Stock markets in Europe opened positively on Friday after what was an otherwise rotten week, while Asia was fairly mixed ahead of the US jobs report.
It will be interesting to see if Europe can sustain the rebound today given that we head into the weekend with no certainty that gas will start flowing through Nord Stream 1 again tomorrow. Grid data suggests this will be the case, but until the gas starts flowing it remains a risk. This weekend risk could make investors a little nervous as we progress through the session and could lead to more caution heading into the close.
The US jobs report could also be a negative catalyst later in the session if deemed strong enough to warrant more aggressive Fed tightening. We’ve seen a lot more risk aversion in the markets recently as comments from the Fed finally hit investors.
We still see remarkable resilience in US data, particularly in the labor market, although some cracks are appearing elsewhere. While the NFP and unemployment will naturally attract the most attention initially, it is wages that could tip the scales at the central bank, as policymakers fear inflation is taking root.
Will Japan intervene as the yen hits a 24-year low?
The yen has returned to center stage in recent days, after falling to a 24-year low against the dollar on Thursday, rising above 140 in the process. This level has been the subject of much speculation in recent months as the point at which Japanese officials could be tempted to intervene in the markets and overnight comments could further fuel this, with a spokesman warning that the movements are monitored with a great sense of urgency.
That doesn’t seem to have happened yet and we probably won’t see any change from the Bank of Japan either based on recent comments. While inflation is currently above target, this is unlikely to last and there appears to be little appetite to change course. This could mean further declines in the yen until intervention is deemed necessary, although the threat of such action could slow the decline as we have already seen.
JCPOA talks appear stalled but Macron remains confident
Oil prices are higher today after falling near their summer lows over the week. The rebound comes as nuclear talks between Iran and the United States appear to have stalled, with the former claiming to have sent a “constructive” response to the proposals and the latter quickly deeming them “unconstructive”. While Macron remains hopeful that a deal can be reached in the coming days, I’m not sure everyone shares his optimism.
If an agreement on the JCPOA is reached, it will make next week’s OPEC+ meeting all the more interesting. A recent deal posed a big downside risk to oil prices, which Saudi Arabia has sought to counter with warnings of production cuts from the alliance. When and how they would react is unclear, but it would certainly create some uncertainty around the reunion.
A major breakout is potentially on the cards
Gold is in real trouble amid growing expectations of another 75 basis point rate hike from the Fed this month. After breaking below $1,730 earlier in the week, it didn’t take long for the yellow metal to test support at $1,700, even breaking it briefly yesterday. A strong jobs report today could tip it over, with key support below and then around $1,680, where it bounced back in July. It has also bottomed here a few times over the past two years, adding to its importance as a major support level.
On the spot before the employment report
Bitcoin has been treading water around $20,000 over the past week, possibly with an eye to today’s jobs report. This is clearly a major support level and a significant break of it could lead to further losses, with $17,500 the next major test being where it bottomed out in June. Risk appetite in the markets has not been positive recently, which has weighed heavily on bitcoin and other risky assets. Today’s jobs report could make this worse if it stokes inflation fears and raises the odds of another 75 basis point hike from the Fed this month.