The USD ahead of the non-farm payrolls report
Going into the non-farm payrolls report this afternoon, we see US Treasury yields pressured into the recent lows, with the benchmark 10yr note struggling to pick up off 2.10% - a level briefly taken out at the start of the week. Liquidity issues over the summer mean the bond markets are less responsive to the day-to-day release of economic stats, which of late have been pretty steady for the US, but now matched by equally impressive numbers from its major economic counterparts.
That said, the jobs market is one area which should prove supportive given the unemployment rate remains below 4.5% and monthly average gains in the headline number comfortably inside 150-200k. Wage growth is a concern however, but rather than being fixated on the fact that this is a US specific problem, we would expect the market to start taking a broader view, and this is something which will likely develop in the weeks ahead as the summer lull comes to an end.
For today, the consensus is for a 180k rise in employment over August, but look for some deviation here, as the seasonal factors are expected to distort in some way. This may well impact on the earnings data, which is expected to show the average hourly figure return to 0.2% vs 0.3% seen in July. As we have said, with the unemployment rate at 4.3%, the current picture looks good, but outside of some end-of-week shenanigans in the USD, the overall market reaction will be light unless we get notable improvement. The market is already short USD's in the current make-up, but the appetite for further weakness may start to wane, with yields at the levels they are and an end of 2017 hike in Fed funds now just shy of 25%.
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