Global Markets Update Ahead of the US Jobs Data

The US dollar is mixed ahead of the monthly jobs data. It is generally consolidating yesterday’s losses against the European currencies and Japanese yen, while slipping against the dollar-bloc. The increased concerns about the trajectory of growth, especially in the US and China at the same time that successful bond auctions and refi operations in the euro zone generated a positive news stream provided fuel in recent days for a recovery in the euro and sterling that was already under way. Meanwhile, the unwinding of risk-on trades and the narrowing of interest rate differentials helped underpin the yen. At this juncture, it would seem to take a significant upside surprise in today’s US employment report to reverse the near-term trends.

Asian equities were mixed, though the MSCI Asia-Pacific Index was off about 0.4% to finish the week down 3.6%. The Nikkei eked out a little more than 0.1%, but Shanghai was up 0.4%. The Taiex was the regional leader up a little more than 1% and Taiwanese financials led the way with a 3.4% rise. The Hang Seng was the region’s biggest loser, dropping 1.1%, with basic materials and oil and gas posting outsized losses. European bourses opened higher but have made little progress in either direction, perhaps awaiting directional cues from the US market later. Commodities, industrials and financials are more than offsetting the decline in telecoms, health care and consumer goods today.

Bond markets are trading quietly. JGBs fell for the first time since the start of the week. The 10-year yield reached a 7-year low this week, but the market is reluctant to push the yield below 1%. Next week brings fresh supply. Calmer markets and the supportive news stream have seen peripheral European bond premiums narrow. Even Italian bond yields have fallen although the government reported deterioration in finances (June budget surplus of 4.3 bln euros down from 6.2 bln euros last year.