MNI US MARKETS ANALYSIS - JPY Surges on Rengo Pay Demand

Highlights:

• Japan's Rengo demand largest pay rise in 30 years, JPY firms as JGB curve steepens
• Consensus sees ECB cutting a further 25bps, comments on recent market tumult eyed carefully
• Weekly claims watched carefully for last look at labour market before Friday payrolls

US TSYS: 2s10s At Fresh Month Highs, ECB Spillover Watched Next

• Treasuries have pulled back from overnight lows amidst broader risk-off stemming from Europe, and trade twist steeper.
• Ahead, there is potential spillover from the ECB press conference as markets watch President Lagarde’s assessment of recent defense plans, plus some notable data releases. Tomorrow’s nonfarm payrolls report and Powell’s update on the economic outlook loom large, however.
• Cash yields 1bp lower (2s) to 3.7bp higher (20s).
• 2s10s sits at 32.1bps (+4.3bp) to continue a steepening for its highest since early February.
• TYM5 sits at 110-19 (- 09) but remains off overnight lows of 110-12+, with another solid overnight session for volumes at 625k.
• Declines are deemed corrective and support is seen at 110-00 (Feb 7 high), whilst resistance is seen at 111-15 (Mar 5 high).
• Data: Challenger job cuts Feb (0730ET), Weekly jobless claims (0830ET), Trade bal Jan final (0830ET), ULCs/productivity Q4 final (0830ET), Wholesale trade sales Jan/Jan final (1000ET)
• Fedspeak: Harker on education (0845ET, speech no touching on mon pol), Waller speaks to WSJ on economic outlook (1530ET, Q&A only) and Bostic on economy (1900ET, just Q&A).
• Bill issuance: US Tsy $75B 4W & 8W bill auctions (1130ET)

STIR: Fed Rate Path Eases With Broader Risk-Off

• Fed Funds implied rates have pulled lower overnight on broader risk-off moves emanating from Europe.
• They remain firmly off dovish extremes after yesterday’s push higher that was kickstarted by a robust ISM services report.
• Cumulative cuts from 4.33% effective: 1.5bp Mar, 11bp May, 27bp Jun, 37bp Jul and 72bp Dec.
• Today sees potential spillover from the ECB decision (and more likely press conference) plus notable data releases including jobless claims, ULCs/productivity and the final trade balance. The latter gets a mention as it will be watched for details after a huge jump in imports in the advance.
• Today’s Fedspeak sees focus on Waller although it should be overshadowed by a heavy slate tomorrow after nonfarm payrolls including Powell on the economic outlook at 1230ET (text + Q&A) in the last updates before the media blackout.
  • 0845ET - Harker (non-voter) on economic education (text + Q&A) – speech itself won’t touch on economic outlook or mon pol, and he retires in June.
  • 1530ET – Waller (permanent voter) on the economic outlook with the WSJ (just Q&A).

STIR: Mix Of Short Setting & Long Cover In SOFR Futures On Wednesday

OI data points to a mix of net short setting and long cover during yesterday’s downtick in SOFR futures, with little in the way of meaningful themes to pick out.

ECB: MNI ECB Preview: How Restrictive Is The Question

• We have published and e-mailed to subscribers the MNI ECB Preview, including MNI analysis plus analyst views on what to expect at this month's meeting.
• Please find the full report here: https://media.marketnews.com/ECB_Preview_Mar2025_13bcdf7703.pdf

MNI US Payrolls Preview: Watching For Weakness

Download Full Report Here

Executive Summary

• Nonfarm payrolls are seen increasing a seasonally adjusted 160k in February in the Bloomberg survey after 143k in January.
• Primary dealer analysts see 155k whilst the Bloomberg whisper is just 121k after a weak ADP report.
• Specific factors at play this month should be on the smaller side, with potentially a boost from adverse weather but some offsetting role from striking workers.
• We don’t expect federal government layoffs and freezing hires to materially show in this report, but the seasonality of the data leaves it susceptible to broader pausing in hiring plans.
• The unemployment rate is seen holding at 4.0% after a surprise drop in January, in a close call with 4.1%.
• AHE growth is seen at 0.3% M/M but with sizeable analyst skew lower, after a strong 0.5% M/M in January.  Average weekly hours worked should also be watched closely after a particularly weak January.
• With growth concerns from US policy in greatest focus, we expect asymmetrical sensitivity to a soft report, at least initially. There is currently 11bp of cuts priced for May and 71bp for 2025.
• Fed Chair Powell follows in a speech on the economic outlook at 1230ET, in one of the last steers before the media blackout begins on Saturday ahead of the March 18-19 FOMC meeting. 

FED: Beige Book Sees Softer Labor Market But Still A Measured Moderation

Wednesday’s Beige Book, the first since President Trump’s inauguration, showed a further moderation in anecdotal labor market conditions but it continues to come at a gradual pace rather than a sharper deterioration:

• “Employment nudged slightly higher on balance, with four Districts reporting a slight increase, seven reporting no change, and one reporting a slight decline. Multiple Districts cited job growth in health care and finance, while employment declines were reported in manufacturing and information technology. Labor availability improved for many sectors and Districts, though there were occasional reports of a tight labor market in targeted sectors or occupations. Contacts in multiple Districts said rising uncertainty over immigration and other matters was influencing current and future labor demand. Wages grew at a modest-to-moderate pace, which was slightly slower than the previous report, with several Districts noting that wage pressures were easing.”

The distribution of Districts reporting increases, no change or decreases in headcount: 

EUROPE ISSUANCE UPDATE:

Spain auction results

• Spain sells E5.306bln - the top quarter of the E4.5-5.5bln proposed range. The lowest accepted prices exceeded the secondary market prices for both the nominal Oblis sold (albeit there was a decent concession going into the end of the bidding window).
• Bid-to-covers aren't exceptional either way.
• Overall would categorise this as a decent auction, and a slight relief for the market here.
• E2.532bln of the 3.10% Jul-31 Obli. Avg yield 3.067% (bid-to-cover 1.74x).
  E2.774bln of the 3.15% Apr-35 Obli. Avg yield 3.507% (bid-to-cover 1.88x).
  E514mln of the 0.70% Nov-33 Obli-Ei. Avg yield 1.271% (bid-to-cover 2.27x).

France auction results

• France has sold the top of the target range (E12.995bln) at its LT OAT auction with the stop prices exceeding the pre-auction secondary market prices and healthy bid-to-covers.
• Not too much of an initial market reaction here but again, like Spain, would consider this a solid auction.
• E2.898bln of the 4.75% Apr-35 OAT. Avg yield 3.51% (bid-to-cover 2.72x).
• E6.383bln of the 3.20% May-35 OAT. Avg yield 3.54% (bid-to-cover 2.87x).
• E1.194bln of the 1.75% Jun-39 Green OAT. Avg yield 3.71% (bid-to-cover 3.36x).
• E2.52bln of the 2.50% May-43 OAT. Avg yield 3.88% (bid-to-cover 2.38x).

RUSSIA: Lavrov-'No Space For Compromise' On Peacekeepers In Ukraine Plan

Reuters reporting comments from Russian Foreign Minister Sergey Lavrov. The minister claims that Russia sees no "space for compromise" on the prospect of peacekeepers being sent to Ukraine under any ceasefire/peace deal. Says, "We would consider the deployment of such forces as a NATO presence in Ukraine" and "We are categorically against such actions, they will mean the official involvement of NATO forces in the war against Russia...We cannot allow this to happen."

• Kremlin spox Dmitry Peskov speaks to reporters on French President Emmanuel Macron's televised address to the nation on 5 March. Says that it was "extremely confrontational", and "hardly the sort of speech by a leader who wants peace". Claims that "the conclusion from the speech is that France is thinking about continuing the war." Peskov says Macron "did not say anything about NATO expansion towards Russia's borders" but is "talking about a confrontational deployment of an ephemeral contingent to Ukraine."
• Peskov says that the Kremlin agrees with US Secretary of State Marco Rubio when he called the conflict a "proxy war", saying that the war is a "conflict between Russia and the collective West led by the US."
• Ukrainian President Volodymyr Zelenskyy due at the special EUCO summit in Brussels today. Russia will view the US' withdrawal of aid and intel to Kyiv as a major advantage, with the EU now playing catch-up in how to bolster Ukraine's defences without Washington, D.C.'s backing. 

GERMANY: RTRS-Bundestag To Start Debt Brake Reform Talks 13 Mar, Vote On 18 Mar

Reuters reports the Bundestag will begin discussions on the proposed reform to the debt brake to allow for greater defence spending on Thursday, 13 March, with the eventual vote taking place on Tuesday, 18 March. The discussions will take place in the 'old' pre-election Bundestag, where the conservative Christian Democratic Union/Christian Social Union (CDU/CSU), centre-left Social Democrats (SPD) and environmentalist Greens hold a two-thirds majority and, therefore, can enact constitutional reforms without outside support. 

• With the reforms seen as likely to pass (even if there are some holdouts within the fiscally conservative wing of the CDU/CSU), they will then go to the upper house of Germany's Parliament, the Bundesrat. The CDU/CSU, SPD, and Greens also hold a majority in that chamber, meaning it should pass before the new Bundestag is convened on 25 March.
• The CDU/CSU and SPD, which are likely to form the next gov't, want to get the reforms passed before the new Bundestag convenes. After that point, the far-right Alternative for Germany (AfD) and far-left Die Linke will hold a 'blocking minority' of one-third of the seats. AfD has come out against such reforms outright. Linke supports a full removal of the debt brake but is strongly opposed to increased defence spending and, therefore, could scupper the provisions of the deal outlined by CDU leader and chancellor-in-waiting Friedrich Merz. 

For a round-up of analyst views on the proposed debt brake reform and infrastructure fund, please see the PDF below: 

MNIPOLITICALRISK-GermanDefenceStimulus-AnalystViews .pdf

FOREX: SEK Surge Puts Price at Multiyear High, Pinching Riksbank Pricing

• Meanwhile, the SEK continues a streak of outperformance as a solid set of data outturns drives the currency higher still. Prelim inflation data covering February came in well ahead of expectations, further pinching Riksbank pricing across 2025. As a result, EUR/SEK has broken lower, consolidating comfortably through the 11.00 handle to print the lowest levels since late 2022.
• JPY is second only to the SEK so far Thursday, rallying on the back of the Rengo pay demand overnight. Rengo are one of the largest contributors to the Shunto bargaining round, suggesting the economy is on track for another multi-decade high pace of pay rises.
• USD/JPY has already shown through the Tuesday low, Y148.10. A clean break below here puts prices at new YTD lows and the lowest level since October. Y146.95, a Fibonacci retracement, is the next key support. In the crosses, this means EUR/JPY has reversed hard off the 100-dma resistance (Y161.41), which may put an end to the rally off last week's lows. A close below Y159.75 would confirm as such.
• GBP is nominally the poorest performer, but weakness is somewhat contained. GBP/USD remains just below the $1.2900 handle, having struck another overnight of 1.2924 during Asia-Pac trade.
• The ECB decision takes focus going forward, with consensus unanimous around a 25bps rate cut for the benchmark rate. Weekly jobless claims data provides the last look at the US labour market ahead of tomorrow's payrolls print. 

JPY: Rengo Demands, Ongoing Market Tumult Drives USD/JPY to Test Support

• USD/JPY is showing through the Tuesday low, Y148.10, at typing. A clean break below here puts prices at new YTD lows and the lowest level since October. Y146.95, a Fibonacci retracement, is the next key support.
• The Rengo pay tally data was an upside surprise - we knew that unions would push for a wage rise that "at least" matched last year's multi-decade high in the pace of wage rise, and they're demanding a faster rise this year: 6.09% from 5.85%. Rengo are one of the largest contributors to the annual Shunto wage negotiation round - so a solid bellwether for Japanese industry more broadly.
• We noted earlier that the headlines are already making waves in JPY rates space: JGB futures prices have hit new pullback lows and the 2s10s curve is at its steepest in nine months - helping underpin this JPY rally.
• In the crosses, this means EUR/JPY has reversed hard off the 100-dma resistance (Y161.41), which may put an end to the rally off last week's lows. A close below Y159.75 would confirm as such.

OPTIONS: Expiries for Mar06 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.0500(1.8bln), $1.0550(973mln), $1.0580-00(1.5bln), $1.0625-30(855mln), $1.0700-10(844mln), $1.0845-50(2.3bln)
• USD/JPY: Y148.00($786mln), Y149.00($511mln), Y149.70-85($620mln)
• USD/CAD: C$1.4400($802mln)
• USD/CNY: Cny7.2000($1.3bln), Cny7.2800($1.4bln)

EQUITIES: Eurostoxx 50 Futures Trading Close to Recent Highs

• The trend in the Eurostoxx 50 futures contract remains bullish with price trading closer to the trend highs. Key short-term support has been defined at 5373.00, the Mar 4 low. A reversal lower and a break of this level would signal scope for a deeper retracement and expose the 50-day EMA at 5290.26. For bulls, a continuation higher would open the 5600.00 handle next.
• A sharp sell-off in the S&P E-Minis contract this week reinforces a short-term bear threat. The contract traded to a fresh short-term cycle low on Tuesday - price has breached support at 5809.00, the Jan 13 low. This highlights a stronger reversal and a double top pattern on the daily scale. A resumption of weakness would open 5698.25, a Fibonacci retracement. Initial firm resistance to watch is 6019.64, the 50-day EMA.

COMMODITIES: Bearish Trend Condition in WTI Futures Remains Intact

• The current bearish trend condition in WTI futures remains intact and this week’s fresh short-term cycle lows reinforces current conditions. Recent weakness has resulted in a clear breach of support at $70.20, the Feb 6 low. This confirmed a resumption of the downtrend that started Jan 15 and has paved the way for an extension towards $63.61 next, the Oct 10 ‘24 low. Key short-term pivot resistance is seen at $70.86, the 50-day EMA.
• The trend condition in Gold remains bullish and the recent pullback appears to have been a correction. A stronger rally would refocus attention on the next objective at $2962.2, a Fibonacci projection. This would also open the $3000.0 handle. On the downside, a resumption of weakness would instead suggest scope for a deeper correction and expose support around the 50-day EMA, at $2816.6. The 50-day average marks a key support.

Date	GMT/Local	Impact	Country	Event
06/03/2025	1315/1415	***	EU	ECB Deposit Rate
06/03/2025	1315/1415	***	EU	ECB Main Refi Rate
06/03/2025	1315/1415	***	EU	ECB Marginal Lending Rate
06/03/2025	1330/0830	***	US	Jobless Claims
06/03/2025	1330/0830	**	US	WASDE Weekly Import/Export
06/03/2025	1330/0830	**	CA	International Merchandise Trade (Trade Balance)
06/03/2025	1330/0830	**	CA	International Merchandise Trade (Trade Balance)
06/03/2025	1330/0830	**	US	Trade Balance
06/03/2025	1330/0830	**	US	Non-Farm Productivity (f)
06/03/2025	1345/1445		EU	ECB Press conference post Governing council meeting
06/03/2025	1345/0845		US	Philly Fed's Pat Harker
06/03/2025	1445/1545		EU	Publication of ECB Staff macroeconomic projections
06/03/2025	1500/1000	*	CA	Ivey PMI
06/03/2025	1500/1000	**	US	Wholesale Trade
06/03/2025	1515/1615		EU	ECB Podcast: Lagarde presents latest MonPol decision
06/03/2025	1515/1615		EU	Lagarde video message at Women's Forum event
06/03/2025	1530/1030	**	US	Natural Gas Stocks
06/03/2025	1630/1130	**	US	US Bill 04 Week Treasury Auction Result
06/03/2025	1630/1130	*	US	US Bill 08 Week Treasury Auction Result
06/03/2025	1700/1200		US	Treasury Secretary Scott Bessent
06/03/2025	2030/1530		US	Fed Governor Christopher Waller
06/03/2025	0000/1900		US	Atlanta Fed's Raphael Bostic
07/03/2025	0700/0800	**	DE	Manufacturing Orders
07/03/2025	0745/0845	*	FR	Foreign Trade
07/03/2025	0800/0900	**	ES	Industrial Production
07/03/2025	0930/1030		EU	Lagarde Address at ECB International Women's Day 2025 conf
07/03/2025	0940/1040		EU	ECB International Women's Day conf. incl. Lagarde, Nagel, Panetta
07/03/2025	1000/1100	***	EU	GDP (final)
07/03/2025	1000/1100	*	EU	Employment
07/03/2025	-	***	CN	Trade
07/03/2025	1330/0830	***	CA	Labour Force Survey
07/03/2025	1330/0830	***	US	Employment Report
07/03/2025	1500/1500		GB	BOE's Mann lecture at RBNZ on 'holding anchor'
07/03/2025	1515/1015		US	Fed Governor Michelle Bowman
07/03/2025	1545/1045		US	New York Fed's John Williams
07/03/2025	1720/1220		US	Fed Governor Adriana Kugler
07/03/2025	1730/1230		US	Fed Chair Jerome Powell
07/03/2025	1800/1300	**	US	Baker Hughes Rig Count Overview - Weekly
07/03/2025	1800/1300		US	Fed Governor Adriana Kugler
07/03/2025	2000/1500	*	US	Consumer Credit