Holiday Note: US Jobs Day

Overview:  Most financial centers are closed for the holiday today.  Those markets that were open in the Asia Pacific region, like Japan, China, and South Korea, advanced.  US equity futures are also higher after the S&P 500 reached a new record, and the NASDAQ gapped higher.  The cash market is closed today, but the bond market will have a shortened session.  On the week, the 10-year benchmark yields in the US and Europe are a little softer but jumped 15 bp and 13 bp in Australia and New Zealand, respectively.  The US dollar continues its slightly weaker bias that has emerged over the past few days.  For the week, it is mixed. The Norwegian krone's 0.6% gain leads the majors, followed by the New Zealand dollar's 0.4% gain and sterling's 0.35% rise. The Swedish krona (~-0.85%) and Japanese yen (-0.7%) have been the weakest performers. We note that key levels in the euro ($1.17) and against the yen (JPY111.00) were held.  Among emerging market currencies, there are two to note. The Turkish lira is up about 1.2% to turn higher for the week.  The greenback gave back about 1% this week after surging over 12% in the prior week. The South Korean won rose 0.4% today, which was also sufficient to turn it higher on the week (~0.15%), ostensibly helped by the US chip summit on April 12.  JP Morgan's Emerging Market Currency Index has a firmer tone and is poised for the third day of gains.  It is up about 0.6% for the week, and it is the third weekly advance of the past four.  Gold is marginally extending the nearly $45 rally over the past two sessions.  It bottomed near $1678 earlier this week and is now above $1730.  The $1750-$1755 area is of technical importance.  Crude oil futures are closed but took the unexpected news that OPEC+ will gradually boost output in the coming months as well, and the May WTI contract settled $2.3 higher yesterday to $61.45.  This turned it higher for the week, the first advance after a three-week fall.  

US Employment: The US stock market is closed today, and the bond market has an abbreviated session.  The release of the monthly jobs report while the stock market is closed has happened about a dozen times since 1980.  The lack of participation could inject extra volatility, and especially if the data disappoints.  The stimulus and the vaccine rollout are spurring optimism and the estimate for today's non-farm payroll gain appears to be creeping higher.  The Bloomberg survey's median forecast is for a gain of 660k in a range of 232k to 1.1 mln.  The unemployment rate stood at 6.2% in February and is expected to have fallen to 6.0%, though some see it declining more.  Recall that the US lost 1.6 mln jobs in March 2020 as the pandemic struck.  The employment data often sets the tone for the other high-frequency economic readings in the month.  The PMI and ISM also point to an acceleration of economic activity.  

OPEC+:  Last month, OPEC+ surprised the market by taking no fresh initiatives.  Now this time, they surprised by agreeing to phase in an increase in output over the next three months.  Reports suggest Saudi Arabia was the instigator.  Oil producers will boost output by 350k barrels per day in May and June and 440k bpd in July.  In addition, Saudi Arabia had unilaterally reduced its output by 1 mln bpd and will be gradually bringing that output back online as well.  That roughly doubles what OPEC+ is doing collectively.  Clearly, it reflects a constructive outlook.  Estimates that commercial flights are at their highest level since the contagion hit is indicative of the re-opening.  Also, US auto sales surged last month.  The 17.75 mln vehicles sold at a seasonally adjusted annual rate blew past expectations (~16.4 mln) and is the most since 2017.  

Chip Summit:  The Biden Administration will host a meeting on April 12 to discuss the shortage of semiconductor chips that hit automakers particularly hard.  Estimates suggest the shortage could lower global auto output by a million vehicles this year.  We make two observations.  First, Biden's multilateral approach means that foreign companies have been invited, but also the limited domestic capacity also necessitates a broad approach.  Second, the summit is being led by the National Security Adviser Sullivan.    Few accounts of the chip shortage in the US press recognize the role that sanctions against China's Huawei and SMIC have played to exacerbate the chip shortage.  The experience is going to encourage the US (and Europe) to develop their own chip-fabrication supply (re-shoring, import-substitution).  In recent weeks, TSMC and Intel have announced large investment projects.  Note that Sullivan is also meeting with South Korean and Japanese officials today to discuss coordinated efforts to address North Korea, which has reportedly launched a new kind of ballistic missile and has spurred the Biden Administration's offer to talk.  Japanese press reported that Japan's Prime Minister Suga will likely visit the US in mid-April and become the first foreign official to do so.  This is seen as part of the Biden administration's emphasis on Asia and confronting China. As we have noted, Japan was the only G7 country to participate in the latest round of sanctions against Beijing for human rights violations in Xinjiang.  It will be interesting to see if Japan announces actions before or just after the meeting.  

FX Prices:  The light participation may limit the price action after the US employment report.  The euro held above $1.17 but has not been able to get back above $1.18 this week.  There is a 1.1 bln option struck there that expires Monday.  The dollar was stopped just shy of JPY111 earlier this week.  There is a $215 mln option there that expires today.  Support is seen in the JPY109.85-JPY110.00 area now.  Sterling made a marginal new high for the week, a little above $1.3850.  Last week's high was closer to $1.3875.  Initial support may be found around $1.38. The US dollar also slipped to a new low for the week against the Canadian dollar today, a little below CAD1.2530.  However, it is little changed on the day now near CAD1.2560.  The CAD1.2600 offers the nearby cap.  The Australian dollar tested a three-day high a touch above $0.7635 but stalled.  If the Aussie cannot get above that area, it is looking at its third consecutive weekly loss, the longest losing streak since January 2020.  The dollar fractionally extended yesterday's loss against the Mexican peso and eased through the March low (~MXN20.2830). Without recovering today, the greenback is looking at its fourth consecutive decline against the peso. The dollar was practically unchanged against the Chinese yuan today but has gained about 0.35% against it for the week, the sixth consecutive weekly gain.  The PBOC's reference rate has not deviated significantly from market anticipation.  The active dollar-yuan swaps that some see as covert intervention do not seem necessary to explain the yuan's recent weakness.  Market forces that have lifted the dollar broadly are also at work against the yuan.  If anything, in the current context, the PBOC is guilty of not leaning against market forces.  

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