Futures, Bonds Drop Ahead Of Jobs Report

US equity futures and bonds both dropped after a tech-fueled advance in the previous session, while the dollar and oil gained in what were small moves ahead of the November jobs report while will provide more information on whether the labor market is cooling fast enough to bring the Federal Reserve closer to cut rates as soon as March (full payrolls preview here). As of 7:55am ET, S&P futures dropped 0.1%, erasing a part of Thursday's rally while Nasdaq futures dropped 0.3%.  Treasury 10-year yields approached 4.2%, rising for a second day. The dollar was little changed as the Japanese yen weakened, paring its biggest gain since January, while the Canadian dollar reversed four sessions of losses to edge higher. Oil futures rose 1.5% from the lowest closing level since July. In macro, the day's big event is the jobs report where consensus expects a 183K print and unemployment remaining flat at 3.9%

In premarket trading, Broadcom shares edged 0.8% higher as analysts note that strength in AI computing is helping offset a slowdown in chips. The company, which supplies chips to Apple and other big tech companies, reported its slowest sales growth since since the early days of the pandemic, with corporate customers and telecom providers reining in their spending.

• Alcoa is down less than 1% after it was initiated at HSBC with a recommendation of hold and a target price of $29 on production growth prospects, profitability improvement initiatives, and continued progress on environmental, social and governance goals.
• Bluebird Bio shares rise 3.1% after Morgan Stanley upgrades the gene-therapy firm to equal-weight from underweight ahead of the likely approval of its Lovo-cel therapy to treat sickle cell disease.
• DocuSign shares edge 0.5% lower after the e-signature company gave a margin outlook that was seen as cautious, considering its strong third-quarter results.
• Eneti Inc. gains 9.5% after Cadeler A/S extended the expiration date for its share exchange offer to acquire all the outstanding shares of NETI.
• HashiCorp shares slump 24% as analysts cut their targets on the software company after results showed a slowdown in key metrics such as revenue from the previous quarter, stoking worries of muted growth, especially looking out to 2025.
• Hello Group ADRs are up 8.8%, after the China-based social networking platform reported third-quarter results that beat expectations and gave a forecast.
• Lululemon shares drop 2.7% after the activewear company’s fourth-quarter revenue guidance failed to meet consensus expectations. Jefferies said the results and guidance show a “peak has been reached,” while Wells Fargo noted the debate over demand trends in North America has not been resolved.
• Microsoft shares slip 0.7% after UK’s Competition and Markets Authority said it was seeking views on whether the software giant’s partnership with OpenAI should be probed.
• MBIA Inc. shares surge 60%, set for a record one-day gain, after the financial guarantee insurance provider declared an extraordinary cash dividend on MBIA common stock of $8.00 per share, which totals approximately $409 million.
• Smartsheet shares are up 3.8%, after the software company reported third-quarter results that beat expectations and raised its full-year forecast.

Friday’s payroll report will be crucial in determining whether bets on dramatic Fed policy easing next year are justified — or have gone too far. Buoyed by signs that inflation and wage growth are cooling, traders have ignited bets that cuts of 125 basis points are in store over the next 12 months. Conflicting data may raise doubts, and Fed officials are likely to keep reminding the market that they are in no hurry to ease. Economists’ median estimate for November nonfarm payrolls change is +183k, with crowd-sourced whisper number +175k; Citi strategists see the 10-year straddle priced for ~11bp move for the day. Our full preview of the jobs report can be found here, and here is what Wall Street banks expect today:

• 238,000 - Goldman
• 225,000 - Barclays
• 220,000 - UBS
• 215,000 - Wells
• 210,000 - SocGen
• 200,000 - BofA
• 200,000 - HSBC
• 200,000 - Morgan Stanley
• 195,000 - Citigroup
• 161,000 - Bloomberg Economics
• 150,000 - JP Morgan Chase
• 130,000 - Deutsche Bank

Below are some hot takes from Wall Street strategists:

• Tom Essaye, founder of The Sevens Report newsletter:

“Keeping things simple, the key to today’s jobs report is whether it refutes the expectation for a March rate cut or reinforces it. A ‘too hot’ number will refute that March rate cut expectation and stocks and bonds will likely drop, while a ‘Goldilocks’ number will reinforce expectations for a March cut and stocks should rally.”

• Liz Young, head of investment strategy at SoFi:

“It’s clear that things are turning in the labor market, even if only a little bit. There’s been a subtle, but noticeable turn upward in the unemployment rate, and a steady grind higher in continuing jobless claims. For now, we welcome the turn of events. The most important problem to solve, however, will be cooling it enough to balance things out, but not too much that it destroys the situation. Cool it off, but don’t freeze it.”

• Win Thin, global head of currency strategy at Brown Brothers Harriman & Co.:

“There should be some payback for the strike-depressed October reading but it’s not clear how much.  While there have been some signs of softness in the labor market, it remains remarkably robust.”

• Jose Torres, senior economist at Interactive Brokers:

“The jobs report is likely to provide additional indications of the labor market softening, a welcome sign for employers who have faced challenges with wage pressures and staffing with the right candidates. Its impact on markets, however, will depend on whether investors view the data as a stepping stone to a March rate cut and soft landing, or an adverse effect on consumer spending and a sharper economic slowdown.”

A survey by BMO strategists found investors inclined to take a more bearish view on Treasuries after the jobs report, with 38% disposed to sell on an upside surprise vs 22% long-term average, 43% to buy on a downside surprise vs 49% norm

Meanwhile, according to BofA's Michael Hartnett, stock markets will suffer in the first quarter of 2024 as a rally in bonds would signal sputtering economic growth; he said lower yields were one of the main catalysts of equity gains in the current quarter. However, a further drop toward 3% would mean a “hard landing” for the economy. The narrative of “lower yields = higher stocks” would flip to “lower yields = lower stocks,” Hartnett wrote.

European shares advance and are on course for a fourth straight week of gains. The Stoxx 600 adds 0.6% and is within striking distance of the July highs, led by consumer product, travel and energy shares. Luxury stocks were among the best performing shares across European stock markets on Friday after China’s Politburo pledged to strengthen the government’s fiscal measures, bolstering efforts to stabilize growth in a key market for the sector.  “Luxury goods are bouncing hard, helped by this morning’s absence of the usual daily sell-side bearish commentary plus Politburo’s fiscal support headline,” said Carl Dooley, head of EMEA trading at TD Cowen. “Our China exposed basket has been ripping over the past month, with European luxury goods now playing catch up,” Dooley added. Shares in LVMH, Richemont and Hermes contribute to over 12% of the rise of the pan-European Stoxx 600 index. Watches of Switzerland rises +4.7%, Salvatore Ferragamo +2.9%, Moncler +2.4%, Kering +2.7%, LVMH +2.4% and Richemont +1.7%. Here are some other notable premarket movers:

• Adyen and Nexi rise after Citi upgrades them to buy, having become constructive on the payments sector for the first time in two years, noting “undemanding” valuations for the companies
• J Sainsbury climbs as much as 3.7%, hitting its highest level since January 2022, after being upgraded to buy at Goldman Sachs, which said the grocer has improved its market share momentum
• Vivendi rises as much as 4.7% on Friday following the announcement that the French media conglomerate would rejoin Paris’s CAC 40 blue chip index, reaching May highs
• Anglo American falls as much as 7.3%, the most since March, after the miner gave volume guidance for 2024 to 2026 that analysts say missed consensus estimates across the board
• DNB falls as much as 3.2% and Handelsbanken as much as 1.9% after the lenders were downgraded to sell and neutral, respectively, at UBS in a review on the Nordic banking sector
• Imperial Brands shares fall as much as 2.6% after the tobacco company was downgraded to sector perform at RBC Capital Markets following a sizable outperformance relative to peer BAT
• Siemens Energy falls as much as 6.3% after JPMorgan cuts the German firm to underweight, seeing no clear way of realizing the premium implied by a sum-of-the-parts valuation of its diverse portfolio
• Epiroc falls as much as 3.2% after JPMorgan downgraded the Swedish mining equipment maker to underweight from neutral, citing elevated consensus estimates and overall valuation
• Alstom and Stadler Rail both drop after the rail equipment companies saw their respective ratings cut at JPMorgan, seeing unfavourable risk-reward ratio in the latter

Earlier in the session, Asian equities swung in a narrow range as major technology stocks rallied while Japan reeled from a strengthening in the yen. The MSCI Asia Pacific Index was on track to end a streak of three weekly gains. Toyota and Sony were among the biggest drags Friday as chipmakers TSMC and Samsung gained. Japanese stocks slid after the yen surged by the most against the dollar in almost a year on bets the Bank of Japan will end negative interest rates as early as this month. The currency move soured the outlook for the nation’s exporters.

• Hang Seng and Shanghai Comp just about shrugged off the early indecision amid a lack of fresh drivers with the downside cushioned after the PBoC conducted a net liquidity injection for the first time this week.
• Japan's Nikkei 225 underperformed amid pressure from a firmer currency after speculation that the BoJ could exit NIRP sooner than thought with markets pricing around a 20% chance they could lift rates at the December meeting, while a downward revision in Japan’s Q3 GDP to a deeper annualised contraction of -2.9% also clouded over the risk tone.
• Australia's ASX 200 finished marginally higher in choppy trade as weakness in financials and tech was offset by resilience in the commodity-related sectors including energy after confirmation of early merger talks between Woodside Energy and Santos to form an AUD 80bln Australian gas giant.
• Indian stocks posted their biggest weekly surge in 17 months as local shares climbed to new all-time highs after the nation’s central bank raised economic growth forecast. The S&P BSE Sensex Index rose 0.4% to close at record high of 69,825.60 in Mumbai on Friday, while the NSE Nifty 50 Index advanced 0.3%. For the week, the gauges posted a rise of 3.5% each, their biggest weekly advance since July 2022. The Reserve Bank of India raised its growth projection for the fiscal year ending March to 7% from 6.5% — higher than most economists’ predictions.

In FX, the Bloomberg Dollar Spot Index steadied and Treasury yields rose 2-3bps across the curve, as traders awaited key US labor market data for signs over when the Federal Reserve may start cutting rates. The kiwi is the worst performer among the G-10’s, falling 0.3% versus the greenback. USD/JPY is little changed at ~144.20.

• USD/JPY pared a fall to trade slightly higher at 144.43; Thursday saw the Japanese yen clinch its biggest one-day gain since January
• CAD/USD reversed four sessions of losses to rise as much as 0.2% to 0.7368, as the Canadian dollar led Group-of-10 gains against the greenback
• USD/SEK and EUR/SEK rose, after GDP data showed an unexpected uptick in Swedish economic activity in October

In rates, treasuries fall, with US 10-year yields rising 3bps to 4.18% and 10Y futures near session low and Thursday’s low ahead of November jobs report release at 8:30am New York time, 10-year note. Bunds and gilts have seen steeper declines.  US yields higher by 2bp to 4bp across the curve with move led by belly, flattening 5s30s spread by around 1bp on the day; 10-year around 4.18% is ~3bp cheaper on the day, bunds and gilts by an additional 2.5bp and 3.5bp in the sector. US economic data includes November jobs report (8:30am) and December preliminary University of Michigan sentiment (10am)

In commodities, oil prices advanced, with WTI crude futures rising 1.4% from lowest closing level since July to trade near $70.30. iron ore rose to its highest since February as steel mills in China replenish depleted inventories in anticipation of stronger consumption next year. It’s been a wild week for lithium in China, as the country’s newest commodities exchange tried to quell a frenzy of speculation that’s fueling violent price swings for the battery material.

Bitcoin (-0.2%) and Ethereum (-0.4%) both traded marginally lower after both hitting 2023 highs overnight.

Looking to the day ahead now, and data releases include the US jobs report, along with the University of Michigan’s preliminary consumer sentiment index for December. Otherwise, central bank speakers include the ECB’s Muller.

Market Snapshot

• S&P 500 futures little changed at 4,589.75
• STOXX Europe 600 up 0.4% to 470.84
• MXAP down 0.2% to 161.19
• MXAPJ up 0.6% to 501.02
• Nikkei down 1.7% to 32,307.86
• Topix down 1.5% to 2,324.47
• Hang Seng Index little changed at 16,334.37
• Shanghai Composite up 0.1% to 2,969.56
• Sensex up 0.4% to 69,797.30
• Australia S&P/ASX 200 up 0.3% to 7,194.92
• Kospi up 1.0% to 2,517.85
• German 10Y yield little changed at 2.23%
• Euro down 0.2% to $1.0775
• Brent Futures up 2.2% to $75.68/bbl
• Gold spot up 0.0% to $2,028.65
• US Dollar Index up 0.24% to 103.79

Top Overnight News

• Stocks rose while bonds slipped Friday as traders awaited a pivotal US jobs report for more evidence of whether the labor market is cooling fast enough for the Federal Reserve to cut interest rates.
• A monthly Bureau of Labor Statistics report due Friday is set to show the US unemployment rate edged higher in November as the economy began to slip into a recession, according to Bloomberg Economics.
• European Union finance ministers are still scrambling to find an agreement on new fiscal rules for the bloc.
• Market participants have overplayed recent comments by Bank of Japan Governor Kazuo Ueda and his deputy, as there is no reason to believe the central bank will scrap its negative interest rate early, according to a former executive director.
• China funds accepted the lowest yields in at least a decade and a half in an auction of long-tenor government bonds, shrugging off Moody’s Investors Service decision to cut the country’s credit outlook.

A more detailed look at global markets courtesy of Newsquawk

APAC stocks eventually traded mostly higher but with gains limited as sentiment remained cautious heading into the incoming US NFP jobs report and after the recent BoJ speculation. ASX 200 finished marginally higher in choppy trade as weakness in financials and tech was offset by resilience in the commodity-related sectors including energy after confirmation of early merger talks between Woodside Energy and Santos to form an AUD 80bln Australian gas giant. Nikkei 225 underperformed amid pressure from a firmer currency after speculation that the BoJ could exit NIRP sooner than thought with markets pricing around a 20% chance they could lift rates at the December meeting, while a downward revision in Japan’s Q3 GDP to a deeper annualised contraction of -2.9% also clouded over the risk tone. Hang Seng and Shanghai Comp just about shrugged off the early indecision amid a lack of fresh drivers with the downside cushioned after the PBoC conducted a net liquidity injection for the first time this week.

Top Asian News

• Australia's Treasurer announced a new policy statement with the RBA in which the RBA board and the government agreed that a flexible inflation target is an appropriate framework for achieving price stability with the goal for consumer price inflation kept between 2%-3%. RBA board will set monetary policy so that inflation is expected to return to the mid-point of the target with the appropriate timeframe for this to depend on economic circumstances, while the RBA will publish detailed forecast data and assumptions including the Cash Rate. Furthermore, once the new monetary policy board is operational, it will publish an unattributed record of votes and will convene and engage with an expert advisory group on monetary policy to provide the board with a wide range of external views.
• RBI kept the Repurchase Rate unchanged at 6.50%, as expected, while it maintained its stance of remaining focused on the withdrawal of accommodation in which 5 out of 6 members voted in favour of the policy stance. RBI Governor Das said the Indian economy is resilient and has momentum, while he noted broad-based easing in core inflation but added that inflation could see an uptick in November and December. Furthermore, he stated that the target of 4% CPI has yet to be reached and they have to stay the course on inflation, as well as noted that monetary policy has to stay alert about shocks getting generalised and has to remain actively disinflationary with the need to remain vigilant and ready to act.
• RBI's Das says the MPC will be highly alter to any signs of derailing in the ongoing disinflation process, will take appropriate action to get inflation to target
• China's Politburo says it will continue to implement proactive fiscal policy in 2024, and prudent monetary policy; will improve resilience and security of industrial supply chains, will expand domestic demand.
• China says monetary policy is to be flexible; drops the "forceful" wording, according to Bloomberg
• Fitch has upgraded Vietnam to BB+; outlook stable

European equities (Eurostoxx50 +0.5%) are on firmer footing with outperformance in the CAC 40 (+1.1%) with Luxury propping the index. European sectors are generally in the Green; Consumer Products & Services is the top performer, with Luxury names the main beneficiaries whilst Basic Resources lags following a trading update at Anglo American (-6.7%). US equity futures hold around the unchanged mark awaiting direction from the US NFP Report; though the Russell (+0.3%) is slightly firmer, following price action in Europe.

Top European News

• Fitch said major UK banks are resilient to the economic backdrop and underpinned by strong buffers, while it added that the performance of major domestically focused UK banks will remain sound over the next two years.
• Italy's Treasury said it is to sell up to EUR 6bln in BTP bonds at auction on Dec 13th.
• EU Economic Commissioner Gentiloni says there is not fiscal deal despite progress, as some legal aspects need to be clarified. Confident an agreement can be reached.
• Spanish Finance Minister Calvino says they will convene an extraordinary EcoFin meeting to conclude a deal on EU fiscal rules
• French Finance Minister Le Maire says they now have an agreement rate of 95% on fiscal rules; on Thursday said they were around 90%
• Spain's Economy Minister Calvino has been appointed as head of the EIB, via El Pais
• Bank of England/Ipsos Inflation Attitudes Survey - November 2023: Median expectations of the rate of inflation over the coming year were 3.3%, down from 3.6% in August 2023.

FX

• The Dollar remains within a tight range in the run-up to the day’s highlight, the US jobs report ahead of next week’s FOMC confab.
• The Yen has come off recent highs with USD/JPY back on a 144.00 handle at the time of writing (vs yesterday’s 141.70 trough).
• Antipodeans are mixed with the AUD and CAD narrowly outperforming amid the strength in oil and base metals whilst the NZD sits as the G10 laggard, although with no obvious catalyst aside from AUD/NZD flows.
• PBoC set USD/CNY mid-point at 7.1123 vs exp. 7.1427 (prev. 7.1176)
• Recent softness in consumption has presented itself as a source of concern for BoJ policymakers who are "eyeing" an exit from easy policy, according to Reuters sources

Fixed Income

• USTs are currently lower by 11 ticks with fresh macro drivers non-existent as participants position themselves for the November NFP report, ahead of Tuesday’s CPI and thereafter the FOMC meeting begins.
• Bunds fell to a 134.91 low which brings into play the 134.55 trough from Wednesday; a move without fresh catalysts.
• Gilt action is relatively pronounced, it remains well within recent bounds and as such the accompanying pressure to the SONIA strip has thus far only managed to bring December back to unchanged being fully priced.

Commodities

• WTI and Brent (+1.5%) futures are posting notable gains making back some of the losses seen this week; though the complex has come off best levels in recent trade with catalysts limited.
• Metals are mixed with precious metals flat pre-NFP with spot Gold around the USD 2,030/oz level; Base metals are firmer across the board amid improving demand from China following the recent PMI and trade data.
• Iraq’s oil minister said the country renewed its support for the OPEC+ agreement and commitment to voluntary cuts.
• EU is to give member states the power to block Russian gas imports, according to FT.
• Sanctions on ships with Russian oil will not affect Indian purchases; adequate vessel available to import Russian crude; dip in oil prices will help India buy more oil from Russia, according to an Indian government source.
• EU is said to be considering restarting the WTO case against the US over steel tariffs, according to Bloomberg sources; final decision yet to be taken.
• Russia's Kremlin says Russian President Putin and Iranian President Raisi discussed integration and cooperation within OPEC+ on Thursday

Geopolitics

• Israel agreed to a US request to open the Kerem Shalom border crossing for screening and inspection of humanitarian aid into Gaza, according to a US official cited by Reuters.
• UAE asked the UN Security Council to vote on Friday morning on a draft resolution demanding an immediate humanitarian ceasefire in Gaza, according to diplomats cited by Reuters.
• White House said they are not close to another deal for a pause in the Israel-Hamas conflict and the US is still trying to get more information on Hamas hostages.
• US Secretary of State Blinken said attacks in the Red Sea are unacceptable and they believe attacks are being carried out with the support of Iran, according to Al Jazeera via social media platform X.
• US State Department said it welcomes the release of Armenian and Azerbaijani soldiers, while it added that Secretary of State Blinken looks forward to hosting Azerbaijani and Armenian foreign ministers in Washington for the next round of peace talks soon.
• At least three rockets targeting the US embassy in Baghdad's Green Zone were fired at dawn on Friday, landing on the outskirts of the district housing government and diplomatic buildings, according to an Iraqi security official cited by AFP
• "Israeli army: We hit several targets inside Syria after firing shells towards the Golan Heights", according to Al Arabiya
• Kremlin when asked about idea US wants Russia to engage in peace talks with Ukraine on Kyiv's terms in 2024, says it is "absolutely unrealistic"

US Event Calendar

• 08:30: Nov. Change in Manufact. Payrolls, est. 30,000, prior -35,000
  • Nov. Change in Private Payrolls, est. 158,000, prior 99,000
  • Nov. Change in Nonfarm Payrolls, est. 183,000, prior 150,000
  • Nov. Unemployment Rate, est. 3.9%, prior 3.9%
  • Nov. Labor Force Participation Rate, est. 62.7%, prior 62.7%
  • Nov. Underemployment Rate, prior 7.2%
  • Nov. Average Weekly Hours All Emplo, est. 34.3, prior 34.3
  • Nov. Average Hourly Earnings YoY, est. 4.0%, prior 4.1%
  • Nov. Average Hourly Earnings MoM, est. 0.3%, prior 0.2%
• 10:00: Dec. U. of Mich. Sentiment, est. 62.0, prior 61.3
  • Dec. U. of Mich. Current Conditions, est. 68.5, prior 68.3
  • Dec. U. of Mich. Expectations, est. 57.0, prior 56.8
  • Dec. U. of Mich. 1 Yr Inflation, est. 4.3%, prior 4.5%
  • Dec. U. of Mich. 5-10 Yr Inflation, est. 3.1%, prior 3.2%

DB's Jim Reid concludes the overnight wrap

Risk assets put in a solid performance over the last 24 hours, with the S&P 500 (+0.80%) bouncing back after 3 consecutive declines, whilst US HY spreads reached their tightest levels in over 18 months. Those advances have helped to ease financial conditions considerably over recent weeks, and Bloomberg’s index for the US now stands at its most accommodative level since September. Nevertheless, we’re about to enter a pivotal week ahead, since the US jobs report is out today, and that’s being followed next week by the US CPI, as well as the final Fed and ECB decisions of 2023. So with speculation about rate cuts continuing to mount, we could soon have a much better sense of how likely those are to arrive.

In terms of today’s jobs report, our US economists are forecasting a +130k gain in nonfarm payrolls, which in turn would leave the unemployment rate unchanged at 3.9%. Both will be in focus, since nonfarm payrolls have slowed considerably since the start of the year, and last month saw the unemployment rate hit its highest since January 2022, so there’ve been several signals that the labour market is softening. See here for their full preview and details of how to sign up to the webinar after the report.

One thing to watch out for in the jobs report is what it means for the Sahm Rule. In previous cycles, the Sahm Rule signalled that a recession was underway if the three-month average of the unemployment rate was 0.5pts above its minimum over the previous 12 months. As of last month, that measure stood 0.33pts above its recent minimum of 3.5%, so is moving closer to levels that have previously been consistent with recessions, and is now two-thirds of the way to 0.5pts. However, since the measure is based on a 3-month average of the unemployment rate, it wouldn’t be triggered today even if the unemployment rate were to be at 4.0% in this month’s report. Another area we’ve been watching are the Temporary Help Services category of payrolls. That’s been on a broadly downward trajectory in recent months, and has a track record as a leading indicator in previous cycles.

Ahead of the report, yesterday we had the latest weekly jobless claims, which showed initial claims were at 220k over the week ending December 2. That was in line with expectations, and leaves the 4-week average broadly in line with recent levels, at 220.75k. Moreover, the continuing claims for the week ending November 25 were down to 1.861m (vs. 1.91m expected), which reverses most of the sharp uptick over the previous week.

In response to the jobless claims data, yields on US Treasuries initially spiked, but pared back some of that increase over the rest of the day. By the end of the US session, those on 10yr Treasuries were up +4.6bps to 4.15%, whilst the 2yr yield was flat at +0.3bps to 4.60%, with both closing 3-4bps below their peaks early in the day. This came as investors remained confident about the prospect of rate cuts next year, with futures pricing in a 66% chance of a cut by March as of this morning. It’s a similar story at the ECB as well, with investors pricing in a 75% chance of a cut by March. So next week’s meetings will be crucial to see if central bank officials push back on that assessment. Speaking of those meetings, one thing to keep an eye on today will be the University of Michigan’s survey, where long-term inflation expectations will be in focus after hitting a 12-year high of 3.2% last month .

For equities, there was a strong performance in the US, with the S&P 500 rising +0.80% as the Magnificent 7 (+2.13%) led the gains once again. The tech outperformance included a +2.79% gain for the Philadelphia semiconductors index and a +5.31% rise for Alphabet, amid renewed investor optimism over AI after Google’s release of its new AI model the previous day. However in Europe it was a different story, with the STOXX 600 (-0.27%), the DAX (-0.16%) and the CAC 40 (-0.10%) all posting modest declines. That risk-off tone in Europe was evident in sovereign bond markets too, and yields on 10yr bunds fell another -0.8bps to 2.19%, marking a fresh 7-month low, whilst yields on 10yr OATs (-1.1bps) fell to an 8-month low of 2.73% .

Overnight in Asia, the focus remains on Japan, and yesterday saw the Japanese Yen strengthen by +2.21% against the US Dollar as speculation mounted that the Bank of Japan could soon end its negative interest rate policy. That its biggest daily gain since January, and this morning it’s up another 0.22% to 143.84 against the dollar, despite the news that the Japanese economy contracted by more than previously thought in Q3. For instance, GDP contracted at an annualised pace of -2.9%, up from -2.1% in the preliminary reading, which marks the economy’s biggest quarterly contraction since Q2 2020 during the pandemic. Nevertheless, markets are pricing in a 29% chance that the BoJ will move away from negative interest rates at its meeting on December 19, and the Nikkei (-1.89%) has continued to lose ground.

Elsewhere in Asia, the picture is more positive overnight, with gains for the Hang Seng (+0.32%), the CSI 300 (+0.41%) and the Shanghai Comp (+0.36%), whilst the KOSPI (+1.02%) has seen an even larger advance. Looking forward, US equity futures are basically flat ahead of the jobs report, with those on the S&P 500 down -0.03%.

There was little other data yesterday, although we did get German industrial production for October, which fell by -0.4% (vs. +0.2% expected). That was the 5th consecutive monthly decline, which is the first time that’s happened since the height of the financial crisis in 2008-9. We also had the final print of euro area Q3 GDP confirm a -0.1% quarterly decline, with details of release pointing to slowing wage growth, as compensation per employee slowed to 5.2% year-on-year in Q3 from 5.4% in Q2 (with the latter revised down from 5.6% previously). So the print has added to signs of labour market moderation for the ECB.

To the day ahead now, and data releases include the US jobs report, along with the University of Michigan’s preliminary consumer sentiment index for December. Otherwise, central bank speakers include the ECB’s Muller.