Marketmind: Dollar on the jobs line

1:33 am Friday, December 02nd, 2022

A look at the day ahead in European and global markets from Tom Westbrook:

Having just closed out its worst month since 2010, the dollar’s bull run may be ending.

Federal Reserve Chair Jerome Powell green-lit selling this week, surprising traders by not pushing back against markets’ shifting financial conditions looser in the last few weeks.

Since the Fed hiked 75 basis points in November, 10-year Treasury yields have fallen more than 50 basis points and mortgage rates have followed — erasing a fair chunk of the tightening.

Tracking yields lower, the dollar is heading towards the weekend down heavily on the yen for the week and eyeing smaller losses on the euro and most other currencies.

The next test is Friday morning’s U.S. jobs report, where a downside surprise could rip the dollar down further. Economists expect about 200,000 jobs were added last month.

More than that, and it might put a leash on the bond rally and the brakes on the dollar’s slide.

Markets in Asia were treading water ahead of the figure, and clinging on to optimism about China reopening – except in Japan where gains in the yen provided an excuse for profit taking in the stockmarket and the Nikkei dropped 1.7%.

Stock buying, rocketing local rates and the retreat in the dollar also seem to have finally given a bid to the Hong Kong dollar, which has bounced from the weak end to the middle of its trading band.

Limits on withdrawals from a $69 billion unlisted Blackstone trust after large redemptions hint at losses and stresses in global portfolios. People familiar with the matter said most of the redemptions came from Asian investors needing the cash.

Graphic: US Financial Conditions https://fingfx.thomsonreuters.com/gfx/mkt/zgpobmdexvd/Three.PNG

Key developments that could influence markets on Friday:

Economics: Germany October trade data, Euro zone Oct producer prices, U.S. November non-farm payrolls

Speakers: Fed’s Barkin and Evans, ECB’s de Guindos

(Reporting by Tom Westbrook; Editing by Sam Holmes)