Nervous markets to monitor North American jobs data

Overnight Headlines

*US yields climb to 1.75% as markets grapple with rate hike, Fed balance sheet

*Gold heads for biggest weekly loss in six on hawkish Fed minutes

*Asia stocks trade mixed as markets await monthly jobs data

*Eurozone flash HICP figure is expected to ease to 4.7%

US equities initially rebounded in early trade but failed to hold on to gains by the close. Higher yields saw cyclical value trades outperform with the Dow and S&P500 both closing modestly lower. Rotation is still the major story with energy and banks contrasting with tech underperformance. Asia is eking out some gains while futures are similarly modestly in the green.

USD continues to trade in a narrow range with EUR still tracking around 1.13. Rangebound markets do eventually break out and the longer the sideways trade, the more expansion we should see. EUR/GBP moved higher but continues to close below 0.8350. USD/JPY printed a narrow “inside” day consolidating just below 116. AUD and NZD lead the declines this week.

Market Thoughts –NFP Day

The first Friday of the month means we get the main US jobs data. Consensus expects a headline print of 426k, so potentially more than double the prior disappointing 210k reading in November. The unemployment rate is forecast to decline from 4.2% to 4.1%, which would be the lowest since February 2020 (3.5%). Average hourly earnings are set to remain robust at 0.4% M/M and 4.1% Y/Y. Other employment numbers have been buoyant with solid weekly initial jobless claims and bumper ADP growth on Wednesday, though the latter is fairly unreliable indicator.

The Fed has laid its cards out in its latest minutes. There’s an 80% chance of a rate hike in March and equity markets have been spooked. The dollar should be well supported by inline data or a beat for sure, while dip buyers will be out in force on a miss. Economists will be looking out for another increase in the participation rate, which could signal that labour shortages are easing.

Chart of the Day – USD/CAD buffeted by risk backdrop

We also get Canada jobs numbers at the same time as this afternoon’s NFP. CAD got roughed up on Wednesday’s FOMC minutes and remains sensitive by the broader risk mood, even as oil marches north. The market is actually assigning the BoC with more chance of a March hike than the Fed (22 bps) with more tightening through the year too. This should eventually offer support to the loonie going forward.

USD/CAD topped out again above 1.29 in mid-December like it did on a few occasions earlier in the year. Prices then fell below trendline support from the late October low and briefly below the 50-day SMA at 1.2685. The 100-day SMA has acted as support at 1.2624 and the pair has consolidated above 1.27. Resistance is 1.2810/15 where yesterday’s spike high failed around the July high.