Daily Brief – NFP relief

NFP relief

Friday saw the release of the latest all-important non-farm payrolls report. The publication showed just 29k jobs added to the US economy in September. That compares to August’s read of +162k and a consensus forecast of +49k. The fact the NFP report missed expectations should be welcomed by Europe. The Euro had been under immense selling pressure versus the US Dollar whilst the perceived contagion risk in Europe gathered pace. With the chances of an October rate hike from the Fed being all but stifled in light of the NFP data, the Euro was able to find some traction and stability.

A coordinated European response to release diesel and crude oil onto the market last week helped to stem European outflows. Much of the heavy lifting done by these two elements was unwound by Spain’s PM Pedro Sánchez calling for snap elections in the face of an embarrassing defeat on local housing bills last week. However, let’s look before that announcement in the early hours of yesterday morning. Despite not necessarily being exclusively expressed within EURUSD, perhaps due to the NFP report still ringing in traders’ ears, the early hours move in the Euro was sizeable. GBPEUR broke up around half a cent higher reflecting significant Euro flows being offered to the market.

We know that Japanese investors hold a disproportionate volume of French bonds versus that which benchmark weightings imply. As of July that figure stood at around $145bn. Investments in those bonds may be nursing heavy losses, especially against a declining Euro spot value and rising Yen. As the perceived risk of French bonds continues to rise, and spreads over German debt remain near multi-decade highs, could more of those overseas bond holdings hit the market? It would certainly explain an untimely sell-off in the Euro from midnight UK into the early hours of Monday morning.

Discussion and Analysis by Charles Porter

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