JGBS: Societe Generale Recommend Weighted 2s10s Steepener

• RES 4: 131.33 High Jun 20
• RES 3: 130.85 61.8% retracement of the Jun 13 - Jul 14 bear leg 
• RES 2: 130.76 High Jul 22
• RES 1: 130.53 High Aug 5
• PRICE: 130.38 @ 07:14 BST Aug 5
• SUP 1: 128.84 Low Jul 25 and the bear trigger 
• SUP 2: 128.40 Low Apr 9
• SUP 3: 128.19 Low Mar 27 (cont) 
• SUP 4: 127.83 76.4% retracement of the Mar 11 - Apr 7 bull leg (cont)  

Bund futures traded sharply higher Friday - and constructively to begin this week. Prices have topped the 50-day EMA of 130.11 - reinforcing a bullish theme. A continuation higher would open 130.76, the Jul 22 high. The sell-off on Jul 25, resulted in a test of the base of a 3.5-month range at the 129.00 handle. Price has recovered and this key support remains intact, for now. A hammer candle formation on Jul 25 followed by a bullish engulfing candle on Jul 28 signals a potential reversal. Key support to watch is 128.84, the Jul 25 low.                                                        

• A much lighter Overnight session for Bund and Tnotes compared to Yesterday, but the direction of Travel has extended to the upside.
• The Bund made a new high on the Cash open, and the printed high will be bringing the 10yr Yield closer to 2.60%.
• The US 10yr Yield tested the July low and lowest level seen since May, next support in Yield is now seen toward 4.13%, which equates to 112.27, this is the next big area to Watch.
• But for now, TYU5 has drifted to session low at 112.09.
• Short term risk for Bund remains to the upside, next resistance area comes at 130.57 followed by 130.76.
• Small support moves up 129.99.
• Today's Services PMIs are final for France, Germany, EU, UK, and US, the main focus for Today will on the US ISM services.
• SUPPLY: There's heavy supply Today, UK £4.5bn 10yr (equates to 38.6k Gilt) will weigh, Germany €5bn Schatz (equates to ~53.3k Schatz), same as for Gilt, this is heavy and will weigh into the bidding deadlines. US Sells $58bn of 3yr Notes.

Q2 NZ labour market data is forecast to be weaker than the RBNZ assumed in its projections in May. Bloomberg consensus expects it to have softened in the quarter after some signs of stabilisation in Q1. The unemployment rate is forecast to rise 0.2pp to 5.3% more than the RBNZ’s 5.2% May projection. If the data print as weak as or weaker than consensus, then a rate cut on August 20 looks likely.

• Consensus is forecasting a 0.1% q/q drop in employment driving the annual rate down to -0.9% after -0.7% in Q1. This follows the monthly filled jobs data showing a contraction of 0.3% q/q in Q2. The RBNZ expected a rise of 0.2% q/q but looks likely to be disappointed as elevated uncertainty has weighed on hiring plans.
• Projections range from +0.2% q/q to -0.3% q/q leaving the annual rate between -0.6% and -1.0%. The domestic banks are generally more pessimistic than consensus with only ANZ in line. ASB, BNZ and Kiwibank expect employment to fall 0.2% q/q while Westpac is -0.3% q/q.
• Forecasts for the unemployment rate are between 5.1% and 5.3%. All of the domestic banks are in line with consensus at 5.3%, which would be the highest since Q4 2016. With a lacklustre economic recovery and job shedding, the unemployment rate could rise further by year end.
• The participation rate is expected to fall 0.1pp to 70.7%.
• Quarterly private wage growth may pick up to 0.5% q/q from 0.4% in Q1 but expectations are between 0.4% and 0.7%. ASB and Westpac are in line with consensus while BNZ and ANZ are higher at 0.6% and Kiwibank at 0.7%. Excess supply of labour is likely to put a cap on wage rises.