Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
Chief Macro Strategist
Summary: Yesterday’s strong private payrolls and jobless claims data were uncomfortable for a market expecting a weakening US economy and an imminent peak in Fed rates. Today’s official December jobs report will carry even more weight if nonfarm payrolls growth and earnings prove stronger than expected, with the ISM Services also up today. The JPY is the most sensitive to the US yield reaction. Elsewhere, the Chinese yuan is even stronger than the greenback on the latest policy hopes linked to the property sector.
Today's Saxo Market Call podcast.
Today's Market Quick Take from the Saxo Strategy Team
FX Trading focus: USD rises on strong ADP private payrolls, weekly claims data. Main event set for today, with ISM Services also weighing.
As the Fed Chair Powell himself noted in a speech on inflation late last year, the key risk for further inflationary pressures comes from the labor-intensive services sector of the US economy, so arguably the ISM Services survey should carry plenty of weight today, together with the usual focus on payrolls and earnings growth, with the market leaning for the risk of stronger data today after a very strong December ADP Private Payrolls print yesterday (+235k vs. 150k expected and a revision of November data to +182k from 127k) and with a very strong weekly claims number at 204k, the second-lowest print since May.
Chart: USDJPY
USDJPY is traditionally the most sensitive USD pair to US data, and would be even more so if any US data surprises today add more volatility to the longer end of the US yield curve, as opposed to mostly seeing the market marking the front-end of the curve a bit higher or lower. The rally off the sub-130.00 lows has run into its important first resistance area – the pivot higher near 134.50 and near a prior pivot low back in early December. The next resistance area is the important 138.00+ resistance from early December, although the 200-day moving average comes in well below there at 136.50. To rise significantly above the 136.50-138.00 zone, we may need to see a more significant jump in longer US yields, not just the front end of the US yield curve.
Table: FX Board Trend Scoreboard for individual pairs.
Let’s have a look at where the USD pairs stand after the US data today, but the greenback is making a bid for a broader turn higher ahead of the data today. Elsewhere, note the wild extensions higher in EURSEK and EURNOK as the latter has traded to new 2-year highs this week and EURSEK trades above the highest daily close during the wild days of the pandemic outbreak in early 2020.
Upcoming Economic Calendar Highlights