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Markets awaits NFP as Treasury yields climb

Vantage Updated Updated Thu, 2024 January 4 11:08
Markets awaits NFP as Treasury yields climb


* Dow rises as Wall Street tries to shake off early 2024 malaise

* Markets pare ECB, BoE rate cut bets after stronger economic data

* German inflation jumps less than expected in boost for ECB, ahead of region’s CPI

* Noisy December non-farm payrolls unlikely to shift US rate dial

FX: USD closed modestly lower and sits just below 102.50 heading into NFP day. The greenback sold off in the European session before peaking after the softer initial jobless claims numbers and an ADP jobs data beat.

EUR popped up to 1.0972 as German and French CPI numbers saw an expected rise in the annual headline due to base effects. But the core and monthly prints were more in line with the disinflationary trend.

GBP closed narrowly higher after giving back bigger gains and a peak at 1.2729. The BoE is expected to cut rates in May while the Fed is priced to begin earlier in March. US jobs data could shift this and cause volatility in cable.

USD/JPY rose sharply for a third day of the new year. The yen is currently 2.5% weaker this week and nearing 145 from a multi-month low last week at 140.24. The 10-year Treasury yield closed at 4.00% which is three-week highs.

AUD fell for a fifth straight day, lagging again on choppy risk sentiment. USD/CAD printed a doji candle denoting indecision around 1.3350. Oil prices were lower as inventory data trumped geopolitical risk. Both North American countrys’ jobs data is released today.

Stocks: US equities were mixed and choppy with major data and positioning aligned. The S&P 500 lost 0.34% to settle at 4,689. The tech-laden Nasdaq 100 finished 0.53% lower at 16,282. The Dow eked out a small gain of 0.03% to close at 37,440.Financials were strong helping the Dow Jones index, as JP Morgan hit record highs ahead of earnings season next week. For the broader benchmark S&P 500, this is the worst start to a new year since 2015. Proft taking is the name of the game as the ultra-aggressive rate cut bets get pared by traders.

Asian futures are mixed. Stocks traded lower on the subdued global risk aversion. The ASX 200 was a relative outperformer with the energy sector cushioning losses. The Nikkei 225 came from the holiday period and caught up with losses across the region. The softer yen did help limit the downside.

Gold printed a narrow inside day after the steep losses seen midweek. Eyes are on yields and the NFP data today.

Day Ahead US NFP and Eurozone Inflation

The headline NFP is forecast to rise by 170k from the prior 199k. The jobless rate is likely to tick up one-tenth to 3.8%. Earnings are expected to increase 0.3% from 0.4% in November. Economists say the composition of jobs could be as important as the headline print as only three sectors have accounted for over 80% of the gains year to date. These are not in dynamic areas of the economy and so not particularly positive for growth.

Seasonal factors could add an element of jeopardy with unseasonal warm weather boosting some sensitive industries. An unwind from the returning auto workers boost in November is also forecast. An inline report shouldn’t upset rate cut expectations. That means a strong beat will be needed to shift current market policy easing bets. The odds of a 25bp March Fed rate cut have been cut to roughly 65% from above 85% just a week ago.

Chart of the Day EUR/USD finds support after weak start to 2024

We get eurozone inflation tomorrow ahead of the NFP report. The headline rate is seen ticking higher to 2.9% from 2.4% in November. This is down to base effects from last year’s government energy subsidies. So, it is not down to an underlying pickup in inflationary pressures. The core reading is expected to continue falling to 3.4% from 3.6%.

EUR/USD has dropped sharply since printing a multi-month top at 1.1139 a week ago. But the world’s most popular currency pair found a bid yesterday after five straight days of selling. Prices are hovering just above the midpoint of the December rally at 1.0931. The next support and Fib level (61.8%) is at 1.0882. Resistance above sits at 1.0980. There is a golden cross on the chart as the 50-day SMA has crossed above the 200-day SMA.