Forex Fundamental Analysis Reports

Today's Key Points

* The bearish steepener is back. US yields soared 10bp yesterday. Equities have retreated in Asia and the FX market is stable.
* Today's main event is the US non-farm payrolls report. We expect a reading below market expectations.
* The Swedish National Debt Office borrowing requirement for June is published today.

Markets Overnight

Yesterday saw a huge move given the weight normally attached to the ADP report and ISM non-manufacturing data. US 10yr yields rose no less than 10bp and 2yr yields soared by 8bp. Once again we are thus facing a bearish steepening of the US curve. The very same trend we saw during the bear market in May-June.

On the equity side the S&P500 stayed unchanged in yesterday's trading session, whereas the Nasdaq rose by 0.4%. So far this morning the Asian stock indices are down.

The FX market has seen few changes since yesterday afternoon. Since the EUR/USD broke through 136 on the downside the cross has remained unchanged just below 136. The EUR/JPY is still close to the all time high levels as it lingers above 167.2. The Scandinavian currencies have not seen any major shifts. The EUR/NOK has continued its move towards 790.

Global Daily

The release of the US employment report today is likely to set the tone in the financial markets during the coming weeks. We expect non-farm payrolls to show job creation of 115k, down from 147k and somewhat below consensus of 120k. However, risks are clearly to the upside following yesterday's strong ADP employment survey, which posted an increase by 150k. The US unemployment rate is expected to stay unchanged at 4.5%.

As far as yields are concerned, though, the risk ought to be on the downside, since the market has already priced in a strong report. Large surprises in the employment report will likely push the EUR/USD out of its recent range of 1.358-1.368 - and if our employment estimate is correct, we expect a test of 1.368. In the UK, the report on industrial production could be interesting to follow after the Bank of England hiked rates yesterday. We expect the EUR/GBP to move towards the 0.67 level in the coming week.

Scandi Daily

The Swedish National Debt Office borrowing requirement for June is published at 09:30. The SNDO forecasts SEK 0.0bn, which is 4.7bn lower than the old forecast due to eg higher tax revenues and higher dividends on state-owned companies. The full year forecast was recently raised to 138bn from 112bn. Hence, money continues to flood into government finances. The EUR/SEK and 2y government yield spread remained stable yesterday at around 9.15 and 25bp respectively.

Danske Bank