Yields on core European bonds went for a slide yesterday as prices rose in response to the ECB's decision to leave its QE programme unchanged – for now at least. Elsewhere, the USD continues to make gains on its peers.
Article / 11 July 2016 at 8:00 GMT

From the Floor: Blowout jobs print fails to boost yields

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From the Floor
By Michael McKenna

Asian shares were off to the races this morning on both a continuation of Friday's nonfarm payrolls-led rally as well as post-election stimulus hopes in Japan, reports Saxo Bank strategist Kay Van-Petersen from Singapore. 

The Nikkei, in fact, was up by nearly 5% at one point as APAC bourses adopted what Van-Petersen terms a "shoot first, ask questions later" approach that saw traders seeing green across the board.

The rally, however, which comes in the wake of Japanese prime minister Shinzo Abe's ruling coalition winning a landslide supermajority Sunday, was not able to shift the fortunes of US bond yields. There, says Saxo Bank fixed income trader Michael Boye, 10-year Treasury yields continued lower despite Friday's strong jobs print as bond markets grapple with the global low-to-negative yield landscape.

"We are seeing a similar picture in German bunds," adds Boye, "where the 10-year yield remains stuck around minus 19 basis points".

The free fall in yield, of course points to government debt's relative popularity in a world of fragile sentiment. It also, it must be said, provides an important counterweight when considering things like the continued outperformance of the S&P 500, which touched its record high Friday.

"Ultimately, the strong jobs data do not change our approach to stocks, which remains defensive," says Saxo Bank head of equities Peter Garnry. "Uncertainty remains the rule here, particularly given Brexit and the continuing questions surrounding Italian banks",

Despite all the structural uncertainty, however, markets remained content to let the NFP/Abe rally drive USDJPY higher, with the benchmark pair rising from 100.50 to just south of the 102.00 handle over the course of today's Asian session.


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Source: Saxo Bank 

The return of risk sentiment, however immediate its nature, has gold on the back foot after another blockbuster week that saw hedge funds raise their long position to a record high for the week ending last Friday. According to Saxo Bank head of commodity strategy Ole Hansen, though, the yellow metal remains a qualified favourite of investors with "the resistance at $1,375/oz and the high relative strength index readings" among the only factors placing gold on the defensive in the mid-term.

Hansen also reports that the stronger USD seen following last Friday's strong jobs headline has oil on the ropes with prices approaching the lower end of the "$40/barrel to low 50s" range that Saxo's commodities head has as his focus for the remainder of 2016.

While "the downside from here is probably limited," says Hansen, a rising US rig count and continued oversupply should give range-trading bulls some pause.

Finally, Van-Petersen reports that tomorrow's expected ruling on the dispute between China and the Phillippines at the Permanent Court of Arbitration in The Hague could provide markets with some directional focus into the remainder of this week.

The dispute concerns territorial assertions in the disputed South China Sea with the ruling expected to clarify certain issues surrounding the nature and weight of China's continued claims within the maritime region, which overlap those of nine other nations.

According to the Sydney Morning Herald, "it was a big risk for Philippines to take on China, by far its largest trade partner " as the "decision may also completely upend Manila's own territorial claims.".

In the short term, the ruling may well be reflected in the value of PSE-listed equities as well as the PHP exchange rate.

Chinese navy
Chinese navy ship Qiansanqiang sits in port at Monaco; Beijing's claims in the South China sea have repeatedly led it to clashes with other nations, including the United States. Photo: iStock

Michael McKenna is an editor at
Editor’s note: From the Floor takes advantage of's unique real-time access to Saxo Bank’s various trading desks around the globe to put our community in touch with the developments that matter to their portfolios.


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