Non Farm Payrolls blew out expectations and US Unemployment fell to 6.2%, surging market confidence. US employment numbers were stronger than expected and initially markets baulked, with US 10 year Bond Yields surging up towards 1.6%, once again. Economic data is confirming the economic recovery is well underway in the US and the narrative has switched from virus/vaccine to inflation/growth. Bond Yields have dominated markets as the economic news drives the rise in interest rates and associated fall out. Higher rates offer alternative destinations for investment and also threatens to challenge the record debt/deficit, funded by up-until-now, free money. Central Banks are walking a tightrope, as it is expansive monetary policy that has distorted bond and currency markets, which now seek the return to normal market driven forces. The rise in interest rates is despite the Central Bank suppression, not because of and threatens the whole policy goal. Depress interest rates in order to pump liquidity into markets, enabling huge debt burdens to drive growth and employment. The rise in interest rates disrupts this narrative.
The surge in Bond Yields, following the stronger than expected Non Farm Payrolls number, was short-lived. The yields settled, retreating from 1.6%, allowing the economic news to drive a rebound rally in equities to offset the weeks losses. The US Dollar is also supported by the stronger rates with the Yen blowing through 108.00, while the EUR has fallen to 1.1900. The coming week will continue to monitor global growth and Central Bank activity. The ECB will announce their latest interest rate decision and future monetary policy. It is expected to maintain the status quo and promise further QE, as required, but whether this will be enough to address concerns over bond yields, we shall see?
Commodity currencies have been slammed by the resurgent reserve, with the AUD falling below 0.7700, while the NZD has dropped below 0.7150. The RBA has attempted to suppress interest rates in the market, in order to drive the employment/growth narrative, but it is a big job, standing in front of a moving train.