Headlines

* Japan’s wage growth doubles estimates, feeding BoJ speculation

* US rate futures lift chances of November hike, ahead of NFP

* Traders see BoE rate above 6.5% next year  

* Shares fall in Asia after strong US data sent Treasury yields higher  

FX: USD made fresh three-week highs at 103.57 before closing lower at 103.11. That snapped a three-day win streak.  The 2-year yield posted a new high at 5.11% which was last exceeded in June 2007. That was above the March pre-banking crisis high at 5.08%. But its closed below 5% at 4.98%. The 10-year yield also beat the March high hitting 4.08%. It eventually settled at 4.03%.

EUR slid to a three-week low of 1.0832. It rebounded to finish at 1.0887 and still above the 50-day SMA. GBP printed an outside day with prices eventually closing at 1.2739. USD/JPY fell to 144.06, its biggest one-day fall in over a month. Prices are lower again today near 143.50. AUD closed 0.42% lower at 0.6626. USD/CAD moved sharply higher with its best day since late May.  The 50-day SMA sits above at 1.3391.

Stocks: US equities were pressured but finished off their intraday lows. Firm data including jobs numbers and a jump in ISM Services saw a spike in Treasury yields and sell-off in stocks. This spurred hawkish Fed pricing and weakness in value/cyclical sectors. The benchmark S&P 500 lost 0.79%, the tech-heavy Nasdaq closed 0.75% lower. The Dow trimmed earlier losses but still dropped by 1.07%. Meta gave up early gains despite launching its Twitter rival app which saw more than 30 million subscribers on the day.

Asian stocks were generally lower on the spillover from the US weakness. The Nikkei 225 slumped on the open on disappointing data though bounced off its lows. The Hang Seng was firmly in the red on the downbeat mood and lingering trade tensions.

US equity futures are very modestly in the red. European equity futures are pointing to a higher open (+0.4%). The Euro Stoxx 50 closed down 2.9% yesterday.

Gold was volatile dropping sharply after US jobs data. It closed near its open as traders focus turns to today’s NFP.  Good news will probably be bad news for the precious metal. A strong jobs report may bring more certainty over the second Fed rate hike and push yields towards the recent highs. That would hurt gold bugs.

Day Ahead – NFP day

It’s the marquee event of the week. The non-farm payrolls data will be the last one before the FOMC meeting in the final week of July. We note US CPI next Wednesday will also be an important gauge for Fed officials.

Consensus expect 225k job gains, the jobless rate to remain at 3.7% and wage growth to stay unchanged at 0.3% m/m. Labour market proxies have been mixed in June. The timelier weekly initial jobless claims spiked in the comparable survey week. The four-week average was higher heading into the June data. But the PMI employment indices in manufacturing and services have given conflicting views of contraction and expansion respectively.

Chart of the Day – Dow can’t beat long-term resistance

Markets are currently fully pricing in a 25bp July Fed rate hike. Only a huge miss could derail this. There is then a near coin toss chance of another similar size move by the Fed’s November meeting. A strong report, inline with other recent data, should hurt stocks as markets look to bake in that second rate move.

The Dow has battled with the August 2022 top at 34,281 many times over the last seven months. This level is now very strong resistance as it has capped the upside on multiple occasions including over the past few days. The 50-day SMA may act as initial support at 33,647. The recent swing low is at 33,610.