MNI US MARKETS ANALYSIS - Trade Talks in Focus, USD Off Highs

Highlights:

• Trade talks in focus as Chinese, US negotiating teams meet for first time since Trump-Xi call
• Rates markets hold bulk of Friday's hawkish shift on payrolls
• Greenback gives back NFP rally, keeps recent lows in sight

US TSYS: Modestly Firmer On Low Volumes, US-China Trade Talks Continue

• Treasuries are modestly firmer after the weekend, holding the majority Friday’s sell-off on a somewhat solid payrolls report that defied a dovish build-up to the release from other downside surprises elsewhere.
• The US and China are set to resume trade talks in London today, focusing on rare earth minerals and advanced technology after last week’s Trump-Xi call. Just the fact that call had gone ahead saw a fixed income sell-off last week.
• As for potential headline timings, Trump participates in an Invest America Roundtable at 1400ET with the White House press pool.
• Cash yields are 2-3bp lower on the day. That includes 10Y yields at 4.4817% having eased back from Friday’s latest clearance of 4.50% with a high of 4.5116%.
• Curves are a little off Friday’s post-payrolls flats, with 2s10s at 47.6bp (+0.3bp) and 5s30s at 85.8bp (+0.7bp).
• TYU5 trades at 110-03 (+ 06) having slowly climbed a little further off Friday’s 109-28, with low cumulative volumes of 250k.
• A bearish threat is present, with support seen at 109-26 (May 29 low) before the bear trigger at 109-12+ (May 22 low). Resistance meanwhile is seen at 110-20+ (50-day EMA) with a key short-term level at 111-14+ (Jun 5 high & 61.8% of May 1-22 downleg) required to be cleared for a more bullish trajectory.
• Data: Wholesale inventories/sales Apr F/Apr (1000ET), NY Fed inflation expectations May (1100ET)
• Bill issuance: US Tsy $76B 13W & $68B 26W bill auctions (1130ET)

STIR: Holding Bulk Of Friday’s Hawkish Shift On Payrolls

• Fed Funds implied rates for 2025 meetings have pulled a touch back from Friday’s shift back towards their most hawkish since February but still hold the bulk of the increase seen on a solid payrolls report.
• Cumulative cuts from 4.33% effective: 0bp Jun, 4.5bp Jul, 18.5bp Sep, 30.5bp Oct and 46.5bp Dec.
• As you can see from the table below, the path is back close to levels seen shortly before higher jobless claims a week and a half ago started a run of dovish data that was reversed with the payrolls report.
• There are slightly larger shifts further out the curve but the broad takeaway remains -- the SOFR implied terminal yield of 3.39% (SFRZ6) is 4.5bp lower on the day but still 7bp higher since NFPs after Friday saw its highest close since May 14.
• It’s a quiet data docket both today and tomorrow, with data focus firmly on Wednesday’s CPI report for May.
• The FOMC is now in media blackout ahead of the Jun 17-18 meeting.

STIR: Net Short Setting Dominated In Front End Of SOFR Strip On Friday

OI data points to net short setting dominating in 7 of the front 8 SOFR futures on Friday, before positioning swings became a little more balanced between net short setting and long cover further out the strip

• A reminder that the NFP data and news of an impending Sino-U.S. meeting on trade maters drove much of the hawkish repricing seen in the U.S. short end ahead of the weekend. SFRZ5 got within 2.5bp of its May lows.

Source: MNI - Market News/Bloomberg Finance L.P.

US TSY FUTURES: CFTC Shows Asset Managers Aggressively Adding To Longs

The latest CFTC CoT report showed asset managers aggressively adding to existing net longs across the curve, with a net ~$31.5mln DV01 added across all contracts in cumulative terms. The largest DV01 equivalent net position add came in UXY futures ($11.3mln).

• This came after several weeks of net long reductions for the cohort.
• Leveraged fund positioning was a little more mixed, with a slight bias towards net short cover in curve wide DV01 equivalent net terms. Cover of existing shorts in TU, US & WN futures outweighed additions to net shorts in FV, TY & UXY futures. The cohort remains net short in all contracts.
• Broader non-commercial net positioning saw a mix of net short setting and cover (detailed in the table below). The cohort remains net short across the curve.
• The cut off date for this report was June 3, so positioning moves following the ISM services survey, ADP employment and NFP releases were not accounted for.

Source: MNI - Market News/Bloomberg Finance L.P.'

FOREX: CFTC Data Mixed, JPY Leveraged & Asset Manager Shifts Offset Each Other

CFTC positioning shifts were mixed across the major currencies in the week ending June 3, see the table below. For yen, we saw leveraged contracts rise, but this was offset by a contraction in asset manager positioning in the currency. Still, asset managers remain long from an outright standpoint, so too do leveraged players. 

• For EUR we saw little shift in the leveraged space (with an outright short still present), while asset managers added modestly to existing longs.
• GBP small net purchases for both asset managers and leveraged players. Assets managers are almost back to a net long position.
• AUD and NZD saw leveraged names add modestly to existing shorts. There was little net change in asset manager positioning for these currencies. 

Table 1: Weekly Change & Outright Positioning Per Major Currency - CFTC 

Source: Bloomberg Finance L.P. / MNI 

FOREX: Greenback Off Friday Highs as China, US Trade Teams Meet

• The USD Index is off the Friday highs, keeping the price within range of the early June pullback low at 98.351 - a key level of support before the YTD low of 97.921 comes into play. US and Chinese trade teams are set to meet again in London today, which will be of ample market focus given the recent call between Presidents Xi and Trump, at which the US President reportedly believed could unlock the deadlock in negotiations and ease the passage toward a new deal.
• Alongside the dollar slippage today, buoyant equity benchmarks are prompting AUD and NZD to outperform as cautious optimism surrounding the US/China talks provide tailwinds to the higher beta currencies. NZDUSD has broken back above an important
  zone of resistance between 0.6025/40. Spot continues to threaten a daily close above the US election related highs, signalling scope for a more protracted recovery towards 0.6168, the 76.4% retracement of the Sep '24 - Apr '25 selloff. Initial resistance is seen at 0.6080, last week's high print.
• JPY is firmer against most others, shrugging off reports that the Japanese finance ministry are considering looking into buying back super-long JGBs that had been issued in the past - a seemingly direct response to the particular weakness in the long-end of global yield curves in recent weeks. The US are to sell 30-year bonds on Thursday, which should provide a key litmus test for investor demand, and could have strong implications for dollar demand.
• Focus across the week rests on the US CPI print for May due Wednesday, at which markets expect inflation to accelerate very slightly from the April print, justifying no move lower in interest rates until October. The UK spending review out on Wednesday could also prove key and while it will not contain fresh OBR forecasts or go into detail on tax & spend plans, Reeves will set out day-to-day departmental spending for the next three years and investment expenditure for the next four years. 

FOREX: EURUSD Above NFP Highs, Goldman Sachs Raise Forecasts

• The brief spell of dollar strength following the US employment data on Friday has dissipated, with the dollar index now lower compared to pre-NFP levels. This morning’s 0.25% advance for EURUSD is seeing the pair test above the post-NFP highs around the 1.1430 mark.
• Price action underpins the underlying bullish trend, and immediate topside levels of note are 1.1457 and 1.1495, last Friday’s high and the ECB peak respectively. Further out, the cycle high of 1.1573 remains the key bull trigger. Initial support is at 1.1334, the 20-day EMA.
• Goldman Sachs believe the most recent dollar consolidation is more the “end of the beginning” rather than the “beginning of the end” of the Dollar’s shift lower. Given the confirmation of a slowdown in US activity and a shift in global investor appetite, GS are rolling their EURUSD forecasts to 1.17, 1.20 and 1.25 in 3, 6 and 12 months (from 1.12, 1.15 and 1.20).
• Following the hawkish reaction to the ECB's June decision and the stronger-than-forecast Q1 compensation per employee reading, staff's forward looking wage tracker on Wednesday will be watched for confirmation that the downward trajectory of pay pressures is intact. US CPI provides the highlight on the US calendar.

FOREX: AUD and NZD Outperforming Amid Dollar Slide

• Alongside the noted dollar slippage on Monday, buoyant equity benchmarks are prompting AUD and NZD to outperform as cautious optimism surrounding the US/China talks provide tailwinds to the higher beta ccys.
• Kiwi leads the charge in G10, and NZDUSD has broken back above an important zone of resistance between 0.6025/40. Spot continues to threaten a daily close above the US election related highs, signalling scope for a more protracted recovery towards 0.6168, the 76.4% retracement of the Sep ’24 – Apr ’25 selloff. Initial resistance is seen at 0.6080, last week’s high print.
• For AUDUSD, last Thursday’s close above 0.6500 was the highest in 6 months, and Monday’s resumption of strength keeps trend signals bullish. The pair’s recent clearance of 0.6515 (May 7 high) confirmed a resumption of the uptrend and signals scope for an initial climb to 0.6550, a Fibonacci retracement and the Nov 25 high. It is worth noting that US election related highs remain the medium-term target at 0.6688.
• In Australia this week, consumer and business confidence data is due, as well as consumer inflation expectations. New Zealand BusinessNZ Manufacturing PMI figures will be released.

OPTIONS: Expiries for Jun09 NY cut 1000ET (Source DTCC)

• EUR/USD: $1.1300(E797mln), $1.1350(E1.4bln), $1.1375(E572mln), $1.1425(E1.9bln), $1.1500(E775mln), $1.1520-30(E828mln), $1.1600(E1.6bln)
• USD/JPY: Y143.55-65($982mln), Y144.00($660mln), Y145.00($512mln)
• EUR/GBP: Gbp0.8440-50(E680mln)

EQUITIES: E-Mini S&P Trend Remains Bullish, Contract Close to Cycle Highs

The trend cycle in Eurostoxx 50 futures remains bullish and the contract is trading closer to its recent highs. Moving average studies are in a bull-mode position, highlighting a clear dominant uptrend. Sights are on 5516.00, the Mar 3 high and the key bull trigger. Clearance of this level would strengthen a bull theme. Key support to watch lies at 5280.33, the 50-day EMA. A clear break of this average would signal a possible reversal. The trend condition in S&P E-Minis is unchanged, it remains bullish and the contract traded to a fresh cycle high last week. The recent break of 5993.50, the May 20 high and a bull trigger, highlights a resumption of the uptrend and maintains a price sequence of higher highs and higher lows. A continuation would open 6057.00 next, the Mar 3 high. Key support lies at 5789.75, the 50-day EMA.

• Japan's NIKKEI closed higher by 346.96 pts or +0.92% at 38088.57 and the TOPIX ended 16.08 pts higher or +0.58% at 2785.41.
• Elsewhere, in China the SHANGHAI closed higher by 14.413 pts or +0.43% at 3399.771 and the HANG SENG ended 388.89 pts higher or +1.63% at 24181.43.
• Across Europe, Germany's DAX trades lower by 80.35 pts or -0.33% at 24223.6, FTSE 100 lower by 3.83 pts or -0.04% at 8834.14, CAC 40 down 0.8 pts or -0.01% at 7804.07 and Euro Stoxx 50 down 8.75 pts or -0.16% at 5421.42.
• Dow Jones mini up 31 pts or +0.07% at 42838, S&P 500 mini up 4.75 pts or +0.08% at 6011, NASDAQ mini down 4.5 pts or -0.02% at 21783.75.

COMMODITIES: Recovery Since Early-May for WTI Futures Could Still Be Corrective

WTI futures traded higher last week, resulting in a clear break of resistance around the 50-day EMA. The climb signals scope for an extension towards $65.82, the Apr 4 high. It is still possible that the recovery since early May is a correction. Moving average studies are in a bear-mode position, highlighting a dominant medium-term downtrend. Support to watch lies at $59.74, the May 30 low. A break would highlight a potential bearish reversal. A bullish theme in Gold remains intact and the latest pullback is considered corrective. Medium-term trend signals are bullish - moving average studies remain in a bull-mode position, highlighting a dominant uptrend. A resumption of gains would refocus attention on $3435.6 next, the May 7 high. A break of this hurdle would strengthen bullish conditions. On the downside, the next support to monitor is $3240.0, the 50-day EMA.

• WTI Crude down $0.03 or -0.05% at $64.54
• Natural Gas down $0.08 or -2.11% at $3.705
• Gold spot up $11.18 or +0.34% at $3321.12
• Copper up $1.05 or +0.22% at $486
• Silver up $0.33 or +0.92% at $36.299
• Platinum up $41.05 or +3.51% at $1209.23