MNI ASIA OPEN: Soft Jobs Opens Door to More Rate Cuts
- MNI FED: Fed's Bowman Still Open To Hikes If Inflation Stays High
- MNI INTERVIEW: Fed Set To Start Easing By Year End-Haslag
- MNI INTERVIEW: Fed To Cut Once At Most This Year- Ghamami
- MNI INTERVIEW: Reforms Aid Brittle Treasury Market-SEC Ghamami
- MNI US FED: Goolsbee – The More Jobs Reports Like This, The More Confident That Not Overheating
- MNI US FED: Goolsbee Criticizes Fed's Dot Plot For Lacking Context
- MNI US DATA: Smaller Miss For Private Payrolls As Government Job Creation Finally Slows
US
FED (MNI): Fed's Bowman Still Open To Hikes If Inflation Stays High: Federal Reserve Governor Michelle Bowman said Friday she still supports raising interest rates should data indicate progress on inflation has stalled or is insufficient to bring inflation down to 2% in a timely way.
- "While the current stance of monetary policy appears to be at a restrictive level, I remain willing to raise the federal funds rate at a future meeting should the incoming data indicate that progress on inflation has stalled or reversed," she said in remarks prepared for the Massachusetts Bankers Association.
- Her baseline outlook continues to include inflation declining further with the policy rate held steady, but she sees a number of upside inflation risks.
FED INTERVIEW (MNI): Fed Set To Start Easing By Year End-Haslag: Federal Reserve officials will likely find room to begin cutting interest rates before the end of the year as inflation resumes its downward trend after plateauing in recent months, former Dallas Fed economist Joseph Haslag told MNI. “I think there’ll be a case by the end of the year” to start cutting interest rates, Haslag said.
- The Fed this week held rates steady for a sixth meeting this week and flagged a lack of progress on inflation this year, as Chair Powell warned it could take a bit longer for policymakers to gain enough confidence in disinflation to reduce borrowing costs.
- Powell sounded optimistic that the disinflation trend could soon resume, and Haslag agrees, adding that sharp downturns in growth or employment are not required to tame price pressures.
INTERVIEW (MNI): Fed To Cut Once At Most This Year- Ghamami: The Federal Reserve has room to cut interest rates just once later this year at most with inflation staying elevated and a higher neutral rate making monetary policy less restrictive, SEC economist and former Fed board researcher Samim Ghamami told MNI.
- “I don’t think the Fed should cut rates in the near-term, not until they are confident that inflation is stable. There’s a significant chance that we get at most one rate cut this year,” he said on MNI’s FedSpeak Podcast. Strong growth and employment also reduce any sense of urgency, Ghamami said.
- The Fed this week flagged limited progress on inflation as it held rates steady at a 23-year high of 5.25%-5.5% for a sixth straight meeting. Chair Jerome Powell said it will take longer to gain confidence inflation is returning to the Fed’s 2% target after a string of disappointing readings.
INTERVIEW (MNI): Reforms Aid Brittle Treasury Market-SEC Ghamami: The U.S. Treasury market remains vulnerable to bouts of illiquidity that could rattle financial markets, though reforms like increased central clearing should help alleviate more severe pressures, Securities and Exchange Commission economist Samim Ghamami told MNI.
- “It is not unlikely to see at least mild illiquidity episodes in the Treasury market in the future,” Ghamami told MNI’s FedSpeak Podcast. “Liquidity in Treasury markets continues to remain low by historical norms, mostly due to high interest rate volatility.”
- The SEC unveiled a new rule in December requiring central clearing in the Treasury market starting in two years, and that will help bolster liquidity, Ghamami said.
NEWS
US FED (MNI): Goolsbee – The More Jobs Reports Like This, The More Confident That Not Overheating: Chicago Fed’s Goolsbee (’25 voter) in an interview on Bloomberg TV:
- Today’s 175k increase in payrolls is a very solid report. For setting mon pol you’ve got to take a longer arc view of inflation and the labor market. There was exceptional disinflationary progress in 2023. We hit a bump for sure at the start of the year on the inflation front and now everybody has to take a step back and try to figure out if it’s a sign of the economy overheating.
US FED (MNI): Goolsbee Criticizes Fed's Dot Plot For Lacking Context: Chicago Fed President Austan Goolsbee criticized the FOMC's quarterly dot plot projections in a speech Friday, saying that detaching members' interest-rate forecasts from their views of underlying economic conditions fails to paint a complete picture and can become "mostly just speculation." It's better to create a matrix anonymously connecting each member's rate forecast to his or her economic predictions, he said in remarks prepared for a conference at the Hoover Institution at Stanford University.
CHINA-EU (MNI): Germany's Scholz Won't Attend Xi Meeting w/Macron & VdL: A German gov't spox has said that Chancellor Olaf Scholz has turned down an invitation from French President Emmanuel Macron to join he and European Commission President Ursula von der Leyen at a meeting with Chinese President Xi Jinping on Monday 6 May. Spox says Scholz will maintain his current schedule of visiting Lithuania and Latvia.
TURKEY (MNI): Trade Min-Trade Halt w/Israel Until Permanent Ceasefire & Aid Secured: Turkish Trade Minister Ömer Bolat has stated that the trade halt with Israel announced on 2 May will continue until a permanent ceasefire is in place and the flow of humanitarian aid to Gaza is secured.
CHINA-RUSSIA (MNI): Putin To Meet Xi In China 15-16 May-BBG: Bloomberg News reporting that Russian President Vladimir Putin is scheduled to visit China on 15-16 May, days after the beginning of his new term in office, to hold talks with his counterpart Xi Jinping. While the dates may change according to BBG's source, the visit would mark the Russian president's first foreign trip to take place after his inauguration on 7 May.
RUSSIA (MNI): Kremlin-Macron Comments Re: Troops In Ukraine 'Very Dangerous': Kremlin spox Dmitri Peskov has said that French President Emmanuel Macron's latest comments regarding the possibility of him sending troops to Ukraine are 'very dangerous'. Adds that comments from UK Foreign Secretary Lord Cameron, on the prospect of strikes against the Russian Federation using British weapons, are also dangerous. Peskov: 'There is a verbal escalation in the West as a whole. This could threaten Europe's security.'
Jobs and ISM Services Miss, Tempered by Gov Jobs, Prices Paid
- Treasuries gapped higher after the headline April jobs data missed est's. Nonfarm payrolls increased 175k in April for a 65k miss along with a -22k two-month revision, but with a partial caveat that the government made up a large part of the downside surprise.
- The u/e rate meanwhile technically surprised higher on a rounded basis at 3.9% but as we’d warned it didn’t take much and indeed it only increased from 3.83% to 3.86%, back to where it was in Feb after its surprise lurch higher.
- Fed speak resumed: With "more jobs reports like this" quipped Chicago Fed President Goolsbee on a Bbg interview, the "more confident" the Fed is that the economy is "not over heating".
- Tsys rallied midmorning again after mostly weaker ISM services data, but pared gains after Prices Paid bounced to 2023 levels: 59.2 vs. 54.9 est. Balance of data ISM Services Index (49.4 vs. 52.0 est), Employment (45.9 vs. 49.0 est), New Orders (52.2 vs. 54.5 est).
- Curves bull steepened as short end rates priced in two 25bp rate cuts by December briefly, levels have moderated since: June 2024 -10% w/ cumulative rate cut -2.5bp at 5.302%, July'24 at -28% vs. -34% (post data high) w/ cumulative at -9.5bp vs. -12.3bp (post data) at 5.233%, Sep'24 cumulative -22.1bp (-25.9bp post data), Nov'24 cumulative -31.7bp (-35.6bp earlier). Dec'24 cumulative currently -46.4bp vs. -54.7bp post data as two 25bp cut pricing moderates.
OVERNIGHT DATA
US DATA (MNI): Smaller Miss For Private Payrolls As Government Job Creation Finally Slows: A sizeable miss for nonfarm payrolls (175k vs cons 240k) and a two-month downward revision of -22k (+12k Mar, -34k Feb).
- Note though a smaller miss for private payrolls (167k vs cons 193k) and a two-month downward revision of -15k.
- It came as govt job creation finally slowed, to just 8k for its weakest month since Dec’22. Consensus had implied closer to a 45k gain after the 72k in March.
US DATA (MNI): Weaker Than Expected NFP Report Across The Board, But With Some Caveats: Nonfarm payrolls increased 175k in April for a 65k miss along with a -22k two-month revision, but with a partial caveat that the government made up a large part of the downside surprise.
- AHE growth saw a ‘genuine’ miss at 0.20% M/M (cons 0.3) in April after an unrevised 0.35% M/M, with the miss more of note considering average hours worked also surprised lower as they ticked back to the low end of the 34.3-34.4 range.
- Most analysts had expected a 0.3% increase although a few had cited a negative calendar effect after March’s boost, which would drop out in May and therefore might limit the impact here.
- The u/e rate meanwhile technically surprised higher on a rounded basis at 3.9% but as we’d warned it didn’t take much and indeed it only increased from 3.83% to 3.86%, back to where it was in Feb after its surprise lurch higher.
- It came as both employment (+25k) and the labour force (+87k) growth pulled back after jumping in March.
- Still, the three-month average of the u/e rate rolls higher which means the SAHM rule tick more firmly back to the 0.3s seen in late 2023 but it remains some way from the 0.5 level indicative of recession.
- The broader U6 rate is also trending higher, increasing a tenth to 7.4% for its highest since Nov’21.
US DATA (MNI): Health & Social Assistance More Than 50% Of Private Job Creation: Away from the sharper decline in government payrolls growth, private payrolls growth slowed to 167k (cons 195k) after a two-month downward revision of -15k.
- The three- and six-month rates are still strong at 197k and 192k respectively.
- Looking by industry, the diffusion index across 250 industries ticked up slightly from 59.6% to 60.4%. This is close to the average of recent readings, across a range of a low 52.4 to 63.0 over the past six months.
- S&P Global US services PMI: 51.3 (cons 51.0, flash 50.9) after 51.7.
- S&P Global US composite PMI: 51.3 (cons 51.0, flash 50.9) after 52.1.
US DATA (MNI): Weak ISM Services Whilst Prices Surprisingly Bounce But Only To 2023 Levels: ISM services was lower than expected in April at 49.4 (cons 52.0) after 51.4. It’s a third consecutive decline and is the lowest since Dec’22.
- Miss: Employment at 45.9 (cons 49.0) after 48.5, lending support to the softer than expected payrolls report today. It’s the lowest since Dec and before that Jul’20.
- Miss: New orders at 52.2 (cons 54.5) after 54.4. It has dropped 3.9pt over two months now and is the lowest since Dec’22.
- Beat: Prices paid see a large upside surprise with 59.2 (cons 55.0) after 53.4 as the recent particularly large swings continue. The 5.8pt increase follows -5.2pts in Mar, -5.4pts in Feb and +7.3pts in Jan.
- Trying to look through some of this noise, the 59.2 is almost exactly in line with the 59.3 averaged through 2023 (not too much higher than the 57.5 in 2019), although the latest increase is eye-catching after the 5.1pt jump seen in ISM mfg earlier this week.
MARKETS SNAPSHOT
- Key market levels of markets in late NY trade:
- DJIA up 467.03 points (1.22%) at 38691.69
- S&P E-Mini Future up 67 points (1.32%) at 5158.75
- Nasdaq up 326.7 points (2.1%) at 16165.89
- US 10-Yr yield is down 8 bps at 4.5016%
- US Jun 10-Yr futures are up 14.5/32 at 108-26
- EURUSD up 0.0043 (0.4%) at 1.0768
- USDJPY down 0.74 (-0.48%) at 152.9
- WTI Crude Oil (front-month) down $0.88 (-1.11%) at $78.07
- Gold is down $3.91 (-0.17%) at $2299.93
- European bourses closing levels:
- EuroStoxx 50 up 30.87 points (0.63%) at 4921.48
- FTSE 100 up 41.34 points (0.51%) at 8213.49
- German DAX up 105.1 points (0.59%) at 18001.6
- French CAC 40 up 42.92 points (0.54%) at 7957.57
US TREASURY FUTURES CLOSE
- 3M10Y -7.189, -89.932 (L: -95.949 / H: -82.63)
- 2Y10Y -1.035, -30.613 (L: -36.245 / H: -25.919)
- 2Y30Y +0.618, -14.22 (L: -19.955 / H: -7.61)
- 5Y30Y +2.543, 18.025 (L: 14.27 / H: 23.403)
- Current futures levels:
- Jun 2-Yr futures up 4.125/32 at 101-24.125 (L: 101-19 / H: 101-29.875)
- Jun 5-Yr futures up 10/32 at 105-23 (L: 105-10.25 / H: 106-03.25)
- Jun 10-Yr futures up 15/32 at 108-26.5 (L: 108-06 / H: 109-09.5)
- Jun 30-Yr futures up 24/32 at 115-28 (L: 114-25 / H: 116-18)
- Jun Ultra futures up 1-04/32 at 122-1 (L: 120-16 / H: 122-23)
US 10Y FUTURE TECHS: (M4) Key Resistance Remains Intact For Now
- RES 4: 110-06 High Apr 4
- RES 3: 109-22+ 38.2% retracement of the Feb 1 - Apr 25 bear leg
- RES 2: 109-13 Channel top drawn from the Feb 1 low
- RES 1: 109-09+ 50-day EMA High Apr 10 and intraday high
- PRICE: 108-23+ @ 1210 ET May 3
- SUP 1: 108-10 20-day EMA
- SUP 2: 107-04 Low Apr 25
- SUP 3: 106-27 2.764 proj of Dec 27 - Jan 19 - Feb 1 price swing
- SUP 4: 106-09 Base of a bear channel drawn from the Feb 1 low
Treasuries have rallied following today’s NFP release. The move higher strengthens a bullish S/T set-up and signals potential for an extension of the correction. The contract is through the 20-day EMA and has tested resistance at 109-09+, the 50-day EMA. Price is also approaching 109-13, a channel top drawn from the Feb 1 high. Clearance of the 109-09+/13 zone would strengthen a bullish theme. Initial support lies at 108-10, the 20-day EMA.
SOFR FUTURES CLOSE
- Jun 24 +0.010 at 94.725
- Sep 24 +0.040 at 94.915
- Dec 24 +0.075 at 95.155
- Mar 25 +0.10 at 95.40
- Red Pack (Jun 25-Mar 26) +0.105 to +0.115
- Green Pack (Jun 26-Mar 27) +0.095 to +0.10
- Blue Pack (Jun 27-Mar 28) +0.090 to +0.090
- Gold Pack (Jun 28-Mar 29) +0.075 to +0.085
SOFR FIXES AND PRIOR SESSION REFERENCE RATES
SOFR Benchmark Settlements:
- 1M -0.00043 to 5.32241 (+0.00668/wk)
- 3M -0.00838 to 5.32755 (-0.00195/wk)
- 6M -0.02153 to 5.30693 (-0.00729/wk)
- 12M -0.04870 to 5.20872 (-0.03508/wk)
- Secured Overnight Financing Rate (SOFR): 5.31% (-0.01), volume: $1.838T
- Broad General Collateral Rate (BGCR): 5.31% (+0.00), volume: $703B
- Tri-Party General Collateral Rate (TGCR): 5.31% (+0.00), volume: $697B
- (rate, volume levels reflect prior session)
- Daily Effective Fed Funds Rate: 5.33% (+0.00), volume: $83B
- Daily Overnight Bank Funding Rate: 5.32% (+0.00), volume: $268B
FED Reverse Repo Operation
NY Federal Reserve/MNI
- RRP usage rises to $450.165B vs. $428.680B Thursday. Compares to $327.066B on Monday, April 15 -- the lowest level since mid-May 2021.
- Meanwhile, the latest number of counterparties holds steady at 70.
PIPELINE
Slow start to May with less than $5B this week as issuers sidelined ahead the FOMC, April employment data risk as well as the ongoing corporate issuance blackout.
EGBs-GILTS CASH CLOSE: Bull Steeper On Soft US Jobs Data
The German and UK curves bull steepened to close a busy week amid soft US data.
- After fairly subdued trade in the morning, with Eurozone unemployment steady as expected, Bunds and Gilts surged in early afternoon after US job gains and hourly earnings missed expectations.
- Short-end instruments outperformed on the curve, as implied 2024 cut pricing jumped for both the ECB (from 70bp coming into the session, to 78bp at one point, before closing at 74bp) and BoE (46bp to 58bp to 53bp).
- While the moves partially faded by the cash close, Gilts modestly outperformed Bunds for a second consecutive session.
- Periphery EGB spreads tightened alongside the more dovish central bank easing outlook. Note that Italy is scheduled to be reviewed by Fitch after hours; a negative outlook action is possible but not expected.
- Next week's schedule includes German industrial data and the BoE meeting.
Closing Yields / 10-Yr Periphery EGB Spreads To Germany
- Germany: The 2-Yr yield is down 6.6bps at 2.924%, 5-Yr is down 5.7bps at 2.514%, 10-Yr is down 4.6bps at 2.495%, and 30-Yr is down 2.6bps at 2.619%.
- UK: The 2-Yr yield is down 7bps at 4.356%, 5-Yr is down 7bps at 4.103%, 10-Yr is down 6.4bps at 4.222%, and 30-Yr is down 5bps at 4.7%.
- Italian BTP spread down 0.6bps at 131.7bps / Spanish down 0.4bps at 77bps
FOREX USD Index Remains Weaker Despite Post-Payrolls Recovery
- The US employment report showed broad weakness in April with a below consensus NFP, a higher unemployment rate and softer average hourly earnings. This prompted sharp greenback weakness across global markets, most evident for USDJPY which sold off around 130 pips to a fresh three-week low of 151.86.
- The pair closely matched the first major support since the suspected BOJ intervention earlier in the week at 151.91 (50-dma) - which also coincides with solid support at 151.95, the 2022/2023 (and briefly 2024) highs.
- Following a decent bounce of these levels, a stronger prices paid component within the ISM services data assisted a more pronounced recovery for USDJPY and stabilised overall greenback sentiment.
- Healthy price action for equity markets amid bolstered Fed rate cut pricing for 2024 have helped AUD and NZD outperform in G10, both rising around three quarters of a percent, only shadowed by the Norwegian Krona, which has advanced 1.2% on Friday following a relatively hawkish Norges Bank earlier in the session.
- AUDUSD traded firmly higher Friday and in the process breached resistance at 0.6587, the Apr 29 high. The break of this hurdle cancels a recent bearish threat and highlights a resumption of the bull leg that started Apr 19. This opens 0.6668, the Mar 8 high.
- Slightly more subdued price action for EURUSD, however, today’s 0.35% rally has improved the short-term technical set-up. The pair has cleared the 20- and 50-day EMAs. This signal scope for a continuation near-term and attention turns to the bear channel top at 1.0857.
- Holidays in both Japan and the UK on Monday places the short-term focus on central bank decisions in Australia and the UK later in the week, as well as a host of EM central bank meetings.
MONDAY-TUESDAY DATA CALENDAR
Date | GMT/Local | Impact | Flag | Country | Event |
06/05/2024 | 0900/1100 | ** | EU | PPI | |
06/05/2024 | 1530/1130 | * | US | US Treasury Auction Result for 26 Week Bill | |
06/05/2024 | 1530/1130 | * | US | US Treasury Auction Result for 13 Week Bill | |
06/05/2024 | 1650/1250 | US | Richmond Fed's Tom Barkin | ||
06/05/2024 | 1700/1300 | US | New York Fed's John Williams | ||
07/05/2024 | 2301/0001 | * | UK | BRC-KPMG Shop Sales Monitor | |
07/05/2024 | 0030/1030 | *** | AU | Retail trade quarterly | |
07/05/2024 | 0430/1430 | *** | AU | RBA Rate Decision | |
07/05/2024 | 0545/0745 | ** | CH | Unemployment | |
07/05/2024 | 0600/0800 | ** | DE | Manufacturing Orders | |
07/05/2024 | 0600/0800 | ** | DE | Trade Balance | |
07/05/2024 | 0645/0845 | * | FR | Foreign Trade | |
07/05/2024 | 0730/0930 | ** | EU | S&P Global Final Eurozone Construction PMI | |
07/05/2024 | 0830/0930 | ** | UK | S&P Global/CIPS Construction PMI | |
07/05/2024 | 0900/1100 | ** | EU | Retail Sales | |
07/05/2024 | 1255/0855 | ** | US | Redbook Retail Sales Index | |
07/05/2024 | 1400/1000 | * | CA | Ivey PMI | |
07/05/2024 | 1530/1130 | US | Minneapolis Fed's Neel Kashkari | ||
07/05/2024 | 1530/1130 | * | US | US Treasury Auction Result for Cash Management Bill | |
07/05/2024 | 1700/1300 | *** | US | US Note 03 Year Treasury Auction Result | |
07/05/2024 | 1900/1500 | * | US | Consumer Credit |