Market wrap: eyes now on nonfarm payrolls, trade war tension remain in focus too - Westpac

Analysts at Westpac explained that ahead of Friday’s US jobs report, payrolls processor ADP reported a strong +235k gain in Feb employment, comfortably above expectations (+200k).

Key Quotes:

"Amid tariff talk, the US trade deficit continues to swell, the Jan balance widening to $56.6bn vs consensus at $55bn, the largest since 2008. This included a goods deficit with China of -$36bn but the usual surplus with Australia, $1bn. There was a glimmer of hope that Australia could be exempted from the planned tariffs, with Commerce Secretary Ross and Treasury Secretary Mnuchin saying the tariffs might have some exceptions.

The Bank of Canada left interest rates unchanged and maintained a mild tightening bias but sounded notably more concerned about trade frictions noting, “Trade policy developments are an important and growing source of uncertainty for the global and Canadian outlooks."  CAD underperformed following the decision, USD/CAD rising from 1.2910 to 1.3000.

EUR/USD is flat on the day, having traded either side of 1.24. European equities posted handy gains, ignoring the gloom in Asia and the US. GBP/USD was also choppy but barely changed overall.

USD/JPY retraced most of the 60 pip fall that occurred in response to the resignation of top White House economic adviser Gary Cohn, who refused to support the tariff proposal. AUD/USD ranged between 0.7790 and 0.7830. NZD/USD slipped from 0.7300 to 0.7260. AUD/NZD fell below 1.0680 after Australia’s lukewarm GDP report but then steadily edged back to 1.0730/40.

The US 10yr treasury yield, which fell 4bp to 2.84% in response to the Cohn resignation and assorted trade tensions, chopped back to 2.88% in the NY afternoon, while 2yr yields remained locked inside a 2.22%-2.26% range. The Fed's Beige Book of regional anecdotes showed increased upward pressure on wages in recent weeks. Fed fund futures continued to price three more hikes by end-2018 (with March highly likely), and another in 2019."