US data continues to support front-end rates, and the USD
The USD continues to benefit from rising US yields, with the US 2-year Treasury rate breaking above 50bp on Thursday for the first time since calendar based forward guidance was first introduced in August 2011 and the 10-year yield posting new recent highs near 3%. Strong data continues to help fuel the move, with yesterday’s non-manufacturing ISM headline surging to post- 2005 highs and jobless claims declining more than expected. Meanwhile, market concerns about Syria intervention appear to be abating amid a lack of new information out of Washington. Things may heat up a bit next week when Congress reconvenes, with Senate majority leader Reid indicating he expects an initial vote on the use of force resolution to be held Wednesday. Still, we think a limited intervention in Syria is unlikely to generate a risk-off event on a scale sufficient to materially hurt the USD and we remain long USDCHF. As for today’s employment report, our economists expect to see a 170k increase in payrolls, slightly below the average pace of the last three, six and twelve months. The ADP report Thursday showed a 176k increase in private payrolls, consistent with our estimate, but the strong 57.0 reading on the ISM non-manufacturing employment component suggests risks to this jobs forecast may be somewhat to the upside.
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BNP Paribas