POWER: France Nov Power Edges Lower

The short-end led a Treasury rally in a busy Friday session, despite a fading of the initial dovish reaction to soft nonfarm payrolls data.

• The week's main event August employment report showed both a miss in nonfarm payrolls growth (142k vs 165k cons) and heavy downward revisions to the prior 2 months (-86k), alongside a slight downtick in the unemployment rate.
• That spurred a sharp bull steepening in the curve as a 50bp September Fed cut regained 50% implied probability.
• Comments 15 minutes after the NFP release by NY Fed Pres Williams were seen as noncommittal on 25 vs 50bp, and yields reversed steadily from session lows to session highs.
• Gov Waller's speech at 1100ET saw a renewed Treasury bid, as headlines emerged that he could support a "front-loaded" cutting cycle - but it soon became clear that this was a hypothetical and, like Williams, didn't seem particularly pro-50bp for Sept.
• The net impact was that September pricing was trimmed to 32bp of cuts, (4-5bps fewer than seen pre-payrolls), but short-end Treasuries still ended much stronger as futures saw more cuts overall: 2.5bp extra by end-2024 (to 113bp cumulative) and 12bp of extra cuts due by Jun’25 (221bp).
• 2s10s closed the week comfortably in positive territory for the first time since 2022, rallying 7bp on the day.
• We won’t get any more Fed communications due to the pre-FOMC blackout – but for observers clinging on to the possibility of a 50bp September hike, next Wednesday’s CPI release could be eyed as a tiebreaker.
• Latest levels: The Dec 24 T-Note future is up 6.5/32 at 114-30.5, having traded in a range of 114-10 to 115-13. The 2-Yr yield is down 8.7bps at 3.6565%, 5-Yr is down 4.3bps at 3.4938%, 10-Yr is down 1.5bps at 3.7117%, and 30-Yr is unchanged at 4.0198%.

• RES 4: 1.3646 High Aug 15
• RES 3: 1.3641 50-day EMA 
• RES 2: 1.3574 20-day EMA  
• RES 1: 1.3565 High Sep 03
• PRICE: 1.3530 @ 16:02 BST Sep 06
• SUP 1: 1.3441 Low Aug 28 and the bear trigger 
• SUP 2: 1.3420 Low Mar 08
• SUP 3: 1.3358 76.4% retracement of the Dec 27 - Aug 5 bull leg
• SUP 4: 1.3288 Low Jan 05

Recent gains in USDCAD appear to have been a correction and the recent impulsive sell-off, in August, reinforces a bearish condition. Note too that moving average studies are in a bear-mode set-up, highlighting a dominant downtrend. A resumption of bearish activity would signal scope for a move towards 1.3358, a Fibonacci retracement. On the upside, initial firm resistance to watch is at 1.3574 the 20-day EMA.    

Friday's SOFR options flow included: 

• SFRU4 95.12/95.06ps traded 3.5 in 3.5k.
• SFRU4 95.06/95.18cs 2x3, traded 5.25 and 5.5 in 2.5k.
• SFRU4 95.12/95.25cs traded 4.5 and 4.75 in 6.5k.
• SFRU4 95.25/95.37cs 1x2 traded 1.5 in 5k.
• SFRU4 95.25/95.31cs, bought for 1 I 12k total
• SFRU4 95.2595.31/95.37/95.43c condor, traded 1.25 in 6.5k.
• SFRU4 95.50c traded half in 10k.
• SFRU4 95.12c sold at 4.75 in 12k total.
• SFRU4 95.25c sold at 1.25 in 10k
• SFRU4 95.12 call vs 9512.25 sold at 4.75 in 15k all day
• SFRU4 95.00/95.12/95.25 cfly sold at 4 in 2.5k
• SFRU4 94.93/95.50 traded 0.25 for the c in 6k. (risk reversal)
• SFRU4 95.18/95.12/95.06p ladder traded 0.75 in 2.5k. (block)
• SFRU4 95.18/95.31cs traded 3.25 and 3.5 in 10k. (block)
• SFRV4 95.50p, traded 1.25 in 8.5k.
• SFRZ4 95.50p, traded 4.5 in 7.5k.
• SFRZ4 95.87/96.12/96.87c ladder vs 95.25p traded 2.25 and 2.5 in 5k.
• SFRZ4 96.12/96.25cs 2x3 traded 10 in 5k. (block)
• SFRH5 96.31/96.00ps 2x3 traded 12.5 in 5k.
• SFRM5/0QM5 97.50c, spread, traded for -6 in 5k.