North American Summary and Highlights 2 October
Overview - The USD slipped on weak US employment data but subsequently recovered as UST yields moved higher after an initial dip.
North American session
The US employment report was weaker than expected, payrolls up only 29k and negative net of revisions, unemployment up to 4.2% from 4.1%, though on a rise in the labor force, and average hourly earnings up by only 0.1%. This saw fears of an October Fed tightening recede lifting equities, though a dip in UST yields on the data was more than fully erased as oil prices saw renewed gains.
The USD slipped on the data but largely eased the dip. USD/JPY found support near 157 while EUR/USD returned to 1.1250. EUR/GBP was weaker near 0.85 but EUR/CHF found support below .93. AUD/USD saw only marginal gains while USD/CAD was slightly firmer above 1.4250.
European session
Dollar takes a breather after recent fast action into the key data, though the euro more broadly remains on the heavy side. France-Germany spread still wider, if via OAT underperformance of bund gains, 10s out to 145bp~. That’s helping to keep the euro weighed on the crosses, even as EUR/USD pauses around 1.250 having tested close to the 1.2 figure support yesterday. EUR/CHF tests the Aug lows and USD/CHF off 30 ticks as the shift from carry to risk avoidance mood encourages ongoing profit-taking / CHF short covering on the strong runs.
EUR/JPY also at new recent lows. USD/JPY off some 30 ticks, with a modest reaction to the strong Japan inflation data - Tokyo Sept Core CPI YY 2.7% from 1.8%, vs mkt 1.8%, adding to the case for BoJ tightening. Pair at between 2 expiry levels of 158 and 157 today with a battle for settlement out of payrolls. EZ CPI 3.8% from 3.2% vs original consensus of 3.6%, but broadly as expected after the strong national figures. The core was 2.5% from 2.4%, as expected, so limiting any new impact.
Oil prices stay choppy - bouncing yesterday on the talk of more US military assets going to the Middle East, but off again today (Brent front month almost-$3, back to just below $100), on discussed proposal for EU to release 50mnb of diesel and IEA to release 50mn of crude. Focus clearly turns to payrolls next, while continuing to watch French market developments into and out of the weekend.