MACRO ANALYSIS: MNI US Macro Weekly: Softer Labor Data Opens Way To Fed Cuts
Sep-05 19:52
Our latest US Macro Weekly is available Here:
- A September Fed rate cut now looks assured after the August nonfarm payrolls report surprised on the dovish side for both payrolls employment and the unemployment rate.
- Along with other soft jobs data seen this week (ADP, JOLTS), the report confirmed that there are indeed rising downside risks to employment but also that the “curious” kind of balance in the labor market, per Chair Powell’s words at Jackson Hole, remains in play, even as inflation risks linger.
- Powell made those comments in the context of a broader speech suggesting that rate cuts could resume soon, and Fed Funds futures point to 27.5bp of cuts for the Sept 17 decision vs 25bp pre-NFP release.
- Other data seen this week painted a relatively more positive picture of economic activity for the most part. GDP nowcasts suggest above-trend growth in Q3, with services activity (per ISM and PMI) at some of its strongest levels of the year in August.
- Offsetting this were further deterioration in construction and weak signs from the manufacturing sector, which judging from latest ISM Manufacturing and factory orders has been unable to regain traction after tariff-related volatility earlier in the year.
- Similarly, a surprisingly large July trade deficit showed little limited normalization on the external front.
- The last week of Fedspeak ahead of the pre-FOMC blackout period was dominated by current voters, only one of which (Waller) made an explicit case for a September easing. Goolsbee (who spoke after the nonfarm payrolls data), Musalem and Williams sounded more cautious than Waller, though we're not sure any of them would dissent to a cut (though admittedly upcoming CPI data adds some uncertainty).
- While Board of Governors nominee Miran would be almost certain to support a cut, it's unclear whether he will be confirmed by the Senate in time for the Sept 16-17 meeting. On that note, we continue to await news on Governor Cook’s ability to participate, which appears to be in the hands of the courts.
- Meanwhile, the latest Beige Book described price pressures remaining modestly/moderately to the upside while labor market conditions have weakened.
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US TSYS: Treasuries Reverse Midmorning Knee-Jerk Dive, 10Y Note Sale Tailed
Aug-06 19:37
- Treasuries look to finish near steady (FVU5 -.25) to mixed, curves steeper (2s10s +3.084 at 51.452) with the short end outperforming. Rates had gapped lower midmorning: TYU5 tapped 111-26.5 low before rebounding almost as quickly, not headline or Block driven though some 60k TYU traded over short period - deemed likely error driven.
- The Sep'25 10Y futures contract currently trades 112-07 (-2.5). Treasury futures remain strong on the back of the post-NFP rally having cleared resistance into the bull trigger at 112-12+, the Jul 1 high. This opens the May 1 high for direction at 112-23, a multi-month high. Clearance here opens retracement levels layered between 113-07 and 113-23.
- Speculation over whether Pres Trump will announce new Russia sanctions or nominees for Fed governor or BLS head, however, tethered risk appetites somewhat. Trump reportedly wants to meet with Putin and Zelenskiy next week sometime.
- Treasury futures retreated slightly (TYU5 -7 at 112-07.5, 4.2375% yld) after the $42B 10Y note auction (91282CNT4) tailed 1bp: drawing 4.255% high yield vs. 4.245% WI; 2.35x bid-to-cover vs. 2.61x prior.
- Limited midweek data, focus turns to ECB's economic bulletin tomorrow, US weekly jobless claims & unit labor costs, and latest Chinese trade balance numbers. Fed's Bostic expected to address monetary policy shortly after BoE rate decision.
AUDUSD TECHS: Consolidation Mode
Aug-06 19:30
- RES 4: 0.6700 76.4% retracement of the Sep 30 ‘24 - Apr 9 bear leg
- RES 3: 0.6688 High Nov 7 ‘24
- RES 2: 0.6677 0.764 proj of the Jun 23 - Jul 11 - 17 price swing
- RES 1: 0.6530/6625 High Jul 29 / 24 and the bull trigger
- PRICE: 0.6499 @ 16:13 BST Aug 6
- SUP 1: 0.6419 Low Aug 1
- SUP 2: 0.6373 Low Jun 23 and a bear trigger
- SUP 3: 0.6354 38.2% retracement of the Apr 9 - Jul 24 upleg
- SUP 4: 0.6323 Low Apr 16
AUDUSD rallied well off the week’s lowest levels last week on broad USD weakness. Last week, the pair traded through both the 20- and 50-day EMAs. This undermined the recent bullish theme and signals the likely start of a corrective cycle. Note that support 0.6455 the Jul 17 low, has also been cleared. The breach strengthens a bearish threat and signals scope for an extension towards 0.6373, the Jun 23 low. Key resistance has been defined at 0.6625 the Jul 24 high. It also represents the bull trigger.
US TSY FUTURES: BLOCK: Sep'25 10Y Ultra-Bond Buy
Aug-06 19:19
- +3,500 UXYU5 114-12, buy through 114-11.5 post time offer at 1512:00ET, DV01 $305,000.
- The 10Y ultra contract trades 114-11.5 last (-5.5)
