First Light News: Jobs day!

Following a broadly green day for US equity benchmarks on Thursday, Asia-Pac shares were largely bid overnight. Sentiment caught a lift from recent Fed Governor Christopher Waller ahead of today’s US jobs data.

Waller Throws Cold Water on Rate Hike Bets

Fed Governor Christopher Waller hit the wires yesterday and said he would be comfortable opting to hold at the next meeting if inflation continues to cool. This naturally prompted investors to pull back their rate-hike bets, with year-end pricing dipping from around 35 bps of tightening to 31.

As expected, shorter-dated Treasuries rallied, and the USD index took a hit, down 0.6% on the day. What raised a few eyebrows was Waller pointing to next week’s August CPI report as a key input into his vote. However, he was careful to frame it as wanting the recent disinflation trend to hold across CPI and PPI, rather than letting one release decide things outright.

Oil Heading for Its Biggest One-week Gain Since July

Despite US Vice President JD Vance saying the conflict between the US and Iran is ’not a war’, oil prices are on track for the biggest one-week gain since July. Brent crude is still circling just south of daily resistance between US$100 and US$97.94.

With no peace deal on the table and Saudi-linked oil tankers attacked this week, how safe is it to send oil through the Strait of Hormuz? While some tankers have made it through, the risk remains that ships will stop going through or that we revert to full kinetic conflict, which is driving up the risk premium in oil benchmarks right now.

FX: Yen leading G10 FX Volatility

The yen is up around 2.4% against the USD and closing in on the ¥155 handle, which, if you remember back to July, was the key level defended during the last intervention.

The catalyst has been a hawkish tilt from BoJ Governor Ueda and board member Takata, which markets are reading as a green light for a September hike. There is now nearly 20 bps of tightening implied for this month’s BoJ meeting, triggering a rapid unwind of yen-funded carry trades.

If we get below the ¥155 figure on USD/JPY, this raises a bold question mark over longs – particularly if the BoJ hikes and the Fed holds, this will narrow rate differentials.

It is all about jobs data today

The August US non-farm payrolls (NFP) report is released at 12:30 pm GMT.

Consensus points to a 56,000 rebound for the NFP print, up from July’s 23,000 contraction (est. range between -25,000 and 121,000). Notably, the ‘whisper’ number is 30,000! Unemployment is expected to hold at 4.1% (est. range between 4.0% and 4.2%), while average hourly earnings are forecast to tick up 0.3% MM from 0.1% and cool to 3.0% YY from 3.2%.

For me, the path of least resistance is a broad miss. Trading a hot report – although it could generate a short-lived USD bid – would mean going up against two things: Crowded USD longs (CFTC positioning) and intervention risk. A miss should be the cleaner trade, tip the scale towards a Fed hold this month, and trigger a softer USD, particularly via USD/JPY, which now has two independent tailwinds pushing it lower rather than one.

The Canadian employment report will also be a key watch today at 12:30 pm, following the hawkish BoC earlier this week. You will recall that Governor Tiff Macklem noted that inflation is ‘running too high’ and flagged that multiple rate increases could be needed. So, if jobs data comes in broadly hotter, this could further lift the CAD.

Written by FP Markets Chief Market Analyst, Aaron Hill