One key issue for market participants is if the dollar‘s pullback is the beginning of something important or is largely position adjusting ahead of today’s US jobs report. We suspect that the dollar’s rally that began in mid-July is over, though a strong employment report that boosts the chances of a Fed hike before year-end could quickly demonstrate the folly of making claims ahead of what is still one of the most important reports in the monthly cycle of high-frequency data.
The greenback is sporting a mostly firmer profile in quiet turnover against the major currencies. The yen is the weakest in the G10 space, slipping about a third of one percent. On the other hand, most emerging market currencies are trading higher, including the South African rand and Mexican peso, which were thumped yesterday.
Equities are mostly firmer. In the Asia Pacific region, Tokyo was the notable exception among the large bourses. Europe’s Stoxx 600 is extending yesterday’s corrective gains after falling by more than 2.25% in the first three sessions this week. US index futures are firm ahead of the jobs report. Benchmark 10-year yields are 1-3 bp higher in Europe and the US. That puts the 10-year US Treasury yield near 4.73% (up about five bp this week). Note that Italy’s 10-year premium over German widened by about 14 bp this week and now above 200 bp is near the high for the year having bottomed in mid-June near 155 bp.
Gold is trapped in its trough (the low set yesterday near $1813) and is nursing a 1.5% loss this week after falling almost 4% last week. An unexpected drop in US gasoline inventories heighted concern about oil demand and sent the November WTI contract tumbling to ~$82.15 yesterday. It is stuck near there today, unable so far to rise much above $83. It will snap a five week advance with a sharp loss. Around $82.25, it is off almost 9.4% this week, the largest weekly fall since March.
Lastly, down almost 4.1% this week, copper is threatening to post its biggest weekly loss of the year.
