Wayne Cole provides an update on the European and global markets for the day ahead.
In Asia, markets mostly moved randomly, punctuated by reports that embattled Canadian Prime Minister Justin Trudeau could announce his resignation as early as today.
The muted market reaction suggested the news was being taken into account and investors might welcome the possibility of an early election to clarify the outlook, sending the US dollar down 0.3% to 1.00%. 4404 Canadian dollars.
The dollar also lost some ground against other major currencies, but was supported by Treasury yields, with the 10-year moving closer to its recent eight-month high of 4.641%. A breach of this level would target the 2024 high of 4.739% and call into question stock market valuations.
If the S&P 500 achieved a performance of 25% last year, this was built on a very narrow base, almost half of this performance having been achieved by just five stocks.
Japanese bond yields also rose, reaching levels not seen since 2011 at 1.121%, with markets assuming the Bank of Japan will raise rates soon, even if not this month. Unfortunately for the yen, Treasury yields rose more quickly, keeping the spread at 351 basis points in favor of the dollar.
Meanwhile, Chinese yields continue to hit historic lows and the yuan hit a 16-month low on Monday at 7.3286 per dollar.
Dollar bulls are now counting on a series of Federal Reserve speakers this week to be cautious about further rate cuts, with particular attention to influential Fed Governor Waller, who will speak on Wednesday .
Services PMIs due later on Monday are expected to echo US economic performance, although there is a risk that Germany’s CPI could surprise on the upside and offer help to the euro.
All this is just a taste of the main course that will be the employment figures on Friday. Wall Street needs the jobs report to be strong enough to bode well for economic growth and earnings, but not so strong as to make it even harder for the Fed to continue cutting rates.
Median forecasts call for job growth of 150,000 and an unemployment rate of 4.2%, but analysts warn of quirks in seasonal factors, which could cause employment numbers to fall by about 50,000. It is also possible that the unemployment rate could reach 4.3%, given that it was 4.246% in November.
The annual revisions of the seasonal factors of the household survey constitute an additional element, which could lead to a downward revision of the unemployment rate for the last months.
Suffice to say that there is no reason to expect a “clean” reading.
Main developments likely to influence the markets on Monday:
– German CPI for December, services PMI for Europe and the United States, American factory orders for November.
– Lisa Cook, Governor of the Fed, speaks on the economic outlook
