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Europe Roundup: Sterling edges higher on upbeat construction survey, dollar strengthens as investor’s eye U.S. non-farm payroll report - Friday, September 2nd, 2016

Market Roundup

  • GBP/USD -0.04%, USD/JPY 0.35%, EUR/USD -0.16%
     
  • Japan Aug Consumer Confid. Index 42 vs 41.3 previous
     
  • BOJ to debate ways to address flattening yield curve - sources
     
  • BoJ Policy Board Sakurai: Plenty room to ease more, deepen NIRP, easy bias
     
  • Sakurai: Policy reassessment more a fine-tuning of policy tools
     
  • Sakurai: Foreign bond buys-helicopter money-FX moves not options
     
  • Japan Fin Min Aso: Hopes G20 to agree on all policy steps for growth
     
  • Japan ratings affirmed at A+/A-1, outlook remains stable – S&P
     
  • Eurozone Jul Producer Prices MM 0.1% vs 0.7 previous,  0.1 expected
     
  • Eurozone Jul Producer Prices YY -2.8% vs -3.1 previous,  -2.9 expected
     
  • UK Aug Markit/CIPS Cons PMI 49.2 vs 45.9 previous,  46.1 expected
     
  • Sterling, stocks rise after UK construction survey
     
  • Swedish crown hits one-year low after-run of weak data
     

Economic Data Ahead

  • (0830 ET/1230 GMT) The U.S. Labor Department releases nonfarm payrolls report for the month August, which is likely to have added 180,000 jobs, after rising 255,000 in July.
     
  • (0830 ET/1230 GMT) The U.S. Labor Department is expected to report that unemployment rate edged down 4.8 percent in August, compared to a rise of 4.9 percent in July.
     
  • (0830 ET/1230 GMT) The United States' average hourly earnings are likely to edge down 0.2 percent in August after increasing 0.3 percent in April.
     
  • (0830 ET/1230 GMT) The United States releases trade balance figures for the month of July. The report is likely to show that the trade deficit contracted to $42.7 billion from $44.5 billion in June.
     
  • (0830 ET/1230 GMT) The Statistics Canada is likely to report that international trade deficit narrowed to C$3.25 billion in July from C$3.63 billion in June.
     
  • (0830 ET/1230 GMT) The Statistics Canada is expected to report that labor productivity rate of Canadian businesses decreased by 0.4 percent for the second quarter, after rising 0.4 percent in the first quarter.
     
  • (1000 ET/1400 GMT) The U.S. Commerce Department is likely to report that factory orders rose 0.2 percent in the month of July, after declining 1.5 percent in June.
     
  • (1300 ET/1700 GMT) Baker Hughes reports U.S. Oil Rig Count.

Key Events Ahead

  • (1300 ET/1700 GMT) Federal Reserve Bank of Richmond President Jeffrey Lacker speaks on "Interest Rate Benchmarks" before the Virginia Association of Economists and the Richmond Association for Business Economics, in Richmond, Virginia.

FX Beat

DXY: The dollar index, against a basket of currencies trades 0.1 percent higher at 95.72, recovering from an early low of 95.58, ahead of U.S. non-farm payroll data release.

EUR/USD: The euro edged down, as the dollar strengthened ahead of closely watched U.S. non-farm payrolls report, which could provide clues as to whether the Federal Reserve will hike U.S. interest rates this year. Markets ignored Eurozone's upbeat producer price index data, which came in at 0.1 percent in line with consensus. On annualized basis, it stood at -2.8 percent, surpassing projections of -2.9 percent and previous -3.1 percent. Meanwhile, Reuters survey released earlier in the day showed the European Central Bank likely to keep policy unchanged on Sept 8, however, it is expected to announce an extension to its asset purchase programme by the end of this year. The European currency trades lower at 1.1190, retreating from an early high of 1.1208. In the daily chart, the pair is facing strong resistance at 100- DMA and further bullishness can be seen only above that level. Any break above 1.1208 will take it till 1.12600/1.1300. On the lower side, minor support is around 1.11800 (55- day EMA) and any break below targets 1.1118 (200- day MA)/1.1045.

USD/JPY: The greenback reversed most of yesterday’s ISM data-led decline, ahead of the US payrolls data due later in the day. The major attempted a minor recovery to trade 0.3 percent higher at 103.53, pulling away from a low of 103.05 hit in response to worse-than-expected US ISM manufacturing PMI report. However, the gains were limited as investors anticipate additional monetary stimulus by the Bank of Japan. The short term trend is slightly bullish as long as support 102.09 holds. The major resistance is around 104 and break above targets 104.55/05. On the lower side, major support is around 102.09 (9- day EMA) and any break below 101.80 will drag the pair till 100.55/100.             

GBP/USD: Sterling extended gains after a survey showed Britain's construction sector activity expanded in the month of August, strengthening expectations that the economy is holding up after the Brexit shock vote. Data released by the Markit/CIPS showed that UK Construction Purchasing Managers' Index rose to 49.2 from 45.9 in July, surpassing forecasts of 46.1. Sterling trades around 1.3268, having touched a high of 1.3292 following the survey release. Any further bullishness can be seen only above 1.3345 (55-day EMA) level, and break above 1.3350 will take the pair till 1.3480. On the lower side, major support stands at 1.3250 and any break below targets 1.3170 (9- day EMA)/1.3120/1.3050. Against the euro, the pound trades flat at 84.34 pence, having hit an early high of 84.16 pence.

USD/CHF: The Swiss franc edged up, extending previous session gains, as the dollar weakened following downbeat U.S. manufacturing data release. The major trades lower at 0.9765, hovering away from a 1-month high of 0.9884 hit in the previous session. Any break below 200- day MA will take the pair to next level till 0.9770/0.9740. On the higher side, any break above 0.9888 will drag it till 0.9960. The short-term weakness can be seen only below 0.9630.

AUD/USD: The Australian dollar traded between a narrow range as traders seemed reluctant to take positions ahead of highly influential U.S. jobs report, which would trigger extensive volatility in global financial markets. The Aussie trades lower at 0.7549, having touched an intra-day high of 0.7561.  Markets now look ahead to US non-farm payroll data which is expected to show addition of 180,000 new jobs in August, while unemployment rate is likely to edge lower to 4.8 percent. On the higher side, any break above 0.7568 (9-day EMA) will take the pair till 0.7625 (21- day MA) /0.7650. The major support is around 0.7500 and break below will drag it till 0.7480/0.7420.

NZD/USD: The New Zealand dollar gained, but consolidated below the 0.7300 handle, as investors remained cautious ahead of U.S. employment report release. The major has recovered from last week's Jackson hole sell off, largely on the back of New Zealand's positive business outlook and improved trade data. The Kiwi trades 0.2 percent up at 0.7291, hovering just below the 0.7300 handle. Immediate resistance is located at 0.7300, break above targets 0.7340. On the downside, support is seen at 0.7258 (5-DMA), break below could drag it till 0.7220.

Equities Recap

European shares rose but traded within recent ranges as investors await U.S. employment data due later in the day for fresh clues on the timings of Federal Reserve's next interest rate hike.

The pan-European STOXX 600 index added 0.5 percent at 345.44 points, while the FTSEurofirst 300 index edged up 0.6 percent at 1,358.95 points.

Britain's FTSE 100 trades 0.9 percent up at 6,806.19 points, while mid-cap FTSE 250 rose 0.1 percent at 17,868.12 points.

Germany's DAX rose 0.14 percent at 10,548.95 points; France's CAC 40 trades 0.97 percent higher at 4,481.95 points.

Tokyo's Nikkei ended down 0.01 pct at 16,925.68, Australia's S&P/ASX 200 index declined 0.78 pct at 5,373.50 points and South Korea's KOSPI added 0.28 percent at 2,038.31 points.

Shanghai composite index edged up 0.1 pct at 3,067.35 points and was roughly flat for the week. CSI300 index rose 0.4 pct at 3,314.11 points and ended 0.2 pct up for the week.

Hong Kong's Hang Seng index gained 0.5 pct at 23,266.70 points and added 1.6 pct for the week.

Commodities Recap

Crude oil edged higher, pulling away from a 3-week low, facilitated by Russian comments supporting production freeze, but it remained on course for the biggest weekly loss in nearly eight months. Global benchmark Brent crude oil was 0.3 up at $45.95 a barrel by 0932 GMT, however, was on course for an 8.5 percent decline over the week, its steepest weekly loss since mid-January. U.S. West Texas Intermediate crude oil was up 0.2 percent at $43.55 a barrel and on track for a 9 percent weekly loss.

Gold declined, reversing some of its previous session gains as investors wait nervously ahead of U.S. employment data, which could provide insights on the strength of the economy and further cues on timings of Fed interest rate hike. Spot gold had eased 0.2 percent to $1,311.46 per ounce by 0940 GMT, having touched it’s lowest since June 24 at $1,302.28 on Thursday and was set for its second consecutive weekly loss. U.S. gold futures edged down to $1,317.50.

Treasuries Recap

The US Treasuries saw downward pressure across the curve as fewer Americans filed applications for unemployment benefits last week, highlighting the US job market remains healthy. The yield on the benchmark 10-year Treasury note rose 2 basis points to 1.592 percent, the yield on 5-year note also climbed 1-1/2 basis points to 1.198 percent and the yield on short-term 2-year note bounced 1/2 basis point to 0.794 percent.

The UK gilts slumped after recent data showed that construction PMI rebounded higher than expected in August. The yield on the benchmark 10-year gilts rose 3 basis points to 0.697 percent, the super-long 40-year bond yield also climbed 3 basis points to 1.174 percent and the yield on short-term 2-year bond bounced more than 1 basis point to 0.135 percent.

The German bunds traded significantly lower as investors await the Friday's US jobs data as it could be used to anticipate the Fed's most likely step to raise the interest rate. The yield on the benchmark 10-year bond rose 1 basis point to -0.059 percent, the yield on long-term 30-year note bounced 1-1/2 basis points to 0.493 percent and the yield on short-term 3-year bond climbed 1/2 basis point to -0.643 percent.

The Japanese government bonds plunged as investors moved away from safe-haven buying on expectations of higher United States non-farm payroll result. The benchmark 10-year bond yield rose nearly 2 basis points to -0.019 percent, the super-long 30-year JGB yield climbed 8 basis points to 0.524 percent, the 5-year JGB yield also bounced 1 basis point to -0.147 percent and the short-term 2-year JGB yield increased 1/2 basis point to -0.178 percent.

The New Zealand government bonds closed modestly lower, succumbing to thin trading activity during a relatively quiet session that witnessed data of little significance. The yield on the benchmark 10-year bond rose 1/2 basis point to 2.285 percent, the yield on 7-year note also ended 1/2 basis point higher at 1.995 percent and the yield on short-term 2-year note climbed 1/2 basis point to 1.865 percent.

The Australian government bonds traded nearly flat as investors await the Reserve Bank of Australia (RBA) monetary policy decision. The yield on the benchmark 10-year Treasury note hovered around at 1.903 percent and the yield on short-term 2-year bounced 2 basis points to 1.494 percent.

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