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Sentiment Takes A Hit Overnight; NFP & Tariffs in Focus

A mixed performance on Wall Street, where tech stocks dragged the Nasdaq and S&P southwards, and lingering trade concerns prevented the Dow from moving meaningfully higher, led to a mixed session in Asia. European bourses are also looking rather lacklustre with a mixed, muted start expected after the opening bell.

Investors have proved unable to shake off lingering fears over the tech sell-off, emerging markets and trade tariffs. The increased risk-off sentiment is making global equities broadly less appealing, with flows into safe havens, such as the yen back in play. Traders are in a nervous state of wait and see, with a general apprehension over what will happen next in the escalating trade war, in emerging markets crisis or in the US tech sector, which took a pummelling for a second straight session overnight. There is a broad acknowledgement that the impact from these multiple sources, but particularly from the escalating trade wars and the emerging market troubles will spill over into the broader market; this is a matter of when not if and is keeping investors cautious and reluctant to step in.

Despite the risk-off element, which has been present throughout trading this week, safe havens had remained relatively subdued, until last night. Flows into the yen increased, sending it to multi-week highs. US Treasuries also pushed higher.

Tariffs or jobs to drive the dollar?

Eyes will now turn to the US non-farm payrolls which are due for release at 12:30GMT. The expectation is for 191,000 new jobs to have been created in the US in August, a pick up after July’s disappointment. However, it is worth keeping in mind that traditionally August numbers initially come up short, before being upwardly revised down the line. Meanwhile, unemployment is expected to tick lower to 3.8% marking the lowest level since 2000.

As with recent non-farm releases, wages will be a central focus to the report, as a lead indicator of inflation. Average wages are expected to have increased 0.2% month on month, down slightly from 0.3% the previous month, although yearly earnings growth is expected to remain constant at 2.7%. With the Fed funds showing 90% certainty that the Fed will hike rates later this month, a slight miss on this figure is unlikely to change the Fed’s view, particularly given the current strength in the US economy with consumption growing and manufacturing at a 14-year high.

A strong report would be expected to boost the dollar, as could an announcement by the White House that they will go ahead a place tariffs on $200 billion with of Chinese imports as the consultation period has formally ended. The dollar is holding steady at 95 in cautious trading on Friday morning with the expectation that either US jobs or tariffs will decide its near-term fate.

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