0820 ET - Bitcoin rises as scaled back U.S. interest rate rise expectations provide support to risky assets. U.S. nonfarm payrolls data on Thursday were weaker than expected. Tempered speculation that the Federal Reserve could raise rates more than once before year-end improved sentiment toward bitcoin, Trade Nation's David Morrison says in a note. "Lower borrowing costs can often support risk-sensitive assets such as cryptocurrencies by improving liquidity conditions." Bitcoin trades up 0.8% at $62,062, having reached a one-week high of $62,128 Thursday, LSEG data show. (renae.dyer@wsj.com)
0748 ET - The European Central Bank could remain biased towards raising interest rates further, supporting the euro, as inflationary risks remain elevated, MUFG Bank's Derek Halpenny says in a note. While crude oil tanker traffic is picking up, the same cannot be said for liquefied natural gas shipments, he says. "The ECB will be monitoring energy prices and the scale of retracement since the [U.S.-Iran] ceasefire extension was agreed and the Strait of Hormuz reopened is not yet enough to eliminate energy-related inflation risks." The euro rises 0.2% to $1.1452. (renae.dyer@wsj.com)
0722 ET - Sterling's recent recovery reflects a weaker dollar but also an easing in the political risk premium, Ebury's Matthew Ryan says in a note. Andy Burnham is almost certain to succeed Prime Minister Keir Starmer, and his commitment to fiscal rules is alleviating risks of a weaker sterling, he says. A critical risk factor for sterling, however, is who Burnham appoints as Treasury chief, he says. Ed Miliband remains bookmakers' favorite to become Treasury chief, which is a "clear negative for the pound given his preference for expansionary fiscal policy." Sterling rises 0.1% to $1.3357 after reaching a two-week high of $1.3384 Thursday, LSEG data show. The euro rises 0.1% to 0.8569 pounds, having hit a one-year low of 0.8544 Thursday.(renae.dyer@wsj.com)
0708 ET - The Japanese economy and its equity market could probably handle some volatility, says BNY Investments' Aninda Mitra. If anything, volatility-- realized, at the money, implied--has come off given the FX interventions which have been happening, he says. "That has actually--or ironically--fueled the carry trade." Such trades aren't just about rate differentials but also adjusted for volatility. If volatility comes off and rate differentials widens, which is what has happened, the carry-vol ratio has suddenly become attractive again. Then it would make sense to allow vol to go back up a bit via either a very large FX intervention or a surprise rate hike. "I wouldn't rule out one or the other. I think both are both our legitimate policy tools." (fabiana.negrinochoa@wsj.com)
0658 ET - LBBW cuts its forecasts for German 10-year Bund yield for three- and 12-month horizons, seeing it as "very unlikely" that the European Central Bank will feel compelled to raise interest rates in July. "We are cutting our forecast for the yield on 10-year German government bonds from 3.20% to 3.00% for the three-month horizon and from 3.35% to 3.20% for the 12-month horizon," says senior fixed income analyst Elmar Voelker in a note. The 10-year Bund yield rises 2.4 basis points to last trade at 2.922%, according to Tradeweb. (emese.bartha@wsj.com)
0637 ET - 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)
0631 ET - 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)
0629 ET - 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)
0627 ET - 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)
0626 ET - 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)
0600 ET - 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)
0552 ET - 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)