US jobs data to draw bruising, volatile week to close

Reuters London | Updated on January 17, 2018 Published on July 08, 2016


Stocks struggled for direction on Friday and US Treasury yields remained anchored close to this week's record low, marking their longest run of consecutive weekly declines in four years ahead of the latest US unemployment report.

The data is expected to show solid job creation in June, but worries over the world economy following Britain's vote to leave the European Union and a deepening crisis in Italian banks continue to sour investor sentiment globally.

Consumer confidence

The first measure of UK consumer confidence since the Brexit referendum two weeks ago showed the steepest decline in morale in more than five years, according to research company GfK on Friday.

News that snipers killed five police officers during rallies in the US city of Dallas to protest against the fatal shooting of two black men this week also helped to keep markets in narrow ranges ahead of the June non-farm payrolls report.

US Treasury yields

The 10-year US Treasury yield fell 1 basis point to 1.37 per cent, on course for a run of seven weekly declines - something not seen since mid-2012 - and close to Tuesday's record low 1.32 per cent.

Europe's FTSEuroFirst 300 index of leading shares was flat in early trade at 1,277 points, on track for its biggest weekly loss in five months, MSCI's global stock index slipped 0.1 per cent and Asian shares ex-Japan lost 0.4 per cent.

Japan's Nikkei fell 0.9 per cent as the yen strengthened, and US stock futures pointed to a slight rise at the open on Wall Street of around 0.1 per cent.

June jobs data

Market attention turned to the June jobs data, which is expected to show job growth of 175,000 last month and a slight pick-up in wage growth. But investors remained wary given the unexpected negative surprise in May.

“If we see another weak print, then the risk-off mood that prevailed at the start of the week is likely to return with a vengeance,” Rabobank analysts said in a note to clients on Friday.

“Indeed, an 'impossible and ridiculous' call such as 1.00 per cent 10-year US Treasuries would start to look all too possible and extremely plausible. In short, a trapdoor is likely to open underneath bond yields, taking us ever-deeper into ultra-low/negative territory on a global basis,” they said.

Yield curve flattens

Though strong payrolls data would spark fresh speculation of a US rate increase later this year, it would also trigger a fresh round of currency weakness and likely policy tightening in emerging markets.

Fed funds futures pricing shows that no US rate increase is expected for at least a year, and that there is even a greater likelihood of a cut in the coming months than a hike.

In currencies, the dollar remained under pressure against the backdrop of low Treasury yields and the flattest US yield curve in almost nine years. A flat curve - the narrowing of the difference between 10- and 2-year yields - is a harbinger of slowing growth, low inflation and low interest rates.

Dollar vs yen

The dollar fell 0.2 per cent against the Japanese yen to 100.55 yen, with the selling momentum once again fading on the approach to 100.00. The yen is often seen as a safe-haven currency in times of distress.

Japanese bond yields plunged to fresh record lows, with the 10-year yield touching -0.288 per cent.

The euro rose 0.2 per cent to $1.1080 and sterling rose 0.3 per cent to $1.2950, about a cent and a half above its 31-year low of $1.2798 touched on Wednesday.

The pound is still on track for its third weekly decline and is down 13 per cent against the dollar since the June 23 Brexit vote. That's on a par with the biggest declines in modern history among the world's top four currencies.

“If sterling had overshot then we would have come back to the mid-$1.30s. But we haven't,” said Simon Derrick, head of global currency strategy at Bank of New York Mellon in London, adding that a fall to $1.20 or even below wouldn't be a surprise.

Crude oil

Oil prices recovered from Thursday's 5 per cent slide to two-month lows on the back of weekly crude stocks data, but were still on course for a fall of around 7 per cent on the week.

Brent crude futures were last up almost 1 per cent at $46.85 and US crude was up a similar amount at $45.56.

Spot gold edged down 0.3 per cent on Friday to $1,356 an ounce but is set for its sixth consecutive weekly gain.

US-based funds invested in precious metals attracted the most money since February, adding $2 billion to these funds in the latest week, according to Thomson Reuters' Lipper data.

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Published on July 08, 2016
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