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It’s all about March US payrolls today with consensus expecting another decent job growth of 214k in combination with a slightly lower unemployment rate (3.8% from 3.9) and firm wage pressure (0.3% M/M & 4.1% Y/Y). The rather high consensus bar and this week’s failed test push US yields through the roof suggests that those levels will be able to hold into this week’s close. The dollar proved to be vulnerable when the long end of the curve underperformed (rising inflation expectations?!), but found (safe haven) relief after yesterday’s late swoon in US stock markets (up to -1.5%). We expect EUR/USD to gradually return to the low 1.07 area.
Asian equities mostly trade with modest gains this morning. Chinese investors still ponder the impact of the authorities to arrest the equity sell-off (CSI 300 +0.63%). Later today, there are again few data with market moving potential in US and EMU. We look out whether there are any further spill-overs of Moody’s cutting the rating of New York Community Bancorp to junk to broader (US) equity sentiment. Fed speakers include governors Kugler, Collins, and Barkin. In an interview with the FT, ECB Executive Board Member Isabel Schnabel warned that lower borrowing costs could cause inflation to flare up again, given a good reason against the ECB adjusting the policy stance hastily. Regarding trading today, it probably will remain difficult for yields to break above YTD peak levels without any high profile news. The dollar rally also slows but given underlying euro weakness, at test of the EUR/USD 1.0712/24 remains possible.
The US debt ceiling stalemate remains firmly in place with US Treasury Secretary Yellen’s warnings proving futile for the moment. Apart from the US T-Bill and CDS market, the overall market impact remains low even as we’re only a fortnight away from the assumed “X-date”. Previous debt ceiling episodes learnt that a solution will eventually follow. Today’s eco calendar is extremely thin with only US housing starts and building permits.