US EARLY MORNING: Equity futures flat ahead of US jobs data

US equity futures are trading around unchanged, giving up gains on news that China will sanction House Speaker Pelosi after her recent visit to Taiwan, but index futures are on course for a third week of gains. Yields are higher along the Treasury curve by 1-3bps, with the shape of the curve modestly narrowing. The Dollar Index is up around 30bps, which is resulting in activity currencies trading lower, though the EMFX landscape is more mixed. Crude benchmarks are higher. Overnight, APAC stocks traded mostly higher but gains were capped by lingering geopolitical concerns; the European start was mixed amid a heavy slate of corporate updates; participants continue to contend with growth fears after the Bank of England Thursday forecast that the UK would enter a protracted recession, while there are also anxieties over European growth dynamics too given the ongoing energy crisis; ABN AMRO became the latest to predict that recession is coming. Stateside, however, Q3 metrics have been constructive in wake of the growth contraction in Q1 and Q2, and the ISM surveys this week both surprised to the upside. The Fed is now in data-dependent mode, meaning that today’s jobs data will be framed in the context of how the FOMC will set policy at its September meeting (our detailed NFP preview is here); the street expects the headline to continuing easing (which traders will use as a growth proxy), while average hourly earnings (used as an inflation proxy) is seen easing on an annual basis – this concoction might provide a ‘Goldilocks’ scenario for the Fed, where growth is holding up and inflation pressures are easing, which might be seen to favour a smaller 50bps rate hike in September, rather than a 75bps move. Money market pricing currently implies that there is a greater probability of a smaller move, but not by a great deal. Much will depend on how other incoming data looks, and next week’s US CPI might be more important in that regard, particularly since the Fed has impressed that tackling soaring consumer prices is taking priority over supporting growth. Full Day Ahead here.

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05 Aug 2022 - 09:25- Research Sheet- Source: Newsquawk

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