February 4, 2019 / 8:35 AM / 10 months ago

Daily Briefing: Buoyant start after jobs boost

LONDON (Reuters) - The warm glow from a forecast-busting U.S. employment report and January ISM business survey have buoyed world markets early on Monday, even if a holiday week in China and across Asia subdued trading activity.

Visitors take pictures of an installation at a flower fair ahead of the Chinese Lunar New Year of the Pig, in Guangzhou, Guangdong province, 3, 2019
"The Fed chickened out on further rate hikes this year and boy are they ever misreading the tea leaves on where the economy is going next"

The reconsideration of the U.S. economic pulse can be seen best in the jump in the U.S. economic surprise index to its most positive level since May of last year.

Even though disappointing Amazon results and second-guessing U.S. Federal Reserve policy clipped Wall Street gains on Friday, Japan’s Nikkei added almost 0.5 percent and HK – open for half a day – was up 0.2 percent. Dollar/yen rose close to 110, with the dollar’s DXY index higher and euro/dollar a shade lower.

China’s offshore yuan and MSCI’s emerging markets currencies index dropped for the second straight day. Ten-year U.S. Treasury yields jumped back as high as 2.70 percent first thing Monday.

The Fed’s signalling of flexibility and patience – or the fact it’s not on autopilot, as Morgan Stanley put it on Sunday – has driven the rally in stocks and risk markets over recent weeks, but the surprising strength in the underlying economy in the most recent reports suggests it could yet plough ahead with its tightening plan.

A combination of the recent U.S. government shutdown and the effects of the severe polar vortex freeze in North America could see some significant data distortions over the coming weeks.

In Europe, however, a combination of still-weak euro zone economic readings and the risks associated with Brexit are likely to stay the European Central Bank’s hand this year at least. ECB policymakers Mersch and Nowotny speak later in Budapest. European stock futures are pointing to a flat open.

It’s a heavy week for earnings again on both sides of the Atlantic, though Monday in Europe is thin. Google-parent Alphabet is the big ticket in the states later.

Elsewhere, sterling firmed a touch as the Brexit process slipped into limbo while investors await to see the outcome of British PM Theresa May’s meetings with European Union counterparts this week.

Turkey’s lira weakened after January inflation readings came in higher than expected at a whopping annual rate of 20.35 percent.

— A look at the day ahead from EMEA markets editor Mike Dolan. The views expressed are his own —

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