Focus Turns to Non-Farm Payroll after Vague Progress in US-China Trade Talks

Yen is trading softer in otherwise quiet markets today with Hong Kong and China on Holiday. Yen is indeed also the weakest one for the week following rebound in global treasury yields. For now, Swiss Franc is the second weakest for the day, followed by Dollar. Sterling is again strong one in Asian session but it could face some selling pressure again later in the day. Australian Dollar is also firmer, in established range.

Developments regarding US-China trade negotiations remained pretty much the same. News are positive with concrete details. A deal is told to be likely soon, but without specifying how soon is soon. Across the Atlantic, works are in progress to avert no-deal Brexit as April 12 cliff edge looms. Market focus would turn to job data from US and Canada.

In Asia, Nikkei is currently up 0.32%. Singapore Strait Times is up 0.18%. China and Hong Kong are on holiday. Japan 10-year JGB yield rose 0.010 to -0.029. Overnight, DOW rose 0.64%. S&P 500 rose 0.21%. NASDAQ dropped -0.05%. 10-year yield dropped -0.005 to 2.512, staying above 2.5 handle.

Trump: China trade deal in four weeks, or maybe less, maybe more

While there seems to be progress made in US-China trade negotiations, they’ve yet reached a concluding stage. No Trump-Xi summit was announced at the meeting in the Oval Office with Chinese Vice Premier Liu He. Trump said: “We’re getting very close to making a deal. That doesn’t mean a deal is made, because it’s not, but we’re certainly getting a lot closer.”

At the time same, he repeated his vague languages regarding the timing of a deal. “And I would think with, oh, within the next four weeks or maybe less, maybe more, whatever it takes, something very monumental could be announced.

Trump added that “some of the toughest things have been agreed to”, and “we’ve agreed to far more than we have left to agree to”. “We have to make sure there’s enforcement. I think we’ll get that done. We’ve discussed it at length,” he added..

It’s equally vague on the Chinese side. President Xi Jinping told Trump, through Liu, that “I hope the two sides’ trade teams can continue working in the spirit of mutual respect, equality, and mutual benefit to resolve each other’s concerns, and finish negotiations on the text of the China-U.S. trade agreement soon.” Yet, there was no indication on how “soon” is being soon.

Confirmatory Brexit referendum to be included as option in May’s deal with Corbyn

UK Prime Minister Theresa May and opposition Labour leader Jeremy Corbyn held another day of productive (as described by Conservatives) and technical ( as described by Labour) talks on Brexit. No conclusion was made yet and discussions will continue on Friday. May will need to bring back her plans to a EU summit on April 10, just two days before the April 12 cliff edge, if UK is to avoid no-deal Brexit.

Corbyn told Labour MPs that “agenda items were customs arrangements, single market alignment including rights and protections, agencies and programmes, internal security, legal underpinning to any agreements and confirmatory vote.” It’s reported that in accordance with Labour’s demands an option on confirmatory referendum on any Brexit deal would be tabled in any vote next week. That would be included in May’s letter to Corbyn on Friday, outlining the agreement. But such a move would definitely trigger blackslashes from pro-Brexit Conservatives.

In the House of Lords, Pro-Brexit members were accused of filibustering to block the bill that blocks no-deal Brexit. The Yvette Cooper bill, which would require the PM to request an article 50 extension and avoid a no-deal Brexit, will remain with the Lords until Monday. It was originally intended to be fast-tracked through the Lords by the end of Thursday.

Non-farm payrolls preview: Solid but uninspiring numbers expected

US Non-Farm Payrolls report will be the major focus for today. Markets are expected 175k job growth is March, a solid rebound from February’s terrible number of 20k. Unemployment rate is expected to be unchanged at 3.8%. Average hourly earnings growth is expected to slow to 0.2% mom.

Looking at other employment related data, the employment component of ISM manufacturing rose notably from 52.3 to 57.5. That of ISM non-manufacturing also increased from 55.2 to 55.9. However, ADP employment was rather disappointing, at 129k versus expectation of 184k. Four-week moving average of initial jobless claims dropped to 213.5k. However, Conference Board consumer confidence dropped from 131.4 to 124.1.

All in all, other data suggest that February’s disaster won’t extend into March, even though there might still be downside surprise. Meanwhile, there is prospect of upside surprise in upward revision in February’s number.

Reactions could now be rather tricky. Stock investors might like to see a set of numbers that’s not strong enough to push Fed for a rate hike this year. And such relief could also lift treasury yields and then Dollar. Another set of weak number will highlight the underlying vulnerability in the economy. Even though that might add to the case of a Fed cut, the worries could overwhelm and send stocks, yields and Dollar lower.

Here are some suggested readings on NFP:

• NFP Preview: Potential For A Upside Beat…But Will Traders Care?
• US Jobs Growth to Pick Up; Wage Growth to Remain Robust

Elsewhere

Australia AiG performance of construction index rose slightly to 45.6 in March, up from 43.8. Japan overall household spending rose 1.7% yoy in February, versus expectation of 2.0% yoy. Labor cash earnings dropped -0.8% yoy versus expectation of 0.8% yoy rise.

German industrial production and Swiss foreign currency reserves will be featured in European session. US NFP is a major focus for today. But let’s not forget Canadian employment data too.

USD/JPY Daily Outlook

Daily Pivots: (S1) 111.27; (P) 111.42; (R1) 111.65; More…

Intraday bias in USD/JPY remains on the upside as rise from 109.71 is in progress for 112.13 resistance. Decisive break of 112.13 resistance will resume whole rise from 104.69 to 114.54 key resistance next. On the downside, however, break of 111.18 minor support will argue that rebound from 109.71 might be completed. Intraday bias will be turned back to the downside for 109.71, and possibly further to 38.2% retracement of 104.69 to 112.13 at 109.28.

In the bigger picture, medium term outlook in USD/JPY remains a bit mixed as it’s staying inside falling channel from 118.65, but there are signs of bullish reversal. On the upside, break of 114.54 resistance will revive the case the corrective fall from 118.65 has completed with three waves down to 104.69. And whole rise from 98.97 (2016 low) is resuming for 118.65 and above. But before that, outlook stays neutral first.

Economic Indicators Update