Morning Bid: Seems payrolls isn’t the data you are looking for

U.S. Federal Reserve Governor Christopher Waller expressed encouragement for markets to consider disinflation when overnight bond yields surged. This prompted market participants to view this month's interest rate decision as a coin toss between maintaining rates or raising them for the first time in three years. Waller suggested that the August non-farm payrolls report, set for later in the global day, might not be the key data to watch, instead advocating for the upcoming August Consumer Price Index (CPI) report to reveal more insights.

Economists are predicting a job gain of 56,000 in August, up from a sharp drop of 23,000 in the previous month, with the unemployment rate remaining steady at 4.1%. Markets responded positively, with Asia's Nikkei 225 index up 1.1%, South Korea's KOSPI increasing by 1.3%, and Hong Kong's Hang Seng rising by 2.1%. Wall Street and European futures remained largely unchanged.

Nonetheless, a dip in job figures could prompt the Fed to pause rate hikes, while robust results might provide the authority with the leeway to increase rates. Consequently, upcoming CPI and Producer Price Index (PPI) readings will be pivotal in determining the Fed's next move, with some analysts even refining inflation projections down to three decimal points.

Short-term Treasuries gained strength, with the yield curve steepening as investors favored long bonds to counter inflation. Oil prices hovered near six-week highs, with Brent crude futures climbing 7% this week to $95.52 a barrel. The U.S. dollar dipped, benefiting the yen, which surged 2.5% this week to 156 against the dollar.

Speculation suggests Tokyo's checks on the yen or even covert intervention, alongside growing expectations of a rate hike from Japan's Bank of Japan. A BOJ intervention this month is about 75% likely, and a 30-basis-point tightening by October is anticipated, hinting at either a more substantial hike or an unprecedented back-to-back rate increase.

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