bulls, a break above $82.43, Wednesday’s high, would confirm a resumption of the uptrend and open $83.59, the Nov 7 2022 high. Gold traded lower this week and the yellow metal remains at its recent lows. This confirms an extension of the bear cycle that started Jul 20 and highlights potential for a continuation lower near-term. The focus is on $1924.5, the Jul 11 low. Clearance of this level would signal scope for an extension towards the key support at $1893.1, the Jun 29 low. Key resistance is at $1987.5, the Jul 20 high. A break would reinstate a bullish theme.

• WTI Crude up $0.27 or +0.33% at $81.89
• Natural Gas up $0.01 or +0.31% at $2.58
• Gold spot down $1.32 or -0.07% at $1933.16
• Copper down $4.45 or -1.14% at $385.3
• Silver down $0.13 or -0.57% at $23.446
• Platinum down $2.5 or -0.27% at $915.75