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U.S. Jobs Report Will Add To Emerging Market Woes



  • USD: Jobs report to maintain Washington salvo.
  • EUR: The return of Italian risk.
  • GBP: That’s all the good news, folks.
  • TRY: Challenges remain.

By Chris Turner, Global Head of Strategy and Head of EMEA and LATAM Research

A strong nonfarm payroll today will further embolden the White House in its trade fight with China and put more pressure on emerging markets.

USD: Jobs report to maintain Washington salvo

What should be another solid US jobs report today will embolden the White House in its policy of squeezing trade concessions out of China. US-China trade relations are now the key focal point for global financial markets, and with China ceding no ground right now, the US will presumably look at raising the proposed tariff rate on the next $200 billion worth of Chinese imports to 25% from 10%. As we highlighted yesterday, USD/CNH is the key axis here, and one school of thought could see Washington encouraging a move to 7.00, raising fears of capital outflows from China and inflicting more pain on Beijing. A firmer dollar, a weaker renminbi and a weaker Asia FX/commodity complex look like the conviction call near term. Additionally, were we to see some emerging market contagion from challenges in Turkey, the Institute of International Finance highlights the likes of South Africa, Colombia and Egypt are at risk of heavy outflows in light of the large inflows these countries witnessed between 2015 and 2017. The US dollar index looks ready for a big test of the year's highs at 95.50/65.

EUR: The return of Italian risk

As noted yesterday, a firmer dollar and no response from the European Central Bank leaves EUR/USD vulnerable. Euro weakness is also being compounded by a renewed focus on Italy, where budget discussions take place in Rome today and the BTP market remains nervous, especially since the European Affairs Minister Paolo Savona is present (his views had concerned investors earlier this year). EUR/USD looks vulnerable near term, and a break of

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