Pre-non-farms flip flop continues

Markets eye US employment report

The choppy week continues as markets continue to chase their tails in a light data week ahead of Friday’s US Non-Farm Payrolls main event. Overnight, firmer services PMI data across Europe and from the US was enough to flush out the buy-the-dippers in equity markets, which ignored a torrid Asian session and posted strong gains. Unsurprisingly, US technology behemoths outperformed, having been singled out for treatment the day before.

The disconnect continued elsewhere, where US yields firmed, notably at the long end. It wasn’t enough to distract the FOMO gnomes of the equity market, but the US dollar did lift itself higher over the session. Energy prices continued to surge, led by natural gas which climbed nearly 10.0% overnight. We’ll have to name it Bit-gas at this rate. On that note, bitcoin and cryptos also continue on a burn higher, for reasons I know not. Elon Musk hasn’t said anything, but I note that the Head of the US SEC, in testimony on the Hill, said that the US wouldn’t ban cryptos.

The equity rally is already fading in Asia today, with US index futures deep in the red. That suggests that despite the best hopes of the perpetual mega-bulls, the path of least resistance is lower at the moment. I am expecting the markets to continue tying themselves in knots over the next few sessions until we, hopefully, get a decisive Non-Farm Payrolls print. Higher or lower than 500,000 will do, as it will allow some clarity on the Federal Reserve taper path and positioning appropriately.

Today’s Asian data calendar is another blank canvas with retail sales data released across Europe, while the US releases official crude inventory, petroleum, and distillates data. The latter will attract more attention than usual given the ongoing spike in energy process. China remains on holiday until Friday and Evergrande stock remains suspended and has been relegated in the headlines, I doubt it will stay that way though.

South Korean September inflation eased slightly to 0.50% MoM this morning. Given the movement in global prices, that may become more challenging as time goes by but is unlikely to push the Bank of Korea into moving rates. The other main event has been the Reserve Bank of New Zealand policy decision, with the RBNZ going ahead with its previously postponed 0.25% rate hike to 0.50%. That is likely to be the first of several hikes if New Zealand’s recovery continues. The New Zealand dollar has fallen after the announcement suggesting it was fully priced in by markets. Also adding to concern, and rightly so, are the rise in delta-variant cases in Auckland and in locations outside the Auckland fence. Experience internationally suggests that once Delta is loose from a contained area, life gets more challenging very quickly and that will leave the New Zealand dollar vulnerable to more downside.

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