The US dollar is firm, near the best levels of the week against the euro, yen, and sterling. However, against the dollar-bloc and several actively traded emerging market currencies, including the Turkish lira and South African rand, the greenback has given back some of yesterday's gains.
Oil is snapping a four-day decline. News that US output fell by 113k barrels a day last week, the biggest drop in eight months, coupled with a Canadian wildfire that is threatening as much as one million barrels a day in Canada are helping drive oil prices higher. Several oil companies have announced cutting output in Canada and/or closing pipelines.
Rising oil prices did Asian equity markets no favors. The MSCI Asia-Pacific Index excluding Japan, which concludes its Golden Week holiday day with markets re-opening tomorrow, posted a fractional loss that was sufficient to extend the losing streak for a seventh session. China's markets bucked the trend to post marginal gains. European shares, on the other hand, are mostly higher, with the Dow Jones Stoxx 600 snapping a four-day decline with a 0.5% gain near midday in London. The gains are led by telecom and energy sectors.
Asia-Pacific bonds were firm, but European bonds are trading heavier. European bonds yields are mostly 1-2 bp higher as are US Treasury yields. The US 10-year yield fell 10 bp over the past two sessions and is up two bp today. There were conflicting employment signals yesterday. The ADP estimate disappointed, but the jobs component of the service ISM, where the headline rose to four-month highs, reached its highest level in a year. Initial jobless claims today, though no bearing on tomorrow's national report, may be given more weight than usual. The four-week moving average, used to smooth out of the noise in this high frequency series stands its lowest level since the early 1970s.
Nevertheless, the importance of the employment data may be lessening. The continued recovery of the labor market may be necessary, but still insufficient to prompt the Fed to move. The April FOMC statement acknowledged the improvement but cautioned that it was not lifting consumption, which drives the economy. That said, the strong April auto sales suggest the US consumer may be returning in Q2.
In addition to the weekly initial jobless claims, the North American session features speeches by four regional Fed Presidents (Bullard, Kaplan, Lockhart, and Williams). Many investors may be confused by the cacophony of Fed voices. We continue to advise that the clearest signals of intent and policies emanate from the Fed's leadership. Three voices in particular should be monitored, Yellen, Fischer, and Dudley. ...MOREThis follows on yesterday's "Greenback Firmer, but has it Turned?" which we didn't get to.