Friday 08:15 GMT
Overview
* Equities firm after Wall St dip from record levels
* Oil prices steady after sell off, WTI stays below $50
* Treasury yields at fresh highs ahead of US jobs data
* Market expects 190,000 jobs added in February
Equity markets are broadly positive as a small recovery in oil prices lifts energy stocks, while Treasuries remain under pressure ahead of a US jobs report that could fuel expectations the Federal Reserve will accelerate the pace of interest rate rises.
The firmer US dollar is pushing the Japanese yen through the ¥115 mark and forcing the price of gold to its cheapest in five weeks.
Hot topic
The US non-farm payrolls (NFP) report is due for release at 13:30 GMT on Friday and unless it shows extremely weak jobs growth then the market will continue to consider the chances of a Federal Reserve rate hike next week are nailed on.
Analysts are forecasting 190,000 positions will have been created in February, according to Reuters’ consensus, but traders are probably expecting a higher number given the private sector ADP survey released midweek showed 298,000 jobs added last month.
Indeed, should the NFP report show that the US labour market is picking up steam, then it may add to pressure on the Fed to quicken the pace of its monetary tightening, shortening the odds of another rate rise in early summer. Currently, the CME‘s FedWatch tool sees a 42 per cent probability of a 25 basis point hike in June.
The dollar and Treasury yields have been rising in anticipation of tighter Fed policy. The dollar index, which measures the buck against a basket of its peers, is up 0.1 per cent to 101.94, just shy of the 14-year high of 103.82 hit at the start of the year.
Policy-sensitive US 2-year government bond yields are up one basis point to 1.38 per cent, holding at seven-year highs. The 10-year Treasury yield is up 1bp to 2.61 per cent, near its highest since September 2014, and the trend is contributing to a 1bp gain to 0.44 per cent for equivalent maturity German Bunds.
US equity index futures suggest the S&P 500, which had fallen back after hitting a record high of 2,396 at the start of the month, will recover 8 points to 2,373.
Gold is not a fan of a stronger US currency and higher interest rates so it is slipping 0.4 per cent to $1,196 an ounce, its lowest price since the end of January.
What to watch
Can the US oil contract reclaim the $50 a barrel mark, or will that level now act as a troubling ceiling for energy bulls?
West Texas Intermediate, the US crude marker, is up 0.9 per cent to $49.71 a barrel, and Brent, the international energy benchmark, is adding 0.7 per cent to $52.57 as the oil market strives to recover from a few days of savage selling.
WTI fell 7.3 per cent over Wednesday and Thursday to settle below $50 for the first time since December, as the market found its recent calm shattered by news that US oil stockpiles had jumped to record levels, raising fears that Opec’s recent agreement to cut production was easily being counteracted by increased output from US drillers.
The CBOE Oil Vix index, which measures implied volatility for the WTI contract, has jumped more than 20 per cent over the past two sessions as speculators who had built up heavy bullish oil price bets scrambled to cover their positions, boosting trading volumes.
Equities
The oil price pick up on Friday is helping relieve the pressure on recently battered shares in energy companies, in turn helping to support equity benchmarks.
The Pan-European Stoxx 600 is up 0.3 per cent as resources groups attract buyers, but interest rate sensitive sectors, like real estate, struggle.
Japan’s Topix index rose 1.2 per cent with gains across the board as exporters welcomed recent weakness in the yen.
Australia’s S&P/ASX/200 rose 0.6 per cent as financial stocks and the consumer staples sector gained. Hong Kong’s Hang Seng index added 0.2 per cent, while on the Chinese mainland markets were mixed, with the Shanghai Composite index down 0.1 per cent but the technology-heavy Shenzhen Composite index gaining 0.2 per cent.
South Korea’s benchmark Kospi rose 0.3 per cent after Park Geun-hye was stripped of her presidency and formally ousted following a corruption scandal.
In an unanimous decision, magistrates upheld the legality of an earlier impeachment vote by the nation’s legislature, making Ms Park the first South Korean leader to be thrown from office.
Forex
The Korean won strengthened on the news, and is gaining 0.2 per cent against the dollar to Won1,156.59.
“We believe that today’s decision will likely reduce political uncertainty and the market will now focus on the new government,” Nomura’s Young Sun Kwon said it a note.
The euro is continuing to rise following mildly hawkish remarks from European Central Bank president Mario Draghi on Wednesday, gaining 0.2 per cent to $1.0601.
Sterling is down 0.1 per cent to $1.2157, hovering near seven-week lows as the prospect of another Scottish referendum on secession adds to Brexit uncertainty.
The Japanese yen is the major currency feeling the greatest force of the greenback’s recent rally as investors contrast the Fed’s tightening with the Bank of Japan’s continued easing mode. The dollar is up 0.4 per cent to ¥115.39, leaving the yen at its weakest since mid January.
The Australian dollar is up 0.2 per cent at $0.7518 following the release of data showing growth in Australian home loans accelerated in February as lending for property investment rebounded.
Additional reporting by Alice Woodhouse in Hong Kong
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