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The ADP said the US private sector added 235K jobs in December in a report ahead of tomorrow's official data release. The market expected an increase of 150k after a rise of 182K a month earlier. The ADP commented on the last report as a turning point, noting a decline of 100k in the manufacturing sector. This time, observers pointed to a jump in employment in small and medium-sized companies while large companies were downsizing. This is a typical story of small businesses being the first to adapt to changing conditions. Weekly jobless claims also came as a positive surprise. Initial claims fell to 204k against 223k a week earlier and an expected increase to 230k. The number of repeat claims fell from 1718k to 1694k, stabilising over the past five weeks. Wednesday's published job openings data also came in better than expected, showing 10.46 million openings - much better than the 10.0 million expected. The publication of robust data was further boosted by comments from Esther George, who said she had raised her benchmark rate forecast for this year above 5% and kept it at its peak until at least 2024. The bullish news set the dollar index up 0.75% in a couple of hours and is now trading near 104.80, its highest level since December 12. The technical picture is beginning to look more and more like the start of a new dollar momentum after the corrective pullback from late September to mid-December.

FX Daily: Markets steady ahead of final push on the debt deal After a long weekend in many parts of the world, FX markets are returning to mull progress on a US debt ceiling deal. This now has to pass the committee stage in the House and will probably go to a House vote tomorrow. Progress on the deal will allow investors to focus on sticky US inflation – likely seeing the dollar hold onto recent gains.   USD: Progress on debt deal allows markets to focus on another Fed hike After long weekends in many parts of the world, FX markets are returning to some progress on the US debt ceiling. President Joe Biden and House Speaker Kevin McCarthy have reached a two-year deal. That deal will be assessed by the House Rules Committee today and, if approved, will likely go to a vote in the House tomorrow. Both Democrat and Republican leaders feel they have the votes to get the deal through Congress – although at times like these, there may be a few holdout politicians who like their day in the sun.   Progress on the debt deal has seen some declines in yields for US Treasury Bills maturing in June, although it has had little impact on FX markets. We said last week that FX markets had already been trading in a de-stressed fashion on the assumption a deal would go through. Assuming there are no hiccups in the deal's passage, FX markets can return to the most pressing issue of sticky inflation and what central bankers plan to do about it.   Last Friday's US data set made the firm case for one additional 25bp Fed hike – now fully priced by the time of the 26 July meeting. Money markets price a 63% chance of that hike coming earlier at the 14 June meeting – a meeting which will likely see the Fed have to raise its inflation forecasts. The default view, therefore, seems to be that the dollar can hold its recent gains at least into that June meeting. That is unless US price and activity data start to fall away sharply.   On that front, this week sees US JOLTS job opening data (Wed), ADP (Thurs.), and the May NFP (Friday). Barring any major downside miss in these releases, it looks like the market will support another 25bp hike from the Fed, continued inversion in the US yield curve, and a strong/stronger dollar.   DXY looks comfortable above 104.00 and could extend recent gains to 104.65 or even 105.30 this week.    

The GBP/USD currency pair was traded with low volatility on Tuesday but still managed to move upwards, while the euro currency stood still and decreased more than it grew. Thus, even on a completely empty Tuesday, the pound sterling found reasons to start moving north again.   The price has re-fixed above the moving average and is still very close to its local maximums, which also coincide with the annual maximums. The British currency still cannot correct down properly, which is especially visible in the 24-hour timeframe. Occasionally, there are downward corrections on the 4-hour timeframe, but in most cases, they are purely formal.   The logic of the movements needs to be improved. Two weeks ago, when the Bank of England unexpectedly raised the rate by 0.5% for many, the pound did not grow. But yesterday, when it was a holiday in the States, it added about 40-50 points. The British economy is still weak and is holding out with the last of its strength not to slide into a recession.   US GDP exceeds forecasts by 0.7% and shows a value of +2% q/q. The Bank of England's rate continues to rise but is still lower than the Fed's. The British regulator can raise the rate several times but will likely stay within the Fed's rate. All this suggests that even if the dollar doesn't have strong reasons to grow now, it certainly has no reasons to fall. However, in most cases, we continue to observe the pair's growth. Only business activity indices in the manufacturing sectors can be highlighted for the first two days of the week. In the US and UK, the indices fell synchronously for June and have long been below the "waterline" of 50.0. Again, the pound did not have an advantage over the dollar due to macroeconomic statistics.     Thursday and Friday promise to be "stormy"! The week's most important events are concentrated in its last two days. Today, of course, the Fed's minutes will be published. In the European Union and Britain, the second estimates of business activity indices for June will become known, but all these are secondary data. It is unlikely that the Fed's minutes will surprise traders who are already confident in a rate hike in July, as well as after Jerome Powell's five speeches over the past weeks, in which he laid everything out. Therefore, the main movements are planned for Thursday and Friday, when the ISM, ADP, unemployment benefit claims, the number of job openings, NonFarm Payrolls, and the unemployment rate will be released in the US.   As we can see, almost all reports are related to the labor market, which the Fed continues to monitor closely, and which has a priority for the regulator and the market. However, even if the reports are disastrous (which is currently hard to believe), the Fed will not change its plans to raise the rate.   And for the GBP/USD pair, it doesn't matter at all. The pound grows for a reason and without. If statistics from overseas turn out to be weak, it will merely get a new reason to grow against the dollar. If the statistics from the US turn out to be strong, we will see a new pullback down, a maximum of 100 points, and the Fed's position on the rate will not change. Thus, the market's local reaction could be significant.   In the medium term, these reports will not affect the situation in the market. The average volatility of the GBP/USD pair over the last 5 trading days is 94 points. For the pound/dollar pair, this value is "medium." Therefore, on Wednesday, July 5, we expect movement within the range limited by levels 1.2612 and 1.2800. The Heiken Ashi indicator's reversal down signals a possible new downward movement wave.    

Rates Spark: The burning question is whether payrolls agrees with the ADP Moves yesterday took us to break-out levels for market rates. It does not feel like the move is over yet, and today's payroll report will have its say first. A weak report would look like a contradiction given the ADP, but payrolls are still the dominant driver. The market will also have an eye on US CPI next week.   A consensus-type outcome for payrolls will take market rates off their highs The latest report from ADP National Employment for June reported a 497k increase in US jobs. That is undoubtedly strong, and double the 250k average seen in recent months. Challenger job cuts also showed a slowdown in cuts, also pointing to resilience in the labour market. The American economy is fighting back, despite what the Fed has been up to. The 10yr is now at over 4%. We think it will stay above 4% over the coming weeks and potentially months. And the 2yr will hold on to a 5% handle, with a 100bp curve inversion being sustained. The inversion points to a reversal lower in market rates ahead, and a recessionary tendency. While that sounds unseemly given what we see in front of us, the rise in market rates will ultimately have its effect. But that’s not the focus for now – the focus is on taking out prior highs hit in this cycle for market rates. The Services ISM report confirmed that the situation popped higher in June. The employment component, which had dipped below 50 in the previous month, is now at 53.1. New orders rose to 55.5, and the overall index to 53.9. These are not particularly high readings, but importantly they are reversing some of the declines seen in previous months. Prices paid also eased lower, to 54.1. That in fact is a very tolerable outcome, as the long-run average for prices paid is 60. Market yields can be comforted by the calming in implied inflation expectations. But it can, at the same time, be a tad concerned that macro strength in the services sector could frustrate ambitions to get inflation materially lower in the coming months. So nothing here to reverse the tendency for yields to test higher. Get used to a 4% handle on the 10yr – it’s here to stay for a while. That said, we will need to see the payrolls report first. It's a June report, the same as the ADP. The question is whether it shows the same spurt that the ADP did. Often the correlation between the two is remarkably weak. But even if we get a consensus outcome in 200k plus territory that would not take market rates materially off their highs. For that, we'd need to see a material rise in the unemployment rate and a notable fall in wages inflation. Neither of these are expected. If we get a consensus-type report, it is possible that the market takes yields off their extremes into the weekend, but we'd still maintain that there has been enough in the past few days of data for any pullback to be reversed next week, and for the push higher in yields to continue.   2Y UST at 5%, 10Y at 4% and now eying cycle peaks   The week ahead will shine a light on the inflation side Data in the week ahead will shine a light on the inflation development in the US with CPI taking centre stage on Wednesday. The consensus is looking for the headline rate to drop to 3%, but given that this is mainly down to known base effects, it will likely be outweighed by core inflation remaining uncomfortably high at 5%. Persistent core inflation also means no let-up in Fed hawkishness. Nonetheless, there are also other indicators to watch which should point to declining pipeline pressures like the producer prices. Also, keep an eye out for the University of Michigan consumer sentiment survey and its inflation expectations measure.   In the eurozone, the main releases are the final CPIs as well as the European Central Bank accounts of the June meeting. Remember that the ECB all but preannounced another hike for this month. Given the disappointing macro backdrop and question marks surrounding the tenability of the ECB’s hawkish stance, markets will most likely scrutinise the accounts for any growing concerns about the underlying economy which could pave the way for a more heated debate between the hawkish and dovish camps. The balance sheet may feature given the targeted longer-term refinancing operations repayment, but we don’t suspect any discussion around extending quantitative tightening with asset purchase programme reinvestments having stopped just this month. UK jobs data, and in particular wages, will be a focus for sterling markets where the 6.50% terminal rate is now almost fully priced for the first half of 2024.   Today's events and market views All eyes are on US non-farm payrolls number today after the huge surprise in the ADP estimate. The consensus still stands at 230k, but Bloomberg’s whisper number, which compiles individual user estimates, has jumped to 270k. The unemployment rate is expected to ease back to 3.6% while average hourly earnings are seen to have risen by 0.3% month on month again. Unless there is a huge downside surprise, that would put the job market’s resilience into question. We think the 4% handle for the 10Y UST could accompany us for a while. The counter notion is that the sheer size of the move should call for at least some reversal, but if anywhere we would make that case for Bunds that got dragged higher alongside Treasuries. It also appears that fall-out for risk sentiment was more noticeable in EUR space, in sovereigns certainly with spread widening, which could add to the resistance against a further move higher.    

ADP shows 497,000 jobs created in June, biggest gains in over a year ISM Services Index makes 4-month high ISM Prices paid declined from 56.2 to 54.1, lowest since March 2020 US stocks extend losses after a hot ADP report and impressive ISM services report raised the odds the Fed might have to do deliver more rate hikes beyond the July FOMC meeting. The dollar pared losses as Fed rate hike odds rose on expectations the NFP report will deliver its 15th straight beat.   ADP The labor market is not loosening at all according to this ADP report.  The headline gain of 497,000 jobs was much higher than the forecast of 225,000 and well above the downwardly revised prior reading of 267,000 jobs.  Leisure and hospitality jobs surged 232,000 as summer job hiring supports the narrative that Americans will be vacationing a lot this summer.  The Fed’s rate hiking campaign is not yet crippling small and medium size businesses, but that should change going into the fall.  ADP Chief Economist Richardson noted, “Consumer-facing service industries had a strong June, aligning to push job creation higher than expected. But wage growth continues to ebb in these same industries, and hiring likely is cresting after a late-cycle surge”. The ADP report also includes coverage on wages, which showed year-over-year pay increase of 6.4%, which was down from 6.6% in May.    Jobless Claims Initial jobless claims for the week ending July 1st rose from 236,000 to 248,000, which was higher than the 245,000 consensus estimate.  Traders might not put a lot of weight with this weekly jobless claims report as it includes noise from the Juneteenth holiday and the summer auto closures.    Trade Data The May trade data showed the deficit narrowed from $74 billion to $69 billion as imports dropped 2.3% and exports weakened by 0.8%. The trade deficit won’t get a lot of attention but it does support the narrative that the economy is slowing down.    Fed Fed’s Logan noted that more rate hikes are necessary to combat inflation. Adding that a challenging and uncertain environment enabled a June pause. The data-dependent Fed will look at the labor market and that should support the case for much more tightening.   JOLTS The JOLTS report suggests the labor market is slowly weakening as job openings fell from 10.3 million to 9.824 million. The quits rate increased from 2.4% to 2.6%, which suggests people are confident they can get new work.   ISM Services Index The ISM Services report showed last month’s soft reading was not the beginning of a deteriorating trend. The ISM Services Index surged in June, rising to 53.9, significantly better than the prior reading of 50.3 and a 51.2 consensus estimate. Prices paid eased from 56.2 to 54.1. The employment component returned to expansionary territory at 53.1. This data suggest the economy still has a lot of strength. Treasury yields surged after the impressively strong ADP report and kept those gains post ISM services.     

Global stock markets edge lower amid pessimism sparked by the latest Fed minutes and contrasting employment figures from ADP and the US Department of Labor. Obviously, investors continue to be stirred up by the potential rate hikes by global central banks, primarily the Federal Reserve. The recent private sector employment data from the ADP, which indicated strong growth in new jobs, primarily in the services sector, increased the chances of seeing an increase in rates. However, the situation became uncertain after the US Department of Labor published its official data on the number of new jobs in the non-agricultural sector. Reportedly, employment rose by 209,000, lower than the 225,000 the previous month. Still, this figure remains above the threshold of 200,000, indicating an overall continuing positive pace of employment growth, but with the risk of a significant fall in the future. The currency and commodities markets reacted to the news rather coolly, effectively confirming the theory that the stabilization of US inflation or the resumption of its growth could force the Fed to continue raising interest rates. Latest inflation data from China, Germany, and the US lies ahead, but more focus will be given to the consumer price index in the US. Forecast says the overall figure will fall to 3.1% y/y, but increase by 0.3% m/m. Such figures will boost risk appetite, accompanied by a weakening of dollar as treasury yields fall. The chances of seeing further rate hikes will drop as well.     EUR/USD The pair hit 1.0970. Surpassing this level amid a decrease in US inflation will push the quote 1.1100.   GBP/USD The pair trades at 1.2835. A consolidation above it, which could be spurred by falling US inflation and steady expectations of rate hikes from the Bank of England due to high inflation, may bring the quote to 1.2985.  

It’s been a shocking week for European equity markets, on course to shed almost 5% and it could get worse if the US jobs report reflects what we saw yesterday from ADP. You wouldn’t always guess it when looking at the performance of stocks but there is mounting anxiety about the resilience of the economy and what that will mean for interest rates going into the end of this year and 2024. Investors always seem to find a way to look on the bright side which may explain the disconnect between economic fears on the back of rapidly rising interest rates and the performance of indices. And that may be rewarded if central banks can achieve the soft landing they’re hoping for but with every piece of resilient data and additional rate hike, that’s looking harder and harder. And you can see it reflected in their language more and more. That’s not to say investors have suddenly turned bearish on the basis of this week, although it has been quite a sharp sell-off, but we may have reached a point in which they are questioning whether markets are no longer reflecting reality. The ADP report doesn’t always attract that much attention, in fact for years it’s been borderline disregarded, but it’s impossible to ignore yesterday’s release. It smashed expectations and once again indicated we may be looking at another consensus-beating NFP number. Further signs that the labor market is red-hot and resilient.   Choppy trading in bitcoin but ultimately range-bound Trading has remained choppy in bitcoin over the last week or so but we haven’t yet seen any significant developments, with it still largely contained to the $30,000-$31,000 range it’s traded within since bursting higher last month. There’s more cause for optimism on the back of the ETF filings but there’s no guarantee they will yield a positive outcome even if the chances are enhanced by the backing of those involved. It could also be a lengthy process which may explain the stall we’ve seen over the last couple of weeks.  

EUR: ECB radio silence not helping the euro EUR/USD remains a dollar story and with the US data calendar about to pick up (ADP, ISM services, payrolls), the dollar leg should remain dominant given that most key eurozone data was already published earlier this week. We discussed yesterday the market’s reluctance to price in more than a 50% chance of another hike by the ECB, despite sticky core inflation. One thing missing may be the lack of the usual post-ECB communication re-tuning by governing council members (due to the summer season, more than anything else). The calendar of ECB speakers continues to show only Fabio Panetta tomorrow, and he is the most dovish voice, so unlikely to lift rate expectations. The US credit downgrade helped EUR/USD avert a move below 1.0950, but more pressure on the pair is definitely on the cards should US data prove robust. A test of 1.0900 by the end of the week seems feasible.

Wishful thinking?  By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank    America had another 'bad news is good news' moment yesterday; softer-than-expected ADP and growth data further fueled expectations that the Federal Reserve (Fed) is – maybe – good for a pause. The ADP report, released yesterday, showed that the US economy added 177K new private jobs in August, lower than expected and more than half the number printed a month earlier, while the US GDP was revised from 2% to 2.1% instead of 2.4%, due to lower business investment than initially reported and to downside revisions in inventory and nonresidential fixed investment. Household spending, however, continued leading the US economy higher; it was revised up to 1.7%. All in all, the data was certainly weaker than expected but the numbers remain strong, in absolute terms.     The S&P500 gained for the 4th consecutive session yesterday, the index is now above the 4500 level and has around 85 points to go before recovering to July highs. The US 2-year yield settles below the 5% level on expectation that the Fed has no reason to push hard to hike rates; it could just wait and see the impact of its latest (and aggressive) tightening campaign.  In the FX, the softening Fed expectations are weighing on the US dollar. The dollar index fell to its 200-DMA and could sink back to its March to August descending channel. But the seasonality is on the dollar's side in September. Empirical data shows that the US dollar performed better than its peers for six Septembers in a row since 2017, and it gained 1.2% on average, thanks to increased quarter-end dollar buying, and an increased safe haven flows before October – which is seasonally a bad month for stocks, according to Bloomberg.       But the dollar's relative performance is also much influenced by the growth and price dynamics elsewhere. Looking at the latest Euro-area CPI numbers, the picture in Europe is much less dovish despite morose business and consumer sentiment in Europe and weak PMI numbers printed recently. Despite the dark clouds on the European skies, the latest inflation numbers showed that inflation in both Spain and Germany ticked higher in August for the second month – a U-turn that could be explained by the re-surge in oil prices since the end of June. This morning, the aggregate CPI number may not confirm a fall to 5.1% in headline inflation. And a stronger-than-expected CPI print will likely boost the ECB hawks and get the euro bulls to test the 50-DMA, near 1.0970, to the upside.     Later today, investors will focus on the US core PCE data, which has a heavier weight on the international platform.  Therefore, the strength of the US core PCE will say the last word before tomorrow's jobs data. Analysts expect a steady 0.2% advance on a monthly basis, and a slight advance from 4.1% to 4.2% on a yearly basis. A bad surprise on the topside could eventually wash out the past days' optimism regarding the future of the Fed policy. So, fingers crossed, we really need the US inflation to fall, and to stay low.    But looking at energy prices, a sustainable fall in headline inflation could be wishful thinking for the upcoming months. US crude remains upbeat near the $82pb, as the latest EIA data showed that crude inventories fall more than 10mio barrel last week, as separate data showed that crude stored on ships at sea fell to the lowest levels in a year - a clear indication that OPEC's supply cuts are taking effect. Plus, Russia is discussing with OPEC to extend oil-export cuts and Saudi is expected to prolong its supply cuts.    

FX Daily: Low vol environment continues US jobs numbers continue to cause ripples in a becalmed summer FX market. Expect more of the same today as the market focuses on the weekly initial claims ahead of tomorrow's big NFP report. In Europe, the focus will be on the eurozone's August CPI release. Expectations of a further hike from the ECB are firming up and justify EUR/USD trading at 1.09-1.10.   USD: Thrashing around in a low vol environment Second-tier US jobs data (JOLTS and ADP) have seen the dollar soften a little this week. However, the data have yet to prove the smoking gun that can mark the end of the Federal Reserve's hawkish stance. Stronger trends will only start to develop should we see a large downside miss on tomorrow's release of the August NFP jobs data or a sharp rise in the unemployment rate. That would undermine the thesis that strong employment consumption can keep the Fed in hawkish mode for a lot longer than most think.  For today, the focus will again be on some second and third-tier jobs data in the form of the weekly initial claims read. We will also see personal income, spending, and the core PCE deflator for July. Consensus actually sees the core PCE deflator rising to 4.2% year-on-year from 4.1% – so hardly a reason for markets to add to dollar short positions. In general, cross-asset market volatility remains low and there is not much to argue against the Japanese yen or Chinese renminbi-funded carry trade. As we have noted before, 5.30% overnight rates mean the dollar can hold gains in a carry trade environment. Currencies outperforming remain the EM high-yielders, such as those found in the CEE3 region and also Latam. Here, the Mexican peso continues to hold gains and offer near 12% implied yields. The peso should also be helped by the latest remarks from Banxico that, unlike Brazil and Chile, it is not considering rate cuts anytime soon. Unless we see a sharp spike in the weekly initial claims data today, we suspect DXY does not break too far from a 103.00-103.50 range.

ADP posts 177,000 new jobs but traders not convinced US Q2 GDP revised lower to 2.1% (2.4% previously) USD pares six week gains after weaker figures this week   The recovery in equity markets appears to have stalled on Wednesday as traders likely eye the big economic releases later in the week. The ADP and revised GDP numbers may attract some attention but they were never likely to have too great an impact. The ADP report has long been ignored as a reliable precursor to the NFP report on Friday and at times it’s frankly been wildly off. That it’s come in at a reasonable 177,000 doesn’t offer any real insight in terms of Friday’s payrolls, with the focus instead remaining on them in relation to yesterday’s JOLTS data which saw a marked decline. If we see a trend of weaker hiring and fewer job openings then the Fed will be more at ease ending the tightening cycle. Today’s data was never likely to be overly impactful with tomorrow’s inflation, income, and spending figures, prior to Friday’s payrolls, always the primary focus. That could well set the tone for September ahead of some major central bank meetings.   EURUSD has been buoyed by the recent economic data, with the figures indicating that the higher for longer narrative may be less intense than feared.   EURUSD Daily       The pair has now rallied for three days and is closing on an interesting level around 1.10 where it may run into some resistance from the 55/89-day simple moving average band. It’s also a notable psychological level. There are also some interesting Fib levels around here if this is merely a corrective move following the sell-off of the last six weeks.

It's early December, which means traders have very little time left before the start of the "dead season." The currency market will be active for a few more weeks before entering the Christmas-New Year lethargy. The EUR/USD pair is no exception here. Typically, life in the FX market slows down after the December meetings of the Federal Reserve and the European Central Bank (on December 12-13 and 14, respectively). For some time, traders reflect on the outcomes of these meetings, but inevitably, "winter holidays" set in. The main feature of the upcoming week is the "silence" of the Fed officials. The so-called "blackout period" started on Saturday: for 10 days leading up to the Fed meeting, officials of the U.S. central bank generally do not speak publicly or grant interviews. Therefore, EUR/USD traders will be focused on economic reports. Let's take a look at the economic calendar and see what awaits us in the coming days.   Monday The first working day is traditionally quite empty for EUR/USD. During the European session, the Sentix investor confidence indicator will be published. This is a leading indicator as it measures investors' sentiment towards the eurozone economy. Since March 2022, the indicator has been in the negative territory, but in November, it showed positive dynamics, rising from -21.9 to -18.6. In December, experts expect a further improvement to -15.0. Also on Monday, ECB President Christine Lagarde is expected to speak. She will participate in a conference that includes a Q&A session. The head of the ECB may comment on the latest eurozone inflation data, although the theme of the meeting, let's say, does not lend itself to such questions (the conference is organized by the French Academy of Ethics and Political Sciences). During the U.S. session, a report on factory orders in America will be published. The volume of total orders is expected to decrease by 2.7% in October, while core orders are expected to increase by only 0.3%. Tuesday On Tuesday, the final estimates of the PMI data for November will be published. According to forecasts, they will coincide with the initial reports (in this case, the market will likely ignore this data). Traders will focus on the ISM Non-Manufacturing Purchasing Managers' Index (PMI), which will be published during the U.S. session. This indicator has declined over the past two months, but according to most experts, it will rise to 52.5 points in November. However, if the index falls into the "red zone," the dollar will come under significant pressure. Let me remind you that the ISM Manufacturing Index published last week did not support the greenback. In November, it reached 46.7 points, against forecasts of an increase to 48.0 (the manufacturing index has been in contraction territory for the 13th consecutive month). In addition, the U.S. Bureau of Labor Statistics will release data on the level of job vacancies and labor turnover. However, considering that the market is anticipating the Non-Farm Payrolls data later in the week, they will likely overlook Tuesday's report.   Wednesday At the start of the European session, we will learn about the October volume of industrial orders in Germany. In annual terms, the indicator has been in the negative territory since July, and judging by forecasts, the situation is not expected to improve in October (forecast -5.6%). The main report of the day will be announced during the U.S. session, which is the non-farm employment in the United States from ADP. This report is considered to play the role of a kind of "harbinger" ahead of the release of official data—although quite often these indicators do not correlate. Nevertheless, the ADP report can trigger increased volatility among dollar pairs, especially if it comes out in the green/red zone. According to experts, 120,000 non-farm jobs were created in November. If the figure falls below the 100,000 mark, the greenback may come under pressure. Also, U.S. data on labor cost will be published (final estimate). This indicator, for the first time since the beginning of 2021, dropped into negative territory in the third quarter. According to forecasts, the final estimate will be revised downwards (from -0.8% to -0.9%). On the same day, ECB Executive Board member Joachim Nagel (head of the Bundesbank) will speak. Before the release of the latest data on eurozone inflation, he voiced rather hawkish theses, allowing for additional interest rate hikes in the foreseeable future. We do not know whether his position will change in light of recent events.   Thursday On this day, we will learn the final estimate of the eurozone Q3 GDP data. According to forecasts, the final result should match the second estimate (-0.1%). During the U.S. session, weekly data on initial jobless claims will be published. Since mid-October, this indicator has fluctuated in the range of 210,000 to 220,000 (except for one week when the count jumped to 233,000). According to forecasts, for the upcoming week, the indicator will come in at 220,000, i.e., at the upper limit of the "established" range. Furthermore, secondary economic reports will be released (wholesale inventories - final estimate, and consumer credit), but they usually do not have any significant impact on the market.   Friday On the last day of the trading week, key U.S. labor market data for the month of November will be published. According to preliminary forecasts, the unemployment rate in November will remain at the October level, i.e., at 3.9%. The number of non-farm payrolls is expected to increase by 185,000 (after a 150,000 increase in October) – meaning the figure will once again fall short of the 200,000 mark. In the private sector, the number of employed is expected to grow by 155,000 (after a 99,000 increase in October). And the average hourly wage level is expected to demonstrate a downtrend again – down to 4.0% YoY (in this case, it will be the lowest value of the indicator since August 2021). Obviously, such a result will not benefit the dollar, especially amid a decrease in CPI, producer price index, and the core PCE index.   On the bullish side, we have the dovish comments from some of the Fed officials (Waller, Goolsby), conflicting signals from Fed Chair Jerome Powell, and a decline in key inflation indicators. On the bearish side, we have the eurozone inflation data. The "red tint" of the latest report put an end to the discussion about the ECB rate hike in the coming months. The euro lost its fundamental trump card, but, as we know, the EUR/USD pair can successfully rise only due to the dollar's weakness. For instance, on Friday, the bears tried to break through to the 1.08 level but eventually failed. In my opinion, in the medium-term perspective (until the release of the NFP data), traders will exercise caution (both sellers and buyers), trading on "neutral territory," i.e., in the range of 1.0850 – 1.0930 (lower and middle Bollinger Bands lines on the 4H timeframe, respectively).

Bonds rally, equities watch By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank   The central bank doves are forcefully back following a significantly lower-than-expected US JOLTS print, and on the back of a surprisingly dovish comment from an otherwise... hawkish Isabel Schnabel from the European Central Bank (ECB).   Jolts Released yesterday, the JOLTS data showed that the US job openings fell below 8.8 mio jobs in October – when strikes in Detroit's three big carmakers may partly explain why the job openings saw such a meaningful decline. But whatever it is, the US offered a lot less jobs in October than it did the previous month, and that has come to cement the idea that the US jobs market is further loosening. Again, the October numbers should be taken with a pinch of salt as they were certainly impacted by the strikes, and November numbers could also be influenced by the distortions of October – meaning that we could see some robust numbers after a depressed month of October. Yet overall, the US jobs market had started giving signs of cooling before the strikes, and this week's numbers may not be representative of the underlying trend. However, the US jobs figures gain a crucial importance as the Federal Reserve (Fed) approaches a policy pivot.   Due today, the ADP is expected to print 130K private job additions in the US last month, and the Atlanta Fed's GDP forecast is expected to hint at a sharp decline in Q4 growth to 1.2% from above 5% printed last quarter. If that's the case, the Fed doves will remain in charge of the market, but the everything rally will likely turn into a... bond rally as we are now at a juncture where the bond optimism might only persist with increased recession probabilities, which doesn't bode well for equity appetite. 

Rates Spark: Science fiction? The 10Y UST yield is closing in on the 4% mark as if a weak jobs report tomorrow was a given. But underlying is also a further slide of inflation expectations. The front end is lagging, however, and being already priced aggressively for cuts, it will probably need these to become more imminent to rally further.   Rates continue to decline but the front end is lagging Market yields continued to drop with the 10y UST sinking to 4.11% and 10Y Bund to 2.2% yesterday. The driver was a weaker ADP private payrolls report, though some will point out that the correlation with the official payrolls data that is due tomorrow is actually negative. Possibly more relevant for the broader picture was the 5.2% figure for third-quarter productivity growth. It facilitated a 1.2% fall in unit labour costs, which is a positive impulse for a Fed still showing concern on inflation. Another supporting factor was a further decline in oil prices, which saw WTI fall below US$70/bbl. This picture of a reassessment of inflation as a driver does gel with a further slide in inflation swaps, in the US by more than 7bp in 2Y and close to 5bp in 10Y. In EUR the drop today was less pronounced, but the overall drop of the 2y for instance from a range around 2.65% over the summer months to now 1.8% speaks volumes. It is notable in yesterday's session that the already aggressive rate cut discount is struggling to deepen further meaning that curves are inverting more as rates decline. The US saw 2Y UST yields even rising somewhat to 4.6%. Front end EUR rates also moved marginally higher. There was some pushback from the European Central Bank’s Kazimir who called expectations of a March rate cut “science fiction”. And a little earlier, the ECB’s Kazaks, who doesn’t see the need for cuts in the first half of next year, did acknowledge that if the situation changes, so might decisions. This is what Executive Board member Schnabel had hinted at as well earlier this week. At the moment the ECB is probably just as smart as the market as it will have to rely on the data. The ECB is right to signal caution and highlight lingering risks, but trying to micro manage now may only add to market volatility.   Inflation expectations have been sliding over recent weeks   Today's events and market view The 10yr UST yield came close to 4.10% and knocking on the door of the big figure 4% yesterday, before being nudged higher overnight by a weaker 10Y Japanes government bond auction. Still, the market continues to be expecting Friday's payrolls report to be weak – the softer ADP pointed in the right direction, but markets appear to be overlooking its poor forecasting track record this time around.   There are more US job market indicators to digest today with initial and continuing jobless claims as well as the Challenger job cut numbers. The former may be subject to seasonal volatility around the Thanksgiving holiday season. In Europe we will be looking at final third-quarter GDP data as well as scheduled appearances by the ECB’s Holzmann and Elderson. In government bond primary markets the focus is on the final French and Spanish bond auction for the year. Note that in the US we are still looking at upcoming 3Y, 10Y and 30Y bond sales next week.

Asia Morning Bites South Korea's inflation comes in below expectations. US non-farm payroll release later tonight. Powell slated to speak again at the weekend.   Global Macro and Markets Global markets:  Despite some reasonably strong data, US Treasury yields dipped slightly on Thursday. 2Y yields were down less than a basis point, but only after dropping below 4.14% and then recovering later on. 10Y yields followed a similar pattern of decline and recovery taking them down 3.2bp to 3.97%. Jerome Powell has a TV interview scheduled for the weekend, which could be interesting if he deviates from the recent message at the FOMC. Currencies also had a choppy day. EURUSD dropped below 1.08 at one point but is back up to 1.0874 now. Likewise, the AUD came close to dropping through 65 cents but has recovered to 0.6575 now. Cable did even better, finishing up on the day after a less dovish than expected Bank of England meeting. The JPY was roughly unchanged at 146.47. Other Asian FX were evenly split with half making small gains, led by the PHP and THB, and half making small losses. The CNY has drifted up to 7.1805. US equities recovered their losses from the previous day. The S&P 500 rose 1.25%, while the NASDAQ gained 1.3%. Equity futures also look quite positive. Chinese stocks had a slightly more positive day. The Hang Seng rose 0.52%, but the CSI only managed a 0.07% gain. G-7 macro: It was an interesting day for US macro yesterday, delivering support for both hawks and doves on the rates outlook. On the dovish side, non-farm productivity rose, and there was also a slight increase in jobless claims figures. On the other hand, the manufacturing ISM rose strongly, even though it remained below the breakeven 50 level and there was a jump in the prices paid component too which jumped up to 52.9 from 45.2. The new orders index was also strong. Later today, there is the US labour report. Following the soft ADP figure earlier this week, there may be some downside risk to the consensus view of a decline in employment growth from 216K in December to 185K in January.    South Korea:  Consumer inflation eased to 2.8% YoY in January (vs 3.2% in December, 2.9% market consensus), back to the 2% level for the first time in six months. But the decline was mainly due to base effects, caused by a one-off energy bill hike last January. Core inflation, excluding agricultural products and oils, also levelled down to 2.6% (vs 3.1% in December). In a monthly comparison, inflation rose 0.4% MoM nsa in January after staying flat in December. Fresh food, utility, and service prices rose, more than offsetting the decline of manufactured food and gasoline prices. The government has decided to freeze utility fees at least for the first quarter of the year and offered some tax cuts on imported goods. If the conflict in the Red Sea escalates further, the fuel subsidy program could be extended beyond March, so the upside risk is quite limited in the near term. Today’s slower-than-expected inflation probably won’t change the BoK’s hawkish stance any time soon. As mentioned earlier, if there were no government subsidies on energy and public services, CPI inflation would have been higher than it is today, and once these programs end, there may be a price spike later this year. So, choppy inflation ahead is expected. The BoK will likely take a wait-and-see approach to gather more evidence about the continued cooling of inflation.