The JPY is the strongest and the EUR is the weakest as the NA session begins

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As the North American session begins the JPY is the strongest of the major currencies for the 2nd consecutive day, while the EUR is the weakest.

In Japan, according to a Reuters report, there is increasing speculation among Bank of Japan (BOJ) policymakers about the possibility of exiting negative interest rates earlier than anticipated, potentially even before April. This shift in stance is attributed to the expectation of favorable outcomes from this year’s spring wage negotiations. A source close to the central bank mentioned that substantial wage increases resulting from these negotiations could prompt the BOJ to act sooner rather than wait until April. The decision hinges on the results of the wage talks expected to be disclosed next week, with many policymakers keenly observing the outcomes to decide on the timing for abandoning negative rates. This move is seen as a significant indicator of the BOJ’s confidence in Japan’s economic recovery, especially in terms of wage growth and inflation dynamics.

In the EU a day after the ECB decision, a slew of ECB officials are stumping for a cut in the spring (April/June):

  • ECB’s Holzmann suggests that a rate change may be under consideration.
  • ECB’s Šimkus indicates a rate cut in June is highly probable, according to his remarks.
  • ECB’s Rehn states that the risks associated with an early rate cut have significantly diminished, according to his comments.
  • ECB’s Villeroy mentions that a rate cut in the spring, defined as April to June, is ‘very likely’.

In the early US hours, NY Fed Pres. WIlliams is speaking. He noted a significant decrease in inflation expectations and addressed the potential for an accelerated tapering of bond purchases, highlighting that demand has decreased under the influence of restrictive monetary policy. He emphasized the Fed’s commitment to price stability and the universal consensus against the harms of high inflation. Williams also mentioned that the neutral interest rate remains relatively low and reiterated the Fed’s focused approach, independent of political considerations. Additionally, he remarked on the resilience of the US economy in 2023, describing its performance as remarkable. This week, there was some comments from officials dialing back 3 cuts to 2 (Atlanta Fed Pres. Bostic and Minneapolis Fed Pres. Kashkari). The Fed chair commented that we are getting close to easing.

With the Fed sitting on the fence, the focus in the US session will be on the monthly US jobs report. Recall that last month, the nonfarm payrolls added 353K jobs well above consensus. What are they expecting this month? Adam posted his summary yesterday:

  • Consensus estimate +200K (range +120 to +290K)
  • Private +160K estimate vs +317K prior
  • January was stronger at +353K
  • Unemployment rate consensus estimate: 3.7% vs 3.7% prior
  • Participation rate: 62.5% prior
  • Prior underemployment U6: 7.2%
  • Avg hourly earnings y/y exp +4.4% y/y vs +4.5% prior
  • Avg hourly earnings m/m exp +0.3% vs +0.6% prior
  • Avg weekly hours exp 34.3 vs 34.1 prior

February jobs so far:

  • ADP report +140K vs +150K expected and +111K prior
  • ISM services employment 48.0 vs 50.5 prior
  • ISM manufacturing employment 45.9 vs 47.1 prior
  • Challenger job cuts 84.6K vs 82.3K — 11-month high
  • Philly employment -10.3 vs -1.8 prior
  • Empire employment -0.2vs -6.9 prior
  • Initial jobless claims survey week 202K — a five-week low

At the time of the January non-farm payrolls report, the market was pricing in 142 basis points in rate cuts this year. That’s since fallen to 92 bps.

A snapshot of the markets as the North American session begins currently shows:

  • Crude oil is trading down $-0.62 or -0.79% at $78.29. At this time yesterday, the price was at $78.85
  • Gold is trading to another new record high today and is trading up another $6.71 or 0.30% at 2166.34. At this time yesterday, the price was at $2158.30. The high price today reached a new record at $2171.02.
  • Silver is trading up $0.15 or 0.61% at $24.45. At this time yesterday, the price was at $24.17
  • Bitcoin currently trades at $67,559. At this time yesterday, the price was trading at $66,655. Earlier this week, the price reached a new all-time high of $69,210

In the premarket, the US stocks, the major indices are trading lower after solid gains yesterday:

  • Dow Industrial Average futures are implying a loss of -63.35 points. Yesterday, the index rose 75.86 points or 0.20% at 38661.06
  • S&P futures are implying a loss of -1.36 points. Yesterday, the index rose 26.13 points or 0.54% at 5104.77
  • Nasdaq futures are implying a loss of -25.45 points. Yesterday, the index rose 91.95 points or 0.58% at 16031.54

In the European equity markets, the major indices are trading mixed. Yesterday both the German DAX and France CAC closed at record levels:

  • German DAX, -0.15%. Yesterday, the index rose 0.71%. Record close.
  • France CAC was 0.05%. Yesterday, the index rose 0.77%. Record close.
  • UK FTSE 100, -0.57%. Yesterday, the index rose 0.17%
  • Spain’s Ibex, -0.10%. Yesterday, the index rose 1.20%
  • Italy’s FTSE MIB, unchanged (delayed by 10 minutes). Yesterday, the index rose 0.16%

Shares in the Asian Pacific markets were mixed:

  • Japan’s Nikkei 225, +0.23%. For the trading week the index fell -0.56%
  • China’s Shanghai Composite Index, +0.61%. For the trading week, the index rose 0.627%
  • Hong Kong’s Hang Seng index, +0.76%. For the week the index fell -1.42%.
  • Australia S&P/ASX, +1.07%. For the week the index rose 1.3%.

Looking at the US debt market, yields are marginally higher:

  • 2-year yield 4.492%, -2.2 basis points.. At this time yesterday, the yield was at 4.557%
  • 5-year yield 4.060% -2.3 basis points. At this time yesterday, the yield was at 4.109%
  • 10-year yield 4.073%, -1.9 basis points. At this time yesterday, the yield was at 4.092%
  • 30-year yield 4.229% -1.6 basis points. At this time yesterday, the yield was at 4.218%
  • The 2-10 year spread is at -41.9 basis points. At this time yesterday, the spread was at -46.6 basis points
  • The 2-30 year spread is at -26.3 basis points. At this time yesterday, the spread was at -33.8 basis points

European benchmark 10-year yields are lower:

European benchmark 10 year yields

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