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The Japanese Yen surged broadly overnight whilst the dollar tumbled and US treasury
yields dropped sharply. 10 year yields dived to as low as 1.999% before closing at 2.075%.
The Yen maintained broad based strength after Japanese finance minister Aso said the government
is "carefully watching" the rebound in the yen but "we don't have any immediate intention
of taking any action, such as intervention: on this the USD/JPY dipped further to as low
as 95.54. Focus will turn to today's non-farm payroll report in the US, which could possibly
trigger more volatility in the dollar, yen and treasury yields.
Markets are expecting the non-farm payroll to show a 168,000 growth in May, comparing
to April's 165,000. Unemployment rate is expected to be unchanged at 7.5%. The ADP report released
on Wednesday was a disappointment and showed only 135,000 growth compared to expectation
of 170k. The employment component of ISM manufacturing dropped slightly to 50.1 in March. And the
Employment component of ISM services also dropped to 50.1. Both readings indicate there
was no expansion in the job market. Overall, there is some risk that today's NFP will disappoint.
Elsewhere, the Euro extended its rally against the dollar yesterday and remains firm. The
European Central Bank left the main refinancing rate unchanged at 0.5%. The deposit rate stayed
at 0% and the marginal lending rate at 1%. Although the ECB lowered its forecast for
the Eurozone's economy to a contraction of -0.6% this year from March's estimate of -0.5%,
it raised their projection for 2014 to 1.1%, up from the 1% estimated in March. And the
central bank cut its 2013 inflation forecast to 1.4% from 1.6%. The 2014 estimate was unchanged
at 1.3%. According to Draghi, the 17-nation bloc's inflation risks are "broadly balanced"
while risks to growth remained skewed to the "downside".
On the data front, Japan leading indicator rose to 99.3 in April. German trade surplus
came in wider than expected at 17.7 Billion Euros in April. Swiss foreign currency reserves
rose to 441.4 billion swiss francs in May. The UK will release trade balance data while
Germany will release industrial production. Canadian employment is expected to grow 18,000
in May while the unemployment rate is expected to drop to 7.1%.