Overnight Headlines

*Senate approves spending bill averting government shutdown

*Oil stabilises following the OPEC+ surprise decision to continue their 400k output increase

*Dollar edges higher before US jobs data as Omicron fears ease  

*US stocks rebound as risk appetite improves

USD closed marginally higher Thursday after hitting lows of 95.82 earlier in the session. USD/JPY gained 0.3% to 113.16 after two days of losses. EUR/USD looks to be rolling over after printing a high of 1.1382 on Tuesday. AUD and NZD both eased again and are nearing recent lows at 0.7062 and 0.6772.

US equities bounced as Omicron fears eased and the Vix pulled back from Wednesday’s high above 32. This is currently the biggest one-week leap in the CBOE volatility index since the pandemic chaos of February 2020. Energy and banks led the way with the Dow +1.8% and the S&P500 +1.4%. Asian markets are mixed, but China is lower as the Didi delisting revives US-China worries. US futures are modestly softer.

Market Thoughts – NFP day amid the volatility

Focus today will turn to the monthly US jobs data, though of course Omicron news may overshadow the report. The consensus estimate sees 550k job gains and an unemployment rate falling one tenth to 4.5%. Average hourly earnings are forecast to increase 0.4% m/m and 5% y/y.

Continued healthy job growth will keep the pressure on the Fed to maintain this week’s more hawkish tilt towards faster removal of policy support. Employers are likely to have continued boosting wages to attract and retain workers in a tight labour market. Wage growth data and whether workers are returning to the job market could give pointers to the path of inflation going forward. It seems the Fed is currently not ignoring the Omicron threat but is choosing not to let it delay policy responses.

Chart of the Day – DXY looks poised to resume upside

It has been a volatile week with commodity currencies especially suffering badly. Oil has dropped more than 3% this week and is down more than 18% from the October three-year high.

The greenback has oscillated, falling below the 21-day EMA to a low of 95.51 on Tuesday. But the DXY has found a bid since then as a more active Fed and potentially better covid variant news seeps into the market. NFP today will be of interest but only a very poor print will slow the Fed’s path. Otherwise, bulls will aim for the Tuesday high at 96.64 ahead of the cycle high at 96.93.