All eyes on the non-farm payrolls

Asian markets are mixed heading into the weekend, with some fairly disjointed moves across the board.

Japan’s Nikkei is on the losing end today, dropping 1% after the yen started strengthening again. Further evidence that the US economy is experiencing a steady recovery saw QE tapering talk ramp up in US trade and resulted in the US dollar being bid higher. All eyes are also on the US 10-year treasury yield, which is approaching 3% after closing at 2.99% (highest reading since July 2011). The US services PMI index rose to 58.6, its highest read since August 2005 and well ahead of expectations of 55, while the ADP non-farm payroll showed 176,000 positions added versus an estimated 175,000. Unemployment claims fell to 323,000 over the week versus an estimated 332,000. The result was a USD/JPY rally through 100 to a high of 100.23, while risk currencies like the AUD and EUR also lost ground to the greenback. However, yen strength has resumed in Asia and this has seen [currencies:USDJPY|USD/JPY] drop back below 100.

With the G20 meeting taking place, we are bound to continue hearing commentary around the Syria situation. This has seen some investors exercise caution heading into the weekend and has perhaps been one of the sources of a yen recovery today. The yen will also be in focus at the G20 summit this weekend where Finance Minister Aso is expected to announce a two-staged sales tax hike. This threatens to take some steam out of the recovery and might force the BoJ’s hand to act.

Looking at the equities in the rest of the region, the ASX 200 is down 0.2%, the Hang Seng is up 0.2% and the Shanghai Composite has tacked on 0.3%. European markets are also pointing to a fairly mixed open after having enjoyed a solid session yesterday. EUR/USD has continued to struggle in Asia and looks like it is headed back to its lows from US trade in the 1.311 region. 

The single currency came under significant pressure overnight after ECB President said the central bank considered cutting rates. It also made it clear that the ECB remains cautious about the recovery, and this was reflected in its relatively unchanged growth and inflation forecasts. EUR/USD dropped to a low of 1.311 and remains sidelined around that level.

Most of the volatility for the pair is likely to come from the USD side of the equation. Any further greenback gains could see the pair head down towards 1.30 in the short term. With non-farm payrolls data due out later today we are bound to see further tapering repricing. The market is looking for a non-farm employment change of 178,000, with an unemployment rate of 7.4%. Some analysts have grown increasingly optimistic on the print and are looking for a reading around the 200,000 mark. Fed member Charles Evans will also be on the wires later today. On the European economic calendar we have German and French trade balance. In the UK we have manufacturing production, industrial production, trade balance and inflation expectations.

Risk will also be in for a busy start to next week with a data dump from China set to hit the wires and likely to move risk currencies like the4 AUD which has outperformed this week. Just on Monday alone we’ll have China CPI, PPI and trade balance due out. The local market is around 0.2% lower for the session and relatively flat for the week as we head into the election weekend. The big miners are around 0.7% weaker after commodities lost some ground on the back of a stronger US dollar. Gold was the biggest culprit of the rise in the greenback as it has dropped below 1,400 and is trading around 1,370. This has hurt Newcrest which has shed around 4% today. The big four banks are also mildly weaker, while Macquarie Group is one of the few bright spots with a 1% rise.

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