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US initial jobless claims fell to 249,000, lower than market expectations for 256,000 and boding well for Friday’s non-farm payrolls number. ADP employment was a little under market expectations for 165,000 at 154,000. But the employment components of the ISM PMIs were also strong, and all of this continues to make a December rate hike from the Federal Reserve look increasingly likely. This is what has driven the US$63 decline in gold this week and pushed it through the key psychological 200-day moving average. But there looks to be further downside to gold even if non-farm payrolls only slightly misses expectations.
The yields on the US ten-year bond increased by 1.41 basis points, helping move the currency markets. The DXY US dollar saw a big 0.6% gain overnight, which was felt throughout the currency markets. The USD gained 0.6% against the yen and 0.6% against the Euro. While USD strength and “hard Brexit” fears compounded to see a further 1.1% fall in the GBP/USD as it dropped to US$1.2612 and flirted with even dropping into the US$1.25 handle.
The Aussie dollar also lost 0.6% to move down to US$0.7580 although much of the selling had slowed by the US session. The pull back in metals and the strong US data appear to be hitting the Aussie dollar particularly hard. Chinese markets come back online on Monday after the National Week holiday, and Chinese commodity futures prices could hit the Aussie. The other concern is that a reversal in the oil price rally alongside further gains in the USD could see even bigger falls in the AUD.
WTI oil climbed back above US$50, rallying 1.3% overnight to close around US$50.49. The OPEC deal and the fifth week of straight declines in the EIA crude oil inventories continue to buoy the oil market. Fears about disruptions from Hurricane Matthew may also be providing some upside.
European stocks all closed down, but further losses were halted by strong gains by banking stocks as ECB taper talk continued to see buying in the sector.
The S&P 500 closed largely flat at 2161 with the real estate (+0.8%) and utilities (+0.4%) sectors seeing a bit of a recovery after a big week of selling.
Nonetheless, Asian markets are looking to open higher, bucking the trend in US and European markets. The Nikkei is set to open 0.2% higher despite a 0.6% drop in the yen.
The ASX SPI futures are set to open 9 points higher. Although BHP’s and CBA’s ADRs both lost more than 0.5%.