Ahead of the Jobs Data

The US dollar is mixed in quiet trading ahead of the US jobs report. With some risk-taking is returning to the markets on the back of data this week suggesting that the pace of the slowdown may be moderating and this is lending support to the euro and sterling and weighing on the yen and Swiss franc. The general consolidative tone that emerged near midweek remains intact. The US employment data is seen by many as the likely signal of the near-term direction, but as we review below, over the last three months the market’s disappointment has not been consistently been reflected or expressed in the dollar’s performance.

Global equity markets are finishing the week on a firm note after having suffered in August. The MSCI Asia-Pacific Index advanced about 0.5%, led by the tech sector. The benchmark is up 2.5% on the week. Of note, the 1.8% rise in the Philippine stock index puts it at a 3-month high while Indonesia’s 1.3% rise is sufficient to put it at a new record high. European bourses are generally around 0.5% higher. Their ability to hold on to the gains which are cap a good week (Dow Jones Stoxx 600 up 3.25%), depends heavily on the reaction to the US jobs data. Technology and financials are among the strongest sectors. The FTSE has been the best performing G7 equity market this week, advancing 4.6% as of midday in London. The Nikkei’s 1.4% rise puts it at the bottom.

Bond markets are slightly heavier with G7 sovereign 10-year yields mostly 1-2 basis points higher. Japanese government bonds suffered their largest weekly loss in a couple of years. The 10-year yield rose 15 bp to 1.135%. Peripheral European spreads are mostly quiet. Modest narrowing has been generally recorded this week, consistent with the improved appetite for risk noted elsewhere. In terms of policy, Indonesia’s central bank kept rates steady but did lift reserve requirements.