Overnight Headlines

*China manufacturing slumps to lowest since 2020

*Dollar edges higher ahead of payrolls, resumes climb versus yen

*Asian shares slip on gloomy outlook as Ukraine, recession risks weigh

*US jobs market set to continue post-Covid rebound in March

US equities ended lower for the last trading day of March. This was led by cyclicals and growth stocks. It also marked the first quarterly loss in two years. The S&P500 fell 4.9% over the three months while the tech-laden Nasdaq dropped 9.1%. Asian markets are mixed this morning. Futures in Europe are flat. US futures are very modestly in the green.

USD was broadly stronger against most its peers, except the yen and sterling. This follows on from President Biden’s announcement about releasing Strategic Petroleum Reserves to rein in rising gasoline prices and supply shortages. DXY closed up by 0.5%. USD/JPY eased to an intraday low of 121.28 before closing at 121.70. EUR traded down and is heading towards 1.1050 amid insistence by Russia for ruble payment for the supply of gas to Europe. USD/CAD trades around 1.25 after a false breakdown on Wednesday. AUD fell below 0.75 with key support around 0.7450/60.

Market Thoughts – NPF and wages

The expected headline print for today’s non-farm payrolls now sits at 490k. Wage growth will be watched intently. Annual average hourly earnings are forecast to accelerate to 5.5% y/y from 5.1% in February. Unemployment is seen ticking down to a fresh post-Covid low at 3.7%.

Wage data will be the focus after FOMC policymakers indicated the current elevated rate may put the inflation side of their mandate at risk. It seems that any softness in the report will be looked through. This is because it will be related to the supply of workers and has little to do with actual demand. With inflation elevated and still rising, all avenues point to an aggressive Fed front-loading, which should support the dollar.

Chart of the Day – DXY bounces off support zone

The dollar found support at the base of the March consolidation range yesterday. This trough also ties in with a major Fib level (61.8%) of the 2020 high/2021 low at 97.72.

Another strong jobs and wages report today is expected to bolster the bounce further. The 21-day SMA is 98.24 ahead of the 99+ area. Strong support then at 97.72, after which comes the January top at 97.44.