Credit Agricole

Asia overnight: Sentiment is stable ahead of the release of the US non-farm payrolls data. While investors in Chinese technology stocks still fret over further regulations, S&P 500 futures and most Asian bourses were trading higher at the time of writing. G10 FX was trading in tight ranges in the Asian session. There was some volatility in the JPY with PM Yoshihide Suga announcing that he will not be running for re[1]election as LDP President and will therefore be resigning as PM in late September and around the LDP Presidential election. The NOK and JPY were the weakest performers in the G10 in the Asian session and the AUD and NZD the strongest performers.

USD: QE taper is hard labour, indeed. The Fed’s growing focus on the US labour market outlook has elevated the already important NFP release to new heights on investors’ radar screens. Indeed, recent FOMC speeches have highlighted that the timing of QE taper will likely depend on the US employment outlook as well as the evolution of the pandemic. Ahead of the August NFP, market consensus is for further healthy gains in excess of 700k and a further decline in the UR to a fresh post-pandemic low of 5.2% while our team’s own forecast is for 650k on the headline print. Also today, focus will be on the services ISM and, in particular, its labour market component.

The big question remains whether the US employment data will be enough to push the Fed closer to policy normalisation potentially as soon as September. We think that even if the data comes in largely as expected, any Fed decision to taper could still hang very much in the balance ahead of the September meeting given the still considerable range of views at the FOMC and the recent path of the pandemic. Indeed, we think that it would take positive surprises from both the NFP and the ISM today to see the markets front loading their expectations about the timing of policy normalisation. In all, we continue to expect the USD to do well in the run of QE taper in coming months. As before, we prefer to express any bullish USD view via longs vs. the JPY and the CHF

CIBC

  • It is NFP time and after this week’s ADP, several forecasters have begun to lower their calls to tonight’s labour report. We, too, have lowered our NFP to 800k from 900k. My thoughts? I shared with couple of macro clients and some agreed payrolls will be weak, may possibly come in under 700k but if the unemployment rate improves plus higher average wage earnings, this could be still upbeat. Don’t trade the headline.

FX Flows

USDJPY tad weaker, especially after the Tokyo fixing. We are not seeing much, guess flows are all out of Japan. First test of the downside should be 109.60, then 109.40 and 109.20, where importers are rumoured to be. Japanese retail accounts who sold above 110.00 have started to collect their shorts and will add to longs beneath 109.50, I think. Several option strikes roll off today, largest at 110.00 for $1.3bn.