Investment Bank Outlook 07-01-2022

Credit AgricoleAsia overnightUST yields are a little lower ahead of the non-farm payrolls data and following the soft US non-manufacturing ISM data. This helped support sentiment during the Asian session. Most Asian bourses and S&P 500 futures were trading higher at the time of writing. G10 FX traded in tight ranges with the NOK and CAD modestly outperforming on the back of higher oil prices. The JPY was a slight underperformer.USD: keeping busyOn the day, focus will be on the December NFP. Ahead of the release, our economist is looking for an above-consensus gain of 500k as well as a further drop in the unemployment rate. With the Fed on the cusp of turning even more hawkish, the markets could perceive any positive surprises from the incoming labour market data as corroborating expectations of faster and more aggressive policy normalisation from here. This could help the USD some more as well. In the very near term, with market risk sentiment still subdued under tightening US and global financial conditions, risk-correlated currencies would have to bear the brunt of any USD gains. That said, we believe that any USD gains are likely to have greater staying power vs G10 low-yielding, funding currencies, especially if a global economic recovery boosts risk appetite once again in the coming months. We remain long USD/JPY given that it is the USD cross that is most sensitive to moves in the US FI markets.CitiEuropean OpenUSD ticked slightly lower on the day, with most of G10 stronger against the greenback. UST was flat as we await the all-important NFP print later today. Our trader Hideyuki Liu gives an update on the UST trading session below:–Though the Tokyo session ahead of non-farm payrolls is generally quiet, the recent volatility catalyzed by hawkish FOMC minutes meant treasuries had another active session. Desk flows saw FM sellers in front-end and RM buying in 10y, while the long-end saw good two-way activity from both RM and credit hedgers. 10y has seen modest outperformance with both front-end and long-end lagging, but overall treasuries are heading into the London open largely flat to NY EOD levels.Looking ahead we see Nonfarm payroll is the highlight of the day, although we also see some Fedspeak–Change in Nonfarm Payrolls at 13:30 GMT for Dec. Citi Economics forecasts a print of 450k increase in payrolls and the unemployment rate unchanged at 4.2%. The path of the unemployment rate, together with changes in the labor force participation rate, will be one of the most important aspects of jobs reports in coming months. A faster than expected decline in the unemployment rate to at or below 4.0% would increase the probability of a rate hike as early as the March FOMC meeting.–Fedspeak will be seen starting with Fed’s Bostic Takes Part in AEA Panel on Black Entrepreneurs at 17:15 GMT, followed by Fed’s Daly Discusses Monetary Policy on AEA Panel at 15:00 GMT. Given the topic of the former, we do not expect any major headlines from Bostic.

Source: Tickmill

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