EGBS: -GILTS CASH CLOSE: Modest Pressure From Supply Sees Supports Tested
Sep-01 16:49
- Main EGB 10Y yields closed between 2.1-2.5bp higher today, extending Friday’s modest sell-off.
- OATs marginally led today’s sell-off, with fiscal uncertainty still weighing but OAT-Bund spreads at 79bps (just +0.2bp on the day) off last week’s highs of ~82.6bps.
- French PM Bayrou over the weekend looked to gain support ahead of the Sept. 8 confidence vote but acknowledged that talks with political parties may fail to save his government.
- BTPs meanwhile clawed back some of their earlier underperformance, having led losses into the mandate announcement for the dual 7- & 30-Year BTP syndication.
- Closing the gap, BTPs closed 0.1bp tighter vs Bunds (85.8bps). The syndication was well within the realm of possibilities, as outlined in our daily/weekly issuance documents, explaining the lack of meaningful subsequent market move.
- RXU5 trades at 129.26 (-29) off earlier lows of 129.07 that probed support at 129.15 (Aug 26 low), potentially opening a test of the bear trigger at 128.64 (Aug 15 low).
- Bear steepening seen on the German curve, with yields 1.1-2.2bp higher. 5s30s saw a fresh cycle closing high of 108.6bps. The March '19 high (111.78bp) presents the next upside target of note.
- This week's uptick in EGB supply, and the impending pricing of the EFSF syndication, provide headwinds for regional bonds.
- Gilts led losses in European hours meanwhile, with 10Y yields closing +3bps.
- Slightly softer-than-flash final manufacturing PMI data did little for the market, but probably helped prevent a breach of early London lows.
- Futures last -26 at 90.26 off lows of 90.20 (both early on and again at 1612BST), breaching initial support (90.22) but leaving key support at late May lows (90.11) untested. Bears remain in technical control.
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JGB TECHS: (U5) NFP Tips Prices Sharply Higher
Aug-01 22:45
- RES 3: 147.74 - High Jan 15 and bull trigger (cont)
- RES 2: 146.53 - High Aug 6
- RES 1: 141.48/142.95 - High May 2 / High Apr 7
- PRICE: 138.63 @ 17:23 GMT Aug 1
- SUP 1: 137.32 - Low Jul 25
- SUP 2: 136.57 - 1.382 proj of the Jan 28 - Feb 20 - Feb 26 bear leg
- SUP 3: 134.89 - 2.000 proj of the Jan 28 - Feb 20 - Feb 26 bear leg
JGBs rallied sharply alongside global bond markets Friday, piercing mid-week resistance in the process. The first important resistance to watch is 141.48, the May 2 high. A break of this level would be viewed as an early bullish signal. A return lower would signal scope for an extension towards 136.57, a Fibonacci projection.
USDCAD TECHS: Slips Sharply on USD Downdraft
Aug-01 20:00
- RES 4: 1.4111 Apr 10
- RES 3: 1.4019 38.2% retracement of the Feb 3 - Jun 16 bear leg
- RES 2: 1.3920 High May 21
- RES 1: 1.3879 High Aug 1
- PRICE: 1.3794 @ 17:42 BST Aug 1
- SUP 1: 1.3716/3557 20-day EMA / Low Jul 03
- SUP 2: 1.3540 Low Jun 16 and the bear trigger
- SUP 3: 1.3503 1.618 proj of the Feb 3 - 14 - Mar 4 price swing
- SUP 4: 1.3473 Low Oct 2 2024
A short-term bullish corrective phase in USDCAD remains in play despite sharp weakness Friday. On the recent run higher, price traded through the 50-day EMA at 1.3739 and this has been followed by a break of resistance at 1.3798, the Jun 23 high. Clearance of 1.3798 represents an important short-term bullish development, signalling scope for a stronger recovery. Sights are on 1.3920 next, the May 21 high. On the downside, initial firm support to watch lies at 1.3716, the 20-day EMA.
MACRO ANALYSIS: MNI US Macro Weekly: Poor Payrolls Trumps Patient Powell
Aug-01 19:36
- We have published and e-mailed to subscribers the MNI US Macro Weekly offering succinct MNI analysis across the range of macro developments over the past week.
- Please find the full report here.
Executive Summary
- The second half of the week has seen some significant moves in markets from first a patient Fed Chair Powell not giving a nod to a September rate cut before a weak payrolls report with huge downward revisions materially altered recent trends.
- Nonfarm payrolls growth underwhelmed at 73k in July but the major headline was the -258k two-month downward revision, of which -139k came from the private sector and -119k from the public sector. Outside of April 2020, that’s the largest two-month downward revision in at least forty-five years.
- We caution though that whilst jobs growth has soured sharply, it’s doing so along with a significant slowing in labor supply under immigration curbs.
- As such, the unemployment rate may have technically ticked up to a new cycle high of 4.248% (above 4.244% in May) but it continues to roughly plateau in the 4.0-4.25% range seen since last July. The median FOMC forecast from the June SEP had the unemployment rate increasing to an average 4.5% in 4Q25 as part of forecast with two rate cuts in 2025 so further deterioration would be expected.
- A note on the latest initial jobless claims data, which are back at 2019 averages, a period when the unemployment rate averaged 3.7%.
- The weak report prompted an extraordinary response from President Trump, directing his team to fire BLS Commissioner Erika McEntarfer. It’s a broadening out of criticism beyond the Fed’s Powell and its Board.
- Speaking after payrolls, Atlanta Fed’s Bostic (in a non-voting role this year) said he hasn’t changed his view that there should be just one rate cut this year.
- Elsewhere in a major week for data, core PCE inflation exceeded latest Fed tracking in June at 2.8% Y/Y, whilst away from any tariff impact, market-based services inflation printed 3.3% Y/Y. Various inflation metrics showed a continued stabilization at above 2% target rates.
- The Q2 GDP advance release meanwhile beat analyst expectations with 3.0% annualized although it was close to Atlanta Fed GDPNow expectations. PDFP moderated further to 1.2% annualized for its weakest since 4Q22 although could have been worse.
- As a precursor to next week’s ISM Services report, the Manufacturing counterpart was weak across the board in July. Prices paid pulled back from recent highs, new orders chalked up a sixth consecutive month firmly in contraction territory and the employment index fell to its lowest since mid-2020.
- Yields have tumbled after the weak payrolls report. A September cut is mostly priced now vs 50/50 before the release, with a cumulative 59bp by year-end and five cuts in total from current levels.
