Dollar Remains On The Defensive Ahead Of Jobs Report

Overview: An unexpected increase in China's Caixin manufacturing PMI helped lift Asia Pacific equities after the S&P 500 stumbled yesterday amid concerns that there will not be a phase 2 in US-China trade negotiations. The MSCI Asia Pacific Index rose 4.3% in October, and with the help of gains in China, Hong Kong, Korea, and Taiwan began November with a gain. European stocks posting modest gains after the Dow Jones Stoxx 600 rose a little less than 1% last month. US shares are firm, and the S&P 500 is up about 0.5% on the week coming into today's session. It rose by about 2% last month. Benchmark 10-year yields are narrowly mixed. Last month, yields rose around 15 bp in core Europe and 7-8 bp in Spain and Italy. The US 10-year yield rose about five basis points in October  Japan was a notable exception as its benchmark yield slipped almost three basis points. The dollar is on the defensive ahead of the jobs report, where the headline is expected to be depressed by strike activity. The currencies typically sensitive to risk appetites, like the Scandis and Antipodeans, are leading the advance. Over the course of the week, only the Canadian dollar, where the central bank softened its neutral stance, did not gain on the US dollar. The dollar fell against all the majors save the Norwegian krone (-1%) in October, Gold edged higher this week (~0.6% at around $1514.5). It is the third weekly advance and the fourth in the past five weeks. Light sweet crude oil is trying to snap a four-day slide. After rising nearly 5.2% last week, it is off about 4.2% this week (~$54.35 December WTI).  

Asia Pacific

China's official manufacturing PMI fell in October to 49.3 from 49.8, but the Caixin measure, which puts more weight on smaller companies to 51.7 from 51.4. The forward-looking new orders component jumped to its highest in several years. As one swallow does not make a spring, the importance of the Caixin PMI should not be exaggerated. Nevertheless, investors will scrutinize the upcoming data for confirmation that the economy is finding some traction. Recall that the September industrial output did tick up (5.8% year-over-year vs. 4.4% in August).   

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Read more by Marc on his site Marc to Market.

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