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Europe ahead of the key US

Markets Mixed

Stocks firmed up a bit more in Europe ahead of the key US nonfarm payrolls report later. It follows a positive session driven by a decline in bond yields and the US dollar, whilst oil prices are heading for a sharp weekly reversal. US markets were basically flat, closing a tad lower in the wake of weekly jobless claims that didn’t move the needle for investors. Oil continues the aggressive reversal taking out another Fib level and the 50-day SMA on the way down, whilst gold continues to stabilise around the $1,820 level with the US 10yr Treasury hovering around the 4.75% area still.

Jobs Data is Key

We had the Jolts job openings number sparking a rout in bonds that pushed the US 10yr to a new 16-year this week, whilst the 30yr rose above 5% for the first time since the GFC. Meanwhile the UK 30yr gilt yield hit its highest since 1998. Following these sharp moves things have been a fair bit calmer as the ADP private payrolls came in soft, but the path of least of resistance is ultimately higher.

Crash Landing?

Barclays says it will take a significant stock market crash to see the bond market rally as the Fed will remain a seller and Japanese investors are pulled towards domestic bonds.

“There is no magic level of yields that, when reached, will automatically draw in enough buyers to spark a sustained bond rally,”

Ajay Rajadhyaksha wrote in a note with other analysts.

“In the short term, we can think of one scenario where bonds rally materially. If risk assets fall sharply in the coming weeks.”

Jobs Day

Nonfarm payrolls rose by 187,000 in August, while the counts for June and July were revised down. The unemployment rate was 3.8%, the highest since February 2022 as new workers arrived and failed to be absorbed. Average hourly earnings rose 0.2% month-on-month, and +4.3% from a year ago, slightly below forecasts.


Awaiting Data

Today the consensus is for payrolls to rise by 170K in September vs. 187K in August. The unemployment rate is expected to fall to 3.7% while average hourly earnings are set to remain steady at 4.3% year-on-year. But this masks a very wide range of estimates - Headline number for nonfarm payrolls ranges from 90K to 256K; unemployment rate 3.4% to 3.9%, average earnings m/m 0.1% to 0.4%.

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