BONDS: Modest Setback Action from Today's PMI a Buying Opportunity
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On the one hand, treasury prices have backed off from last week's highs, but they remain moderately above the last 2 months' consolidation low levels. On the other hand, depending on which economist you ask US scheduled data has been soft or mixed. While the First Republic Bank takeover and sale created a ripple of flight to quality interest in treasuries, that development has been largely anticipated and is unlikely to have a sustained impact on Treasury prices ahead. However, soft Chinese manufacturing data combined with reports of softening physical commodity prices inside China are a minor dovish development for the Fed to consider on Wednesday. However, with US Federal Reserve expected to announce their latest policy decision Wednesday afternoon, the trade will remain on edge with the treasury markets seemingly poised to embrace a rate hike as a development that increases the threat of slowing in the US. Therefore, today's US scheduled data from 2nd and 3rd tier data is likely to take on added importance. In our opinion, the most important scheduled data point today will be the US ISM Manufacturing Prices Paid reading for April which is expected to post again which would be the 2nd highest reading since October. The 2nd most important scheduled data point today is likely to be the ISM Manufacturing Employment Index for April, which is expected to improve. However, the anticipated reading for the ISM jobs report would be a 3-week high but below the readings posted in the first 2 months of this year. From a technical perspective the spec trade in treasuries continues to reduce their net shorts which could slow upside action as stop loss buying diminishes. On the other hand, a return to the 5 highs posted above 134-00 in June bonds ahead we see Treasuries forging a major top in prices with both speculators and hedgers selling into what has been a broadening top. The April 25th Commitments of Traders report showed Bonds Non-Commercial & Non-Reportable traders net bought 22,635 contracts and are now net short 29,761 contracts. For T-Notes Non-Commercial & Non-Reportable traders are net short 646,132 contracts after net buying 8,394 contracts. The North American session will start out with final April manufacturing PMI readings from the US and Canada, both of which are expected to have modest upticks from their previous readings. The April ISM manufacturing index is forecast to have a modest uptick from March's 46.3 reading. March construction spending is expected to have a mild uptick from February's -0.1% reading. Earnings announcements will include Stryker and Vertex Pharmaceuticals after Wall Street close.
Today’s Market Ideas
Even though there have been some positive US economic readings released over the last several weeks expectations for the US nonfarm payroll reading from last month on Friday call for a very small gain of only 181,000 jobs which would be the smallest gain since January 2020! In fact, over the weekend J.B. Hunt trucking predicted a recession, but that should be offset by what is predicted to be generally positive ISM manufacturing readings for the US later this morning. We see resistance limiting the June bond contract this morning at 132-23 but would not be surprised to see a return to the January/February and early April highs after Friday's nonfarm payroll report.