Position Squaring Weighs On The Dollar Ahead Of The Jobs Report

Overview: While equities continue to march higher, the dollar is softer amid position squaring ahead of the US jobs data. Gold has stabilized after yesterday's shellacking. Estimates for US nonfarm payrolls appear to have been creeping higher, encouraged by the ADP, PMI, and weekly initial jobless claims. A robust report today could bolster the dollar, as the short-term trading community still seems short. After the S&P 500 and NASDAQ made new record highs yesterday, Asia Pacific bourses, except for China, advanced. Japan, Australia, and South Korea's main benchmarks rose by more than 1%. Europe's Dow Jones Stoxx 600 is higher for the fifth consecutive session. The roughly 3.8% gain on the week would be the biggest since last November if sustained. US shares are firm. The bond market is quiet, with the US 10-year benchmark near 1.14%. The prospects of a Draghi-led Italian government have seen the Italian premium over German narrow, and it is now below 100 bp for the first time in five years. The greenback is lower against nearly all the currencies, major and emerging. The JP Morgan Emerging Market Currency Index is poised to snap a six-week decline. Gold fell to around $1785 yesterday, tumbling around 2.2%. It was squeezed back to about $1811 before stalling. Oil has moved in the opposite direction. It is up for a fifth consecutive session, leaving the March WTI contract around $57 a barrel. It is up nearly 9% this week and is above year-ago levels.  

Asia Pacific

Japan's December household spending figures held in better than expected, falling 0.6%, a third of the decline that economists expected. Japan does not report Q4 20 GDP until February 15. An expansion of 2.0%-2.5% is expected after 5.3% quarter-over-quarter growth was reported in Q3. The household spending figures are consistent with a slowing in consumption from 5.1% in Q3. 

Australia's final look at December retail sales was in line with expectations, falling 4.1% (initially -4.2%). The new information is that excluding inflation, retail sales rose 2.5% in Q2 after a 6.5% increase in Q3. Separately, the RBA's quarterly update warned that the rapid part of the recovery has passed and that going forward, growth is likely to be "uneven." Of note, while many scenarios are holding out the promise of a stronger second half, the RBA expects the Australian economy to expand by 8% in the year through June before easing to a 3.5% pace. The central bank sees inflation accelerating to around 3% by mid-year--as some measures like free child care drop out---before being halved by the end of the year.  

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Read more by Marc on his site Marc to Market.

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