Rates: Another strong payrolls report?
The August payrolls report marked the start of an impressive rally higher in US yields which culminated in technical breaks of the cycle highs at the long end of the curve earlier this week. We think the September labour market will deliver again today, confirming the breaks in the weekly close and breathing more life in the upleg.
Currencies: Will payrolls convince USD bulls?
Yesterday, the performance of the dollar was a bit disappointing given recent jump in US yields ad considering the global risk-off sentiment. Today, the focus will be on the US payrolls, especially on wages. We assume the report to be strong enough to keep the US currency well supported.
The Sunrise Headlines
- US equity markets moved south yesterday as rising bond yields ruffled investor confidence. NASDAQ (-1.81%) underperformed. Asian markets are continuing the US downwardly trend. Chinese markets remain closed today.
- Italy’s Finance Minister Tria has written a letter to the European Commission calling for “open and constructive” dialogue ahead of the budget discussions. Italy already cut its budget deficits for the next three years, though marginally.
- Mexico’s central bank has left its key lending rate unchanged at 7.75%, a nine-year high, this morning. The country’s inflation (4.9% in August) remains higher than the Bank of Mexico’s target range of 2-4%.
- US Vice-president Mike Pence has accused China of meddling in the US midterm elections, this November. He said China is using propaganda and influence operations to hurt voter’s perception of US President Donald Trump.
- In Brazil, the first-round presidential elections are held this Sunday. According to the official polls, far-right candidate Bolsonaro is taking a commanding lead with 35% support. Leftist Workers Party’s Haddad is second with 22% support.
- Household spending in Japan rose at the fastest annual pace in three years in August. Year on year spending rose 2.8%, from 0.1% in July. Analysts feared a slowdown but brisk summer bonuses and rising wages outweighed bad weather.
- Today’s eco calendar is rather empty but interesting nevertheless. In the US strong Payrolls and Hourly Earnings can support recent bond yield rally. For the EMU we have no important eco data, but ECB’s VP de Guindos speaks in Madrid
Currencies: Will Payrolls Convince USD Bulls?
Will US payrolls (wages) convince USD bulls?
Yesterday, key question was what Wedneday’s US Treasuries’ sell-off would mean for global markets and for the dollar. The dollar stayed in pole position, but early gains dwindled despite a negative risk climate (EM stress, equity selling). EUR/USD traded calm given the swings in other markets. There was no outright safe haven rush to the dollar. At the same time, the euro proved resilient, probably as Italy moved a bit to the background as a driver for (FX) trading. Data were second tier. The correction of US equities didn’t help the dollar much. EUR/USD closed the session at 1.1514 (From 1.1478). USD/JPY reversed Friday’s, interest rate driven spike and finished the day at 113.91. Overnight, Asian equities are mostly trading in the red, but losses are modest given yesterday’s correction in the US. Currencies like the INR, IDR and the KRW are holding near recent lows but there are no additional losses. Markets are looking out whether the Reserve Bank of India will step up the defense of the rupee and raise rates later today. EUR/USD hovers in the 1.15 area. USD/JPY is holding close to, slightly below 114. Today’s US payrolls will be the key driver from global (FX) trading in a daily perspective and might even be a MT-trendsetter. Payrolls growth is expected solid at at 185 000. We have no reason to take a softer view. The market focus will be even more on wage growth (AHE). Consensus expects 0.3% M/M and 2.8% Y/Y (from 0.4% M/M and 2.9% in August). A positive surprise (especially a print of the symbolic 3.0% level) could reinforce the rise in US yields. USD gains were moderate this week given the developments on other markets. Even so, we assume the payrolls to be strong enough to give the dollar downside protection. The EUR/USD break below 1.15 didn’t accelerate USD buying yet. This is slightly disappointing for USD bulls. Still, we give the USD the benefit of the doubt. A technical setback to the 1.13 area is still possible.
Yesterday, there were few important UK eco data and we didn’t see high profile Brexit news. Markets drew some comfort from headlines/rumours that the EU offials saw some positive elements in a new UK proposal on the Irish border. In technical trade EUR/GBP drifted lower in the 0.88 big figure. Today, there are only second tier UK data. We keep a neutral bias on sterling in a day-to-day perspective.
EUR/USD: holding near 1.15, awaiting guidance from the US payrolls
