Payrolls Due
Activity was rather subdued overnight as markets await the upcoming payrolls report. The data in itself is important, but markets are already focused on how policymakers are going to react to a potential new leg lower in global growth. For example, during the Asia session, a failed BoJ Rinban operation was a sure sign that some investors are now positioning for a possible cut to the interest rate that the BoJ pays on reserves. This sounds unlikely to us, but it is natural that speculation of this nature should arise after the ECB’s decision to do the same yesterday. The failed auction indicates that JGB investors would rather hold onto their short dated bonds for another week, in the hope of selling at better levels after next week’s BoJ meeting. Otherwise there was little follow-through in Asia after yesterday’s policy easing by the ECB, BoE and PBoC. As such, the Fed’s stance will be of greater significance, but the FOMC will not act simply according to markets’ needs for a complementary step, especially if any such move is unlikely to deliver any strong marginal gains to the economy, either in the US or beyond. On the other hand, if payrolls numbers suggest that the US is still managing to insulate itself from the sudden decline in global growth conditions, then there is perhaps no reason to anticipate a fullyfledged slowdown yet. Already, better than expected US jobs-related data (June ADP employment up 176k; initial jobless claims) on Thursday helped calm sentiment, though other central banks like the ECB and PBoC will still need to focus on their own idiosyncratic conditions. The current move lower in both the euro and equity markets across the Eurozone points squarely at growth woes more than sovereign issues, as much as the two are becoming increasingly intertwined. Overnight EURUSD traded 1.2367-1.2401 and USDJPY 79.80-80.01. In addition to US payrolls, Canada will release its employment report (UBSe +10k, cons. +5k).
Click here to read the full report: UBS Morning Adviser America
UBS Investment Bank