Payrolls Friday – soft landing?
OVERNIGHT NEWS
# Risk mood positive as markets shrug off China’s military-fire drills over Taiwan. Dollar steadies after two weeks of decline, helped by hawkish Fed retuning, US 10y capped by 2.70% before US payrolls.
# FOMC voter Mester reiterates Fed’s resolve to curb inflation to through rate hikes. She says the US economy is not in a recession and while she is yet to decide on size of September hike, it’s “not unreasonable” to hike until they go to “a little above 4%”.
# Day ahead: US NFP: SG forecast 225k, consensus 250k, range 50k-300k. Fed speaker Barkin, BoE’s Pill, Canada employment, Romania rate decision: SG forecast +100bp to 5.75%.
# India: RBI raises repo rate by 50bp to 5.40% and retains FY23 GDP growth forecast of 7.2%. Governor Das calls for calibrated withdrawal of accommodation. USD/INR drops 0.5% to 79.05, 10y yield recovers 7bp to 7.22%.
# Nikkei +0.7%, EUR 10y IRS unch at 1.63%, Brent crude +0.4% at $94.5/b, Gold +1.5% at $1,790/oz
US NFP – employment growth slowing in July?
t was a typical pre-payrolls trading session overnight, with risk sentiment slightly on the softer side as we counted down into the data. As a reminder, Citi Economics calls for a 300k NFP print and 0.4%MoM AHE which is slightly above consensus expectations. Given Fedspeak guidance this week, the focus does seem to be more on inflation in the near term, so may limit moves in the weekend. Otherwise, we continue to keep a close eye on crude oil prices, as we look for weekly confirmation on bearish technical breaks.
Overnight, Taiwan headlines continued to be in focus as China issued further countermeasures – stay tuned to see how the US will respond to this, as USDCNH could become sensitive to this. There are a number of local developments to monitor too. CAD sees double payrolls risk today with Citi Economics calling for a 30k increase in employment vs 15k consensus expectations. GBP continues to see BoE speakers double down on Thursday’s message, while the RBA SoMP saw interesting forecasts. Otherwise, the RBI surprised with a 50bps rate hike, while the rest of Asia FX was lifting by the likes of CPI beats and broader risk sentiment.
Chart of the Day
WTI at huge pivot point to the downside – IF The Shoe FITZ: Crude Awakenings and Curve Balls
Gilts twist flatten after BoE hikes 50bp, but warns of recession from 4Q22; GBP/USD recovers from post-BoE sell-off due to broad USD weakness; USTs twist-steepen before July Employment data; CNB keeps policy rate at 7.00%; Brent crude extends decline to ~$94/bbl; US 10y at 2.688% (-1.6bp).
Latin America:
Improved risk appetite and a weaker USD provided significant support for Latam currencies, which ended the session stronger. BRL was the region’s top-performing currency, appreciating ~1.3% despite a relatively dovish BCB statement. CLP appreciated ~1%, supported by stronger copper prices and the BCCh’s ongoing intervention program. In contrast, COP was the region’s laggard, appreciating ~0.4% as oil prices continued to fall. Latam local rates extended their recent rally, mostly driven by global factors. Brazilian rates noticeably outperformed, as the BCB’s statement noted an increased focus on 2024 CPI expectations, a noticeably dovish development. January 2025 DIs rallied 40bp, to close at 12.11%.