From Marc to Market:
Overview: The US dollar was sold ahead of today's employment report, falling to around three-four week lows against most major currencies. Follow-through dollar selling today has been minimal, and the Antiopdeans continue to lead the move. Emerging market currencies are mixed, and the JP Morgan EM FX index is stalling after rising for the past five sessions. Asia Pacific equities rallied, led by the 2% advance in the Nikkei on news that Prime Minister Suga will not stand at the LDP leadership contest later this month, effectively stepping down. The yen has barely budged. European shares are trading slightly softer as service PMIs coming in softer. Still, the Dow Jones Stoxx 600 may eke out its sixth gain in the past seven weeks. US futures are trading firmer but seem almost meaningless ahead of the US employment report. The US 10-year yield is steady, slightly below 1.30%. European benchmark yields are slightly firmer. Ten-year rates have risen faster in Europe this week than in the US. Separately oil gushed higher yesterday. The 2.1% rally lifted October WTI above $70 a barrel for the first time in a month. Trading is subdued today and the October contract continues to straddle the $70-level. Gold too remains within the well-worn ranges seen this week, mostly between $1800 and $1820. China's iron ore contract eased for the fourth consecutive session and finished the week with a 6.6% cumulative loss. It is the sixth decline in the past seven weeks. Copper has edged higher but is still nursing a small loss for the week. The CRB Index begins today with a 0.4% gain for the week after a nearly 6% advance last week.
Asia Pacific
Speculation in the press yesterday that Japan Prime Minister Suga was going to dissolve the lower house shortly to arrange an election next month proved for naught. Instead, Suga announced that he would not contest the leadership challenge later this month. Since the leader of the LDP becomes the prime minister, given its representation, Suga's announcement is tantamount to resignation. As we have argued, finding an alternative to Suga is one thing; devising a substantially different programmatic approach is quite another. The LDP's thrust is fiscal and monetary stimulus.
China, Australia, and Japan reported disappointing August service and composite PMIs. China's Caixin service PMI fell below the 50 boom/bust level (46.7 vs. 54.9), which drove the composite reading to 47.2 from 53.1. This confirms what the market already accepted. The world's second-largest economy has slowed considerably, and that officials will likely provide more support formally and informally. Japan remains the only G7 country whose PMI is below the 50-level. The service PMI was revised to 42.9 from the preliminary reading of 43.5 and 47.4 in July. The composite got chopped to 45.5. It was at 48.8 in July. Expectations for a recovery in the world's third-largest economy had already been pushed into Q4. Australia's final PMI reading confirmed the fourth consecutive monthly decline, and there has been further deterioration since the preliminary report. The service PMI stands at 42.9 (43.3 flash) and 44.2 in July. The composite slipped to 43.3 (43.5 flash) from 45.2 previously....
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