US futures and the dollar rise ahead of what traders expect to be a bumper employment report

Stock market
  • US stock futures and the dollar edged up ahead of key March payrolls report.
  • Trading was thinned out due to public holidays in most major markets.
  • Economists expect non-farm payrolls to have risen by the most in six months in March.
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US stock futures and the dollar rose on Friday, ahead of a key report on unemployment that will shed further light on the resilience of the economic recovery, although trading volumes were light on account of the swathe of public holidays around the world.

Futures on the S&P 500, the Dow Jones and the Nasdaq 100 rose between 0.1 and 0.4%, suggesting the benchmark indices could see more record highs when they reopen on Monday.

On Thursday, the S&P 500 scorched past 4,000 points for the first time after data showed a sharp rebound in manufacturing activity in March and following President Joe Biden’s unveiling of an infrastructure spending plan worth $2 trillion.

The Bureau of Labor Statistics will publish its nonfarm payrolls report for March on Friday at 8:30 a.m. ET, providing the most detailed look at how hiring fared throughout last month. The backdrop is promising. March had warmer weather, and a faster rate of vaccinations led some states to partially reopen for the first time since the winter’s dire surge in cases. Coronavirus case counts started to swing higher at the end of the month but largely stayed at lower levels.

Democrats’ $1.9 trillion stimulus plan was also approved early last month and unleashed a wave of consumer demand and aid for small businesses. Sentiment gauges surged to one-year highs, and Americans strapped in for a return to pre-pandemic norms.

Consensus estimates suggest March had the strongest payroll gains in six months. Economists surveyed by Bloomberg said they expected nonfarm payrolls to climb by 660,000, which would be nearly double the 379,000 gain seen in February. The unemployment rate is forecast to dip to 6% from 6.2%.

“We believe a vaccine- and reopening-related rebound in labor force participation is likely to start this month, and this could limit the magnitude of the decline in the jobless rate,” Goldman Sachs led by Jay Hatzuis said in a note.

US 10-year Treasury yields held steady around 1.67%, having hit 1.776% last week, their highest in almost 15 months. Bond yields have risen steadily this year, as prices have fallen, in line with a growing conviction among investors that economic recovery is picking up, which will reignite inflation.

The combination of accelerating growth and inflation makes it less attractive to own government bonds.

The dollar meanwhile traded fairly steadily against a basket of major currencies. The dollar index was last down 0.1% on the day, but still holding close to its highest in five months.

“Friday’s highly-anticipated non-farm payrolls report comes out at a bit of an awkward time; for the first time in six years, the April jobs report falls on the Good Friday holiday, meaning that many major markets will be closed,” CityIndex strategist Matt Weller said in a note on Thursday.

“As a result, readers who are at their desks trading the FX or bond markets may see less liquidity than usual and the post-release move may peter out sooner than usual as traders who are watching the markets look to duck out early to enjoy a long holiday weekend,” Weller said.

Bitcoin nudged at $60,000 for the first time in two weeks, as risk appetite pushed investors into more volatile assets. It was last up 1.2% around $59,540, having gained over 8% in the last week.

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Turkish lira crashes as much as 14% after the firing of the head of the central bank sparks market turmoil

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A foreign exchange office in Istanbul, Turkey.

  • Turkish President Recep Tayyip Erdogan fired the head of the central bank after he raised interest rates last week.

  • The lira fell by as much as 14% against the dollar as foreign investors fled Turkish assets
  • The government says it will continue to follow a free-market and liberal foreign exchange regime.
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The Turkish lira fell as much as 14% on Monday, after President Recep Tayyip Erdogan sacked the head of the central bank, Naci Agbal. Investors fled Turkish assets after Agbal’s departure, whose appointment had increased confidence and trust in the country’s monetary and macroeconomic policies.

Since Agbal’s appointment in November 2020, the lira had regained some strength and stability, as domestic and foreign investors responded well to his more traditional macroeconomic policies. Previously, Turkey’s unconventional approach to monetary policy had made many investors cautious and the lira suffered as a result.

Agbal raised interest rates to 19% from 17% on Thursday. The rate hike boosted the currency, but went against Erdogan’s belief that higher interest rates raise inflation. Agbal’s replacement, Sahap Kavioglu, shares this opinion.

“Mr Agbal’s replacement, Sahap Kavcioglu, is a little-known business school professor who shares President Erdogan’s economics theories and is, unsurprisingly, associated with the ruling party. Turkey will be an interesting example of what EM can expect if inflation fears rise markedly, with markets nervous about inflation in developed countries and punishing asset classes accordingly,” Jeffrey Halley, senior market analyst at OANDA, said on Monday.

Turkish finance minister Lütfi Elvan has however stated the country will continue to follow a policy of free markets and a liberal foreign-exchange regime. A statement by Kavioglu also said the Turkish central bank “will continue to use the monetary policy tools effectively in line with its main objective of achieving a permanent fall in inflation”.

The falling lira dragged on the benchmark Borsa Istanbul 100 index, which tumbled by as much as 9% on Monday, as investors fled the domestic market.

The heightened nervousness of fixed income investors was also reflected in the stark price fall of the benchmark Turkish 10-year bond. Its yield rose by as much as 300 basis points to around 16%, on Monday, its highest since August 2019. Yields move inversely to prices.

Growing concerns over economic and currency instability following Agbal’s dismissal, especially relating to shifts in interest rates and inflation, have raised the risk associated with Turkish assets and led investors to pull out of Turkish markets across the board on Monday.

The long-term strength of the Turkish economy and the lira are now in jeopardy, Rabobank senior emerging-market strategist Piotr Matys said.

“Essentially, the risk that the CBRT could make the same policy mistake as in 2019/2020 is high. To reiterate the point we have made on numerous previous occasions, Turkey cannot afford to have negative real interest rates when inflation is substantially above the official 5% target,” Matys said.

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