1037 GMT - The U.S. nonfarm payrolls report was a "clear disappointment" for the dollar bulls, says Ebury's Matthew Ryan in a note. "All things considered, a rather soft report that supports our call in favor of no rate hikes from the Federal Reserve this year," says the head of market strategy. Fed Chairman Kevin Warsh has made clear that the Fed's focus is on inflation, so Thursday's report might not carry as much weight as it would have done in the past, Ryan adds. The U.S. labor market remains robust, but loose enough that workers aren't able to demand sizeable salary hikes, which should ease pressure on inflation, he says. Energy prices have also fallen and risks of second-round inflation effects seem limited. (emese.bartha@wsj.com)
1031 GMT - As the yen languishes at 40-year lows against the dollar, there are silver linings for Japan equities plays. BNY Investments' Aninda Mitra says a weaker yen tends to favor large corporates that are more globally diversified, yielding direct FX transmission gains for EPS. Now, it does drive up imported inflation, but for now that seems to be shielded by government measures like price caps. That doesn't quite shield SMEs from higher input costs, but they tend to be a much smaller component of the MSCI Japan index, or Nikkei, or other indexes. The yield curve is also quite steep, and that tends to favor financial companies. "We've liked those trades as well...Large-caps and financials have kept us generally favorably disposed towards Japanese equities more broadly." (fabiana.negrinochoa@wsj.com)
1029 GMT - BNY Investments' upbeat view on Japanese equities centers on the thesis that Prime Minister Sanae Takaichi's re-election was a good thing. For one, it should keep up governance improvements, including buybacks and higher dividend payouts, says Aninda Mitra, head of Asia macroeconomics and investment strategy. Another plus is that Takaichi is interventionist with the economy and on the supply side, in particular. She's "also been a bit more interventionist than we thought she would be in shielding Japanese consumers from the energy price shock." All that has suppressed inflation and boosted real incomes to some degree, Mitra says. Given that nominal wages continue to increase, all that is good for equities, not terrific for bonds. BNY Investments is neutral Japanese bonds and overweight Japanese equities. (fabiana.negrinochoa@wsj.com)
1027 GMT - Yen intervention may be complemented at some point this year by a surprise rate increase, says BNY Investments' Aninda Mitra. "I think the market is underpricing the odds of either a sooner hike than, say, at the December meeting, or more than one rate hike this year." Mitra finds it striking that several Bank of Japan officials have mentioned that underlying inflation could be on the verge of picking up again, seemingly signaling some wiggle room to respond a bit more forcefully on using inflation as a reason to speed up tightening. Mispricing that creates risk of a sudden, painful shift in dollar-yen dynamics. Ultimately, a policy move boils down to how BOJ weighs consequences for the equity market, household balance sheets, and so forth. For now, business sentiment and consumer confidence seem in pretty good shape. (fabiana.negrinochoa@wsj.com)
1026 GMT - India's food-price inflation and growth face risks due to weather conditions, Shilan Shah of Capital Economics writes in a note. India recorded its driest June in over a decade, and the Indian Meteorological Department is forecasting weaker-than-normal rainfall for the rest of the season due to El Nino weather conditions, the economist says. Sowing conditions have deteriorated, weighing on the agriculture sector and lowering the crop yield, which adds upside risks to food inflation, Shah says. Water levels in Indian reservoirs will also be affected by low rainfall, which are used to generate hydroelectricity. "Periodic shortages of energy or blackouts could weigh on industrial activity" and affect growth, he adds. CE retains the view that the central bank will hike rates over the coming months. (kimberley.kao@wsj.com)
1000 GMT - U.S. Treasurys are expected to underperform other markets in the wake of economic divergence between U.S. and overseas markets, BlueBay Asset Management CIO Mark Dowding says in a note. That said, BlueBay AM continues to express no clear directional bias on U.S. Treasurys. A degree of monetary tightening is already discounted in futures curves, he says. Markets price in a quarter-point rate hike by the Federal Reserve in December, with a high probability of a rate increase already in October, according to LSEG. (emese.bartha@wsj.com)
0952 GMT - The U.S. dollar weakens, with softening market expectations regarding potential Federal Reserve interest-rate hikes. "It [the dollar] remains on track to end the week in negative territory following Thursday's disappointing jobs report," DHF Capital's Bas Kooijman says in a note. Looking ahead, traders will turn to next week's ISM Services PMI, FOMC minutes and weekly jobless claims for further clues on the Fed's monetary policy path, the CEO and asset manager says. Developments in U.S.-Iran talks will also be monitored, as progress could ease safe-haven demand and add further pressure on the dollar, while any setbacks could support it, he says. The DXY dollar index falls 0.1% to 100.748. (emese.bartha@wsj.com)
0941 GMT - Eurozone sovereign yield spreads have been creeping wider in the past few weeks, even as corporate credit spreads move in the opposite direction, BlueBay Asset Management CIO Mark Dowding says in a note. There is no substantive fundamental driver for this price action, though BlueBay would observe reduced demand from overseas weighing somewhat on yields, he says. BlueBay currently doesn't hold an active position in eurozone spreads. "Though around 85 basis points on 10-year bonds is a spread level which we think may represent interesting longer-term value in both Italy and France," Dowding says. The 10-year OAT-Bund yield spread is just shy of 80 basis points, while the 10-year Italian BTP-Bund yield spread is just below 78 basis points, according to Tradeweb. (emese.bartha@wsj.com)
0927 GMT - The Philippine economy recovery will be slow as the Strait of Hormuz gradually reopens, Maybank analysts say in a report. Transport costs in the Philippines are expected to decline, with the waterway reopening and oil prices falling. However, the macro recovery will likely take about two to three quarters, even with petroleum prices returning near preconflict levels. That is because the Philippines is still recovering from the lingering second-round effects of war-related supply shocks, including higher food prices, Maybank says.(amanda.lee@wsj.com)
0913 GMT - U.S. employment data seem to confirm that the labor market is still hovering around its equilibrium point, Edmond de Rothschild Asset Management's Michael Nizard and Nabil Milali say in a note. Job creation is still enough to prevent the unemployment rate from rising and to continue supporting household consumption, but not enough to generate wage pressures that could lead to a further rise in inflation, they say. "We believe these statistics will provide a strong argument for the Federal Reserve's most dovish members to maintain the status quo and rule out the risk of a rate hike as early as the July meeting." Inflation figures will be decisive in settling this debate once and for all, but they believe that caution will ultimately prevail. (emese.bartha@wsj.com)
0901 GMT - Trade tensions between Germany and China pose a potential headwind to the euro, Commerzbank's Volkmar Baur says in a note. The dispute could result in trade restrictions against China given concerns about Germany's growing trade deficit with the country, he says. Any EU measures taken would certainly not go unanswered by China, although it's pointless to speculate on what any response might look like, he says. "However, it is unlikely to be positive for the European economy and would therefore probably weigh on the euro as well." The euro last trades up 0.2% at $1.1452. (renae.dyer@wsj.com)
0856 GMT - The Bank of Thailand is still likely to keep its policy rate on hold at 1.00% through end-2027, UOB economists say in a note. A rate cut wouldn't address an imported energy shock, they say. Conversely, a hike would risk further tightening financial conditions for households and small and medium-size enterprises, and shouldn't be necessary unless a second-round of inflation or disorderly FX pass-through becomes more evident. "The more appropriate policy mix is therefore a prolonged monetary hold, targeted fiscal relief, energy-cost smoothing, debt restructuring, and credit-support measures," UOB says. (amanda.lee@wsj.com)