JASPER’S MARKET SQUAWK 08-12-2023

Investors Eye NFP Amid AI Boom

Optimism around the AI boom saw equities moving higher on Thursday as investors patiently waited for the NonFarm payroll report to reignite or kill the trend. The dollar weakened with the 2-year Treasury yield falling, but the 10-year Treasury yield edged higher to 4.14% ahead of the upcoming release.

Chart: GBPUSD

Key Factors for Today

• US Jobless Claims Show Slight Changes, But Market Remains Optimistic
• Yen Surges Amid Speculation of BOJ Policy Exit and Poor Bond Auction
• Europe’s GDP Slowdown Confirmed, But Germany’s Recession Risks Loom
• UK House Prices Rise for 2nd Month, Boosting Optimism in Mortgage Sector

Slight Changes in US Jobless Claims to Add Conviction

The US labour market continued to show signs of cooling as jobless claims increased by 1K to 220K. But last week’s numbers saw an upward revision of 1K to 219K. However, continuing claims dropped 64K to 1.861 million, reflecting a resilient market. The slight changes didn’t necessarily signal a major shift in policy expectations ahead of the NonFarm payrolls, with the dollar impacted by the AI rally down 0.45% to 103.6. Yesterday’s low of 103.27 is expected support, whereas resistance lies at 104.

Yen Soars ~4% Amid Speculation of Earlier BOJ Policy Exit

Market speculation was rife with hints that the BOJ may be considering making an earlier exit from its ultraloose policy, leading to a higher yen. The last bond auction saw a poorly received 30-year government bond too, bringing the 10-year JGB yield in demand. USDJPY flash crashed to 141.60 from 147.35, marking its worst one-day drop in over a year, around 4%. Meanwhile, Japan’s GDP saw a downward revision to -2.9% from -2.1% due to headwinds in the household sector, with real wages falling -2.3% painting a gloomier picture for the BOJ. While trading within 142.50 and 145.67, traders might settle down until the next move.

Europe’s Slowdown Confirmed, But Recession Risks Remain

The EU’s revised GDP confirmed contraction while the German industrial output fell unexpectedly to -0.4% in October in contrast to 0.1% expansion. Germany’s data print further accentuated the threat of recession and raised concerns about the overall health of the Eurozone economy. Meanwhile, Goldman Sachs now predicts that the ECB will lower rates every time it meets starting April, compared to going ahead with just one 25bps cut. The eurodollar was higher after six sessions of bleeding, but bulls still failed to take control of $1.08, with levels to watch at $1.0836 and $1.0732.

Rise in UK House Prices Amid Economic Uncertainties

UK house prices saw a modest rise of 0.5% in November, the second consecutive month of price increases. Despite economic uncertainties, house prices show a positive trend due to shortages, providing optimism for the mortgage sector. Cable also had a slight gain to 1.2587 and failed to reclaim $1.26. $1.2634 remains a short-term resistance for bulls, with support at $1.2532.

On The Docket

• DE Inflation
• NonFarm Payrolls
• Michigan Consumer Sentiment

FX 1-Day Relative Performance (USD)

• Aussie 0.22% up while Kiwi 0.04% down
• Euro 0.05% down while Pound 0.03% up
• Loonie 0.15% higher, Franc 0.05% in red
• Japanese yen 0.21% in the green
• Gold 0.07% up, Silver at +0.38
• WTI and Brent 1.4% and 1.53% higher
• Natural gas 0.75% in the red zone