• US July non-farm payrolls +187K vs +200K expected
• Canada July employment change -6.4K versus 21.1 K estimate
• Fed’s Goolsbee: The July non-farm payrolls report is pretty much what we expect
• Fed’s Bostic: Fed likely to be in restrictive territory well into 2024
• Baker Hughes US oil rig count -4
• Fed still on track for a September hike after non-farm payrolls – CIBC
• Canada July Ivey PMI 48.6 vs 50.2 prior

Markets:

• Gold up $8 to $1941
• US 10-year yields down 14.5 bps to 4.04%
• WTI crude up $1.10 to $82.65
• EUR leads, CAD lags
• S&P 500 down 24 points, or -0.5%

The initial reaction to the non-farm payrolls report was to sell the dollar but then the market had a look at the higher wage data and there was a recovery. Ultimately though, a strong bid appeared for bonds and there was a growing sense that the Fed is probably done, something that Goldman Sachs reiterated in a note. Fed probabilities didn’t move much after the data but there’s only a 30% chance of another hike as the market grows confident that the economy is cooling.

I also strongly suspect that bond buyers were waiting in the weeds to buy Treasuries no matter the number. 30-year yields moved up as much as 30 bps this week but purchasers would have been scared to wade in and get blown up by another strong jobs report. So when the data was ‚good enough‘ they pulled the trigger, driving yields lower and taking the dollar with it.

Initially, the dollar trade was uniform but particularly strong for the euro and pound. The latter rose to the highest levels of the week in the aftermath and USD/JPY joined in as it fell below 142.00.

Later in the day there was something of a recovery in stock markets as equities stumbled. Stocks had been strong early but faded throughout the day in a 1% reversal. With that commodity currencies were hit particularly hard and CAD ended up at the bottom of the pile despite gains for oil and gas.

The week ahead features the US CPI report and that will be another big one as the market shifts from thinking about more Fed hikes to pondering when in 2024 the cuts will begin.

Have a great weekend.

This article was written by Adam Button at www.forexlive.com.

Closing changes:

• S&P 500 -0.5%
• DJIA -0.5%
• Nasdaq Comp -0.4%
• Russell 2000 -0.2%
• Toronto TSX Comp +0.5%

On the week:

• S&P 500 -2.3%
• DJIA -0.5%
• Nasdaq Comp -2.8%
• Russell 2000 -1.2%
• Toronto TSX Comp -1.4%

July was a great month for stocks but August has gotten off to a slow start. The market looked like it would turn today as yields fell but that ultimately wasn’t enough. US yields end the day 10-15 bps lower across the curve.

Still, this is the first substantial weekly decline since March so the bulls can’t exactly complain.

This article was written by Adam Button at www.forexlive.com.

Bank of America (BofA) outlines three primary
reasons why dips in the USDJPY exchange rate are likely to be both
shallow and short-lived. Despite the Bank of Japan’s (BoJ) recent
adjustments to its Yield Curve Control (YCC), BofA maintains its
expectation for USDJPY to rise to 147 by September.

Key Points:

• Unlikely Capital Repatriation: BofA does not foresee
  Japanese investors repatriating capital in the current fiscal year due
  to the recent YCC tweaks. This lack of repatriation is attributed to the
  preparation investors undertook last fiscal year in anticipation of
  BoJ’s policy normalization.

• No Indication of Multiple Rate Hikes: Despite the
  BoJ’s recent action, BofA believes it does not necessarily indicate a
  clear change in stance towards multiple rate hikes. Governor Ueda
  reiterated a patient stance, possibly acknowledging inflation’s upside
  risks.

• Reduced Market Volatility: Interestingly, the
  adjustments in YCC seem to have led to a decline in the USDJPY’s implied
  volatility, contradicting the idea that these changes might spark
  increased market volatility.

Summary:

BofA asserts that recent changes to the BoJ’s YCC are unlikely to
significantly impact the USDJPY exchange rate. The bank predicts that
any dips in the exchange rate will be both brief and limited in scope,
maintaining its outlook for USDJPY to reach 147 by September. This
forecast is supported by the lack of expected capital repatriation by
Japanese investors, no clear indication of multiple rate hikes from the
BoJ, and a decrease in implied market volatility.

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This article was written by Adam Button at www.forexlive.com.

This bull market started with tech and it might die with tech.

Amazon shares surged higher today on strong cloud revenue but Apple posted slowing sales, including of the iPhone and that has led to a heavy round of profit taking. Shares are down 4.6%.

The entire summer run-up in Apple has now been erased and the fear is that we could get a deeper retracement, perhaps to the 38.2% or 50% levels of the one-way trade that started at the turn of the year. That would imply a further 7-12% decline.

Here is a sense of how revenues have trended in the past year, despite an inflationary environment:

• Rev.: $81.8B, -1% y/y
• iPhone: $39.7B, -2% y/y
• Mac: $6.8B, -7% y/y
• iPad: $5.8B, -20% y/y
• Services: $21.2B, +8% y/y

The bull case for Apple has been rising services fees but if you’re selling less hardware, then there isn’t a platform for people to buy the services on.

The decline in Apple shares has contributed to a turnaround in the broader market with the S&P 500 now down 21 points to 4480 from a high of 4540. That’s a 1% reversal.

This article was written by Adam Button at www.forexlive.com.

The US dollar has recovered some of the selling after non-farm payrolls as equities give back gains. Notably, Treasury yields remain near the lows of the day, led by a 13 bps fall in 7-year notes.

The dollar has been dragged around by fixed income this week but its stocks behind this move. The S&P 500 is now up just 4 points on the day at 4506 from a high of 4540.

The dollar bounce is strongest against commodity currencies but the euro is starting to move as well.

This article was written by Adam Button at www.forexlive.com.