EQUITIES: Stocks Shrug Off US-China Tensions, Led By Defensives
Equities are shrugging off a sources piece from the WSJ into the monthly close: "A trade truce between the U.S. and China is at risk of falling apart, as China's slow-walking on rare-earth exports fuels U.S. recriminations that China is reneging on the deal. Getting the pact together in Geneva earlier this month hinged on Beijing's concession on the critical minerals, according to people familiar with the matter."
- This adds some more color to this morning's White House contentions that China had failed to meet its commitments under the Geneva deal.
- Equities however appear to be largely ignoring today's US-China tensions, with S&P emini futures now up 0.1% on the session after being down as much as 1.1%, helped in part by the largest buying program of the day at 3:25pm (1372 names) and perhaps some month-end dynamics.
- Though at 5,917 last, e-minis have failed to test the May 20 high (and bull trigger) of 5,993.50.
- In cash, it's been mainly defensives outperforming, suggesting that perhaps the recovery is not particularly risk-on: S&P500 consumer staples +1.4% (Costco up 4.1%), utilities +0.9% and healthcare +0.5%, with energy (-0.8%), info tech (-0.6%) and consumer discretionary (-0.3%) pulling up the rear.
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US TSYS: Late SOFR/Treasury Option Roundup
Option desks reported decent SOFR & Treasury option volumes Wednesday, mixed flow segued to downside puts in the second half. Underlying futures firmer, testing highs late (TYM5 +8 at 112-13 vs. -13.5 high). Curves twisted steeper in late trade (2s10s +3.616 at 55.382). Projected rate cut pricing looks steady to lower vs. early morning levels (*) as follows: May'25 at -1.6bp (-2.6bp), Jun'25 at -17.1bp (-16.7bp), Jul'25 at -41.1bp (-38.1bp), Sep'25 -64.8bp (-59.2bp).
- SOFR Options:
- Block, 10,000 SFRM5 95.75/95.93 put spds, 10.5 ref 95.91
- -10,000 2QU5 97.25/97.31 call spds 1.5 ref 96.845 (unwind of buys from Apr 4)
- +3,000 SFRU5 96.50/97.00 call spds 1.75 over 3QU5 96.87/97.25 call spd
- -2,500 SFRZ5 96.68 straddles, 73.0 ref 96.69
- 5,200 SFRM5 95.81/95.87 2x1 put spds
- 6,000 SFRU5 95.68/95.87/96.00 put flys ref 96.30
- Block, 2,500 SFRZ5/0QZ5 96.25 put spds, 4.5
- 3,000 0QZ5 99.00/100.0 call spds ref 97.00
- 2,500 SFRH6 97.25/98.25 call spd vs. 2QH6 97.00/98.00 call spd
- Block/screen: 7,500 0QM5 97.00/97.25/97.50 call flys
- 3,000 SFRM5 96.18/96.31 call spds ref 95.90
- Treasury Options:
- Update, over 33,000 TYN5 108.5/109.5/110.5 put trees ref 112-09.5 to -12.5
- 12,000 TYM5 110.25/111.5 put spds, 21 ref 112-06.5
- 1,500 TYM5 109/110 put spds vs. 110.25/111.25 call spds
- 1,500 TYM5 114/116/118 call flys ref 112-05
- -19,500 TYM5 114 calls, 18
- 3,600 TYM5 112.5 straddles, 157 ref 112-09
- Block, 21,000 FVU5 111/114 call spds 29.5 vs. 109-07.75/0.20%
- 6,250 FVM5 109.25 straddles ref 109-06.25
- 9,000 wk3 TY 112.25 puts ref 112-09.5
- 8,000 wk3 FV 109 puts, 31.5 ref 109-02.75 (exp 5/16)
- over 8,200 USM5 120 calls & 9,200 USM 124 calls, partially spd
- 4,000 Wed wkly TY 112.75/113 call spds (exp today)
- 3,600 TYM5 109/110/111 put flys ref 112-06.5
- over 12,000 TYM5 114 calls, 17-18
- 1,250 FVM5 107.5/107.75/108.25 broken put flys ref 109-02.5
AUDUSD TECHS: Northbound
- RES 4: 0.6550 61.8% retracement of the Sep 30 ‘24 - Apr 9 bear leg
- RES 3: 0.6528 High Nov 29 ‘24
- RES 2: 0.6471 High Dec 9 ‘24
- RES 1: 0.6450 High Apr 29
- PRICE: 0.6391 @ 16:50 BST Apr 30
- SUP 1: 0.6344/6310 Low Apr 24 / 50-day EMA
- SUP 2: 0.6181 Low Apr 11
- SUP 3: 0.6116 Low Apr 10
- SUP 4: 0.5915 Low Apr 9 and key support
The trend condition in AUDUSD remains bullish and the pair is trading close to recent highs. Price has recently breached a key resistance at 0.6409, the Dec 9 ‘24 high. This breach reinforces bullish conditions and signals scope for a continuation higher near-term. Sights are on 0.6471 next, the Dec 9 2024 high. Initial key support to monitor is 0.6310, the 50-day EMA. A clear break of this EMA would be a concern for bulls.
US LABOR MARKET: MNI U.S. Payrolls Preview: Tailwinds Ebb As Storm Gathers
We've just published our preview of the April employment report (which is released Friday). PDF HERE
- Nonfarm payrolls are seen increasing a seasonally adjusted 135k in April in the Bloomberg survey after a stronger than expected 228k in March.
- Primary dealer analysts also see 135k whilst the Bloomberg whisper is weaker again, currently at 120k.
- April won’t benefit from the favorable weather and returning strikers that helped March employment growth.
- Immigration restrictions are likely to increasingly drag on employment growth ahead although this month’s report could be a little early.
- There’s a similar argument for any adverse impact from tariffs, especially with weekly jobless claims proving robust. That said, some forward-looking measures look bleak.
- The unemployment rate is widely expected to round to 4.2% again after inching up to 4.15% in March from 4.14% in Feb. AHE growth meanwhile is mostly expected at 0.3% M/M with some mild downside skew.
- A solid report shouldn’t change the narrative ahead of next week’s FOMC meeting but a weak report might.
- Markets are pricing in nearly 70% probability of a cut by June, with 41bp through the end-July FOMC. Just over 100bp of cuts are seen through year-end, and we’ve seen the lowest terminal rates since September’s 50bp rate cut (around 3.00% per SOFR) as the negative growth impact of US tariff policy is assessed.
