Global Markets Dollar, bond yields rise, with all eyes on US jobs

by **hlk** Sat 07 Dec 2013, 14:32

Business & Markets 2013
Written by Reuters
Friday, 06 December 2013 21:31
A + A - Reset
(06/12/13 20:00:42)
* Markets nervous ahead of jobs data seen key to U.S. stimulus
* NFP above 200,000 expected to fuel December taper bets
* Bund yields rise, equities on track for steep weekly drop
LONDON (Dec 6): The dollar rose and government borrowing costs from Japan
to Germany, hovered around fresh highs on Friday, on expectations of strong
U.S. data that would back the case for an imminent scaling-back of Federal
Reserve stimulus.
U.S. non-farm payrolls, due at 1330 GMT, could tip the balance of when the
Fed will begin to trim the $85 billion a month of bond purchases, which have
dominated trading across the globe and supported risk assets for months.
A better-than-expected employment picture from the ADP private sector jobs
report, and weekly jobless claims in the last two days, have prompted markets
to prepare for a possible beat to forecasts of an increase of 180,000 in U.S.
payrolls.
German 10-year yields held at seven-week peaks on Friday, while Bund futures
were 1 tick up at 139.97, on track for their biggest weekly fall since mid-August.
In Japan, 10-year cash JGB yields were highest since early October, while U.S.
Treasury yields on Thursday, rose to levels not seen since mid-September —
when Fed tapering was last seen as imminent.
The market would tend to see anything over 200,000 on non-farm payrolls, as
greatly adding to the chances of a start to tapering this month, while a result
under 150,000 would diminish the likelihood, likely prompting a relief rally in risk assets.
"A very strong payroll would give greater confidence that the U.S. has weathered the recent government shut down well," said Luke
Bartholomew, investment analyst at Aberdeen Asset Management.
It would "increase speculation that tapering could still be on the cards for December. So, perversely, a strong number could be damaging
for stocks and other risk assets."
European bourses made a cautious recovery in morning trade, as London's FTSE, Paris's CAC 40 and Frankfurt's Dax gained 0.2 to 0.4
percent.
But the small gains came after four straight sessions of falls, amplified by the diverging fortunes of the region's top economies, which have
left the broad FTSEurofirst 300 index, heading for its worst week in six months.
Similarly, the MSCI World Index added 0.2 percent, edging up from a three-week low but still down 1.7 percent on the week, in the face of
Fed policy concerns.
In September though, when markets had been positioned for the taper to start that month, the Fed surprised investors by staying put, and
analysts said this could happen again.
"If we are significantly above 200,000, no doubt people will get excited about it, but ... that is hardly a labour market that is delivering a
rapid rate of improvement," said Chris Scicluna, head of economic research at Daiwa Capital Markets.
"The key point is that the underlying momentum in that economy, is not particularly stronger than moderate. I think you would need a very
big upside surprise, to justify that," he added, referring to the likelihood of a Fed move this month.
Parsing Draghi
The dollar edged higher against a basket of currencies and the yen, ahead of the data.
"A generic dollar long (investor) will hope that the payrolls number is strong enough to boost bond yields, but not strong enough to boost or
scare equities in equal measure," said Geoffrey Yu, currency strategist at UBS.
Against the euro, though, the greenback held in sight of Thursday's five-week low, hit after the European Central Bank appeared in no
rush at its last meeting of the year, to offer any further stimulus to the euro zone economy.
Draghi's playing down of the need for another long-term liquidity operation (LTRO), disappointed dealers who had been hoping for just
such an operation, to ease a liquidity squeeze over year end.
In commodity markets, spot gold held at $1,227 an ounce, on track for a loss for the week, of around 2 percent.
Brent crude rose above $111 a barrel, ending a two-day drop, as severe weather cut oil output in Europe and the United States.