Dollar Firmer After Soft Foreign Data

The US dollar is a bit better bid today ahead of the July jobs data, which apparently many believe is key to whether the Fed resumes its asset purchases next week. Softer than expected UK industrial output data and some last minute position squaring appears to be the main driver of the price action, which may be best characterized as a consolidative to rather than some added significance.

The euro was confined to very narrow ranges that were extended largely in a knee jerk response to news that S&P withdrew its AAA rating for the Swiss National Bank. However as it became clear that the reason for this was that the SNB has not debt led the euro to recover, though that recovery was limited by the unexpected decline in German industrial output figures. Even sterling, which was sold off on data and the inability to push through yesterday’s highs, held above yesterday’s lows.

Canada reported a weaker than expected jobs report. There was a loss of 9.3k jobs while the market had expected an increase of 12.5k. More importantly, Canada lost whopping 139k full time jobs, after gaining 49k the previous month. It did grow almost 130k part time jobs.

Equity markets are generally firmer. The MSCI Asia-Pacific Index rose 0.4% to cap the week in which it rose a little more than 2%. That said, gains were seemed narrowly based with most markets outside of the greater China (China, Taiwan and Hong Kong) mostly lower. Favorable earnings reports have seen somewhat broader gains in Europe, with all the major bourses posting small gains. Commodities and financials are leading the way higher, consumer goods and services and utilities are softer.

Bond markets are mixed. The 10-year JGB yield rose 2 bp and is closing at it highest yield for the week (~1.05%). Core European bonds are mostly lower, including UK gilts despite the disappointing industrial production data. Peripheral spreads have generally narrowed 3-5 bp today. The 2-year US-German spread, which we have argued has been tracking the euro has stabilized this week, net-net moving a single basis point in the US favor, though the jobs report can change this.