An early song from English progressive rock band Barclay James Harvest. No, it’s not on my playlist either.

US non-farm payrolls printed in line with expectations on Friday at 178k with revisions summing to a net -2k. The 0.1% fall in average hourly earnings (2.5% Y/Y down from 2.8%) trumped the drop in the unemployment rate to a new post-GFC low of 4.6% (from 4.9%) to leave yields lower, the dollar lower and US stocks little changed on the day. A quarter point Fed rate hike on Dec 14th remains 100% priced, though markets did shave 4bp off their previous end-2017 pricing (now at 63.7bps).

The S&P gained just 0.04% Friday and is 1% lower on the week. The Dow was -0.11% but 0.1% up on the week. The S&P energy sub-index closed +11.9% on the week following Wednesday’s OPEC deal. NASDAQ +0.09% and 2.7% down on the week while the VIX finished in NY Friday virtually unchanged at 14.12 and 1.78 higher on the week. European stocks ended lower in front of Sunday’s Italian and Austrian voting, the Eurostoxx 50 -0..52% and German Dax -0.2% but Italy’s MIB up 0.07%. No fear of ‘no’ there.

US bond markets saw yields jag lower on the US employment report prints, immediately recover to above pre-payrolls level, then leak lower as the session progressed. 2s finished 5.1bps lower to be 2.2bps lower on the week at 1.098%; 10s -6.5bp and 2.bps up on the week; the 30yr ended 4.7bps lower to .062% and 5.6bps up on the week. 10yr Bunds fell by 8.8bps to 0.281% but are 4.1bps up on the week and gilts -11.7bps to 1.38% and -3.7bps on the week.

In FX, the dollar mirrored the bond market, falling immediately then rallying back above pre-data levels before falling away. The DXY finished NY 0.27% lower on the day and down 0.7% on the week.

GBP continues its post-Brexit shock recovery to be the next performing G10 currency Friday.  News Friday of a London by-election victory for the anti-Brexit Liberal Democrats was one supportive factor.  GBP/USD was up 1.1% to 1.2729. NZD/USD fared next best, +0.75% to 0.7141 and followed by AUD, +0.57% to 0.7457.  USD/JPY lost 0.52% to Y113.51% and is now 1.2% back from its intra-week post-Trump victory high of Y114.83.  The rand was the best performing EM currency Friday, +2.16% to 13.80 and after S&P affirmed its BBB- foreign currency rating on South Africa while maintaining a negative outlook.

In commodities oil gained further, WTI by $0.60 to $51.68 to be +$5.62 on the week and Brent by $0.50 to $54.46 and $7.22 up on the week. Gold gained $8.20 to $1175.10. The LMEX index lost 0.57% and iron ore lost 60 cents to $77.79 and is $1.82 down on the week. Coal wasn’t much changed.

Coming Up

The Austrian presidential election has already been declared for the Green party candidate, so some relief here at the start of the week. Polls in Italy don’t close until 9:00pm AEDT and we await exit polls thereafter.  Markets have been travelling into these event risk without any great fear that they will produce market ructions, even if Italy says ‘no’ to the proposed constitutional reforms.  Part of the reasoning is that even if PM Matteo Renzi resigns, as he has threatened to do if he loses, he might still be asked to form a new government if the turnout is low.

The other big event risk this week concerns the ECB and what signals they choose to send regarding the fate of the current €80bn per month QE bond buying programme. Source reports late last week were suggesting that the ECB will extend its bond buying beyond March, but that the Governing Council is still wrestling with the question of how to structure that extension. One option we like the sound of is to say that after March, the ECB will continue to purchase ‘up to’ €80bn worth of bonds in the following 6 months or so. Any strong hint of tapering after March will likely have the initial effect of sending yields and the euro higher.

Locally, Q3 GDP is on Wednesday with NAB forecasting -0.2%. We’ll have remaining partials on Monday (inventories, corporate profits) and Tuesday (net exports). Trade figures are Thursday and housing finance on Friday. The RBA can confidently be expected to keep rates at 1.5% on Tuesday.

Post US non-farm payrolls week is typically quiet for US releases with non-manufacturing ISM on Monday the highlight. They’ll be plenty of Fed speakers, including Messrs Dudley, Evans and Bullard all on Monday, before the Fed goes into pre-FOMC purdah ahead of the 13-14th Dec meet.

UK services PMI (Monday) and labour market and industrial production (both Tuesday) and trade figures (Friday) are all due.  Japan has revised GDP and balance of payments on Thursday.  The Bank of Canada meets Thursday and despite saying it came close to cutting rates in October, should stand pat.

Overnight

On global stock markets, the S&P 500 was +0.04%. Bond markets saw US 10-years -6.50bp to 2.38%. In commodities, Brent crude oil +0.96% to $54.46, gold+0.7% to $1,175, iron ore -0.7% to $77.79. AUD is at 0.7455 and the range since Friday 5pm Sydney time is 0.7403 to 0.7464.

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•  Markets Today: 5 December 2016 (PDF, 112kb)

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