As we get into the second half of the week, the bond market continues to be a key spot to watch. The big story this week is how bond yields have surged to multi-year highs globally, with some even hitting multi-decade highs. In case you missed it: The tectonic shift that is taking place in the bond market
The moves in the bond market have the potential to drive other markets and that is precisely what we’re seeing since overnight trading as well. After hitting those highs, yields are now coming off the boil a little today. And that is affording broader markets with some breathing room.
USD/JPY is being driven back lower to 157.70, not least due to intervention risks as well, and gold is also now seeing a modest rebound and is up 1.1% to $4,433 today.
That comes as we see 10-year Treasury yields ease back to 4.77%, down from a high of 4.81% yesterday. Meanwhile, 10-year Japanese government bond yields are also back lower to 2.95% – down from a high of 3.02% yesterday.
A softer set of numbers from the US ADP employment data yesterday may have helped but traders and investors are now turning their attention to the big one. And that will be the US non-farm payrolls report tomorrow.
While the main focus is on inflation, let’s not forget that the Fed still has a dual mandate to uphold. In that lieu, any negative setback from the labour market still has the potential to move markets should it diminish the odds of the Fed raising interest rates this month.
As things stand, the odds of that are still more or less a coin flip. Fed funds futures are showing just ~59% odds of a rate hike in September currently.
The most important data point will be the US CPI next week. But until then, markets will have to work with what they have in the meantime. And for this week, that is the US jobs data on Friday.
Besides the continued focus on higher energy prices and gradually growing inflation expectations, that is the key risk event left to play with before the weekend comes along.
This article was written by Justin Low at investinglive.com.