A robust jobs report on friday lifts bond yields
Sharp losses in gold and oil prices brought the Asian markets down this Monday. Driven by stop loss sales, gold traded as low as $1,684, while brent sank 2%. At the same time US Dollar reached a four-month high against the euro after a strong US jobs report lifted the bonds yields. Investors are still assessing whether Friday’s upbeat US payrolls would take Federal Reserve a step nearer to winding back its stimulus. The spread of the COVID delta variant could argue for a longer taper. This week the focus in the US will be on July CPI release due on Thursday, which is expected to confirm that inflation has peaked, there are also four Fed officials speaking. In Europe German ZEW will be published on Tuesday and UK GDP on Thursday.
US equities rose on Friday after a better-than expected increase in US payrolls. Payrolls climbed 943k, its biggest increase in almost a year, beating 870k forecast. Unemployment dipped to 5.4%, the lowest level seen since the pandemic began. The Dow Jones and S&P posted record closing highs, rising 0.4% and 0.2% respectively, while Nasdaq fell 0.4%. Yields on the 10-year Treasury stood at 1.3% on Friday, the highest level since July 23. The dollar reached a four-month high against the Euro this morning with DXY rising to 92.915. Robust job numbers support the view that the Fed, faced with rising inflation and strong growth, may need to unwind its easy monetary policies sooner than expected. However, this view is complicated by the rising cases of COVID-19 across the United States. In any event, the data will ramp up the focus on this month’s central bank symposium in Jackson Hole, Wyoming.
European markets opened mixed with FTSE 100 down 0.25%, while CAC 40 gaining 0.4% and DAX trading 0.8% higher. European Central Bank Governing Council member Jens Wiedmann warned that inflation in the euro area could pick up faster than expected and urged not to drag out pandemic bond-buying program. German exports rose more than expected in June, as data showed on Monday, suggesting a solid recovery in Europe’s biggest economy. Tomorrow Germany releases a ZEW report, which is expected to come out at 54.9. UK GDP on Thursday is predicted to surge to 4.8% from -1.6% QoQ, while UK Manufacturing production is expected to rise to 0.4% from 0.1%. EURUSD is largely flat at 1.1761, after hitting a four-month low, while GBPUSD is lower at 1.3866.
Asian shares traded lower amid sharp losses in gold and oil. MSCI’s broadest index of Asia-Pacific shares outside of Japan fell 0.5% in thin trading conditions with Japan and Singapore shut for holidays. Chinese trade data over the weekend came out lower than expected, while inflation slowed to 1%. China stocks rose with CSI 300 gaining 1.2% and Shanghai Composite rising by 0.9%, as signs of slowing economic growth fanned hopes of fresh policy easing.
Oil prices fell nearly 2% this Monday after the largest weekly drop in four months on the back of a rising US Dollar and worries that coronavirus travel restrictions would affect the demand. Brent Crude fell 1.8% to $69.43 a barrel, while WTI dropped by 1.9% to $66.99. Among contributing factors are the new restrictions in China, the world’s second largest oil consumer. The restrictions include flight cancellations, limits on public transport and taxi services in 144 of the worst hit areas.