Payrolls Day
The Bank of Japan kept monetary policy settings entirely unchanged overnight – there was no change to APP purchase targets, and no change to the older Rinban JGB-buying operations. USDJPY fell the customary 15 pips afterwards, but future direction from here will depend on which side of consensus today’s employment numbers land. The political calendar is an additional complication this time, introducing scope for a two-phase reaction in the yen. A weak payrolls headline would likely send USDJPY lower initially on the assumption that it raises the risk of further Fed easing. However, if the unemployment rate is higher than expected too, USDJPY could soon recover, given the implications for the US Presidential election outcome. Our US economics team expects non-farm payrolls to increase only by 85k (cons. 115k) and the team is inline with consensus as far as the unemployment rate is concerned. The minutes of the September FOMC meeting offered little in terms of new information. The Nordic currencies outperformed in the European session, August manufacturing output in Norway rose +0.9% m/m vs consensus -0.4% – strong numbers, but also a volatile time series. Reuters reported its sources as saying the ECB’s OMT plan would be to buy heavily in the markets for on to two months, then stop for an assessment of its impact. The Bundesbank was also reported as saying that it will participate in the program, despite its opposition. Elsewhere overnight, two of Australia’s ‘Big 4’ commercial banks announced they would not pass on the full 25 bp of easing the RBA announced on Tuesday. In both cases, standard variable mortgage rates are to be lowered by only 20 bp. This fits with a continuing theme whereby the RBA finds itself forced to cut by more than it otherwise would, just to deliver the same amount of easing to the real economy. We stay short AUDUSD as a trade recommendation via a 0.9975 strike AUD put/USD call digital option (March 14th, NY cut expiry).
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UBS Investment Bank