US STOCKS: Surge Higher On Better Than Expected NFP
The ESU5 overnight range was 6272.50 - 6333.25, Asia is currently trading around 6312. US Stocks surged after a better than expected NFP print, the laggers continued their recent outperformance as rotation to these sectors plays out, Russell 2000 +1.02%, Regional Banks +1.15%. These laggers are just starting to gain some momentum and this rotation could play out more in the short-term which would certainly help the markets breadth. This morning has seen US futures drift lower from their overnight highs, ESU5 -0.18%, NQU5 -0.17%.
- (Bloomberg) -- “US Tech stocks were given a boost after the Trump administration lifted export license requirements for chip designs software sales.”
- Lance Roberts on X: “ I really wish the fear mongers would a) look up the actual definition of stagflation, and b) realize that 2.4% inflation with 4.4% unemployment and 2.3% gdp is not it.”
- “Retail flows into ETFs continue to surge higher, keeping hedge fund short positions limited.” See Graph below.
- Bob Elliot on X: ”Employment report internals confirm continued labor market weakening. Private sector jobs are weak. Strong payrolls number driven by unusual surge in gov jobs. HH survey employment down since Jan. Unemployment is up. Labor force participation falling. Wage growth is slowing.”
- The market has been caught underweight and with momentum type funds(CTA’s) together with Retail adding through all-time highs these reluctant PM’s are being forced to return to the market.
- Short-term this does look a little overdone but dips are just non-existent at the moment as risk surges higher. The First support area is back towards 6100 in ESU5.
Fig 1: Retail ETF Flows
Source: MNI/@LanceRoberts
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JGBS: Little Changed, Draft Fiscal Blueprint Calms Market
In Tokyo morning trade, JGB futures are weaker, -11 compared to settlement levels.
- Jibun Bank / S&P Global PMIs for May have printed: Services Index falls to 51 from 52.4 in April; and Composite Index falls to 50.2 from 51.2 in April.
- “Japanese government bonds may find short-term support as authorities signal efforts to rein in volatility. A draft of the government’s annual fiscal blueprint highlights the need to boost domestic holdings of JGBs to help cap rising yields, Bloomberg News reports. While the proposal lacks specifics, it underlines broader plans for fiscal consolidation and more stable issuance.” (per BBG)
- Cash US tsys are flat to 2bps richer, with a flattening bias, in today’s Asia-Pac session after yesterday’s modest losses. The 10-year yield continues to find good support around 4.35/40%. Yields need to hold above this area to continue to build for a move higher.
- Cash JGBs are little changed across benchmarks. The benchmark 10-year yield is 0.3bp higher at 1.497% versus the cycle high of 1.596% after yesterday's strong auction result.
- Swap rates are slightly lower. Swap spreads are mostly tighter.
USD: Support Holds As Market Looks Towards NFP
The BBDXY range overnight was 1209.64 - 1214.67, Asia is currently trading around 1213. Asia opens a little lower but the BBDXY continues to find demand back towards the pivotal 1200 area. The market will probably refrain from any big breaks until we see what the NFP on Friday night has to offer.
- The Kobeissi Letter on X - “Is the US Dollar overvalued? The US Fed Trade Weighted Real Broad Dollar Index is trading near its 40-year high."
- "The index measures the value of the Dollar against 26 currencies based on its competitiveness with trading partners."
- "The Inflation-Adjusted Broad Dollar Index is ~15% above its long-term average, suggesting the US Dollar is overvalued."
- "However, the US Dollar index has declined -9% year-to-date to its second-lowest level since April 2022."
- "This marks the 5th consecutive monthly decline, its worst streak in almost 5 years. The trade-based US Dollar is still expensive.” https://x.com/KobeissiLetter/status/1929650480352793038
- The BBDXY rejected the 1125 area pretty strongly, the USD should continue to be met with supply should this 1225/30 area cap price.
- We are approaching some key Weekly support towards the 1200 area in the BBDXY and this has found some decent demand as we head into NFP on Friday. A break below here is needed to signal the move is about to accelerate.
Data/Events : ADP, S&P Services PMI, ISM Services Index, Fed Beige Book
Fig 1: Inflation Adjusted Dollar Index Monthly Chart
Source: Kobeissi Letter/ Bloomberg
FOREX: AUD Crosses - Consolidate Overnight, Look Toward GDP
US stocks continue to find demand for now on dips, the S&P looks to be building for another test of 6000. The AUD has found some support overnight but the GDP print today has the potential to be weak. This could see the crosses once again underperform.
- EUR/AUD - Overnight range 1.7585 - 1.7708, Asia is trading around 1.7620. The pair broke above 1.7650 on Friday night but could not get any momentum to extend and failed towards 1.7700. Price action shows the market is bearish the AUD for now in the crosses. Support held again just below 1.7600 can the GDP give it the momentum to break 1.7650/1.7700.
- GBP/AUD - Overnight range 2.0898 - 2.0966, Asia is trading around 2.0940. Price consolidated overnight after moving higher in Asia. This pair needs to break back above 2.1000 to see another extension higher, after failing there Friday.
- AUD/JPY - Overnight range 92.06 - 93.14, Asia is trading around 92.95. Range looks 92.00 - 94.00 for now, a sustained break sub 91.50/92.00 will bring focus back to towards the lows again.
AUD/NZD - Overnight range 1.0752 - 1.0776, the cross is dealing in Asia around 1.0765. A top looks in place now just above 1.0900, the market will have been looking for a more dovish tone from the RBNZ last week and AUD/NZD could now see supply on bounces. The sell zone is back towards 1.0800/25 with the first target being around 1.0650.
Fig 1: GBP/AUD spot Hourly Chart
Source: MNI - Market News/Bloomberg
