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Five Things You Need to Know to Start Your Day - Bloomberg

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It’s jobs day, delta upends back-to-office plans on Wall Street, and crypto battle delays infrastructure bill. 

Labor focus

Economists surveyed by Bloomberg predict U.S. nonfarm payrolls for July will show hiring accelerated for a third month when the report comes out at 8:30 a.m. Eastern Time. The median estimate is for a gain of 858,000 workers, the most since August 2020, while the unemployment rate probably dipped to 5.7% from 5.9%. Treasuries traders are dialing up bets on a quicker pace of Federal Reserve interest-rate hikes in anticipation that today’s report will show firm labor momentum. A reduction in bond purchases could be announced by September but “that depends on what the next two jobs reports do,” Fed Governor Christopher Waller  said this week.

Return postponed 

The spreading of the delta variant is sparking new corporate policies on masks and vaccination requirements, and upending Wall Street’s return-to-office drive. BlackRock Inc. and Wells Fargo & Co. are pushing their plans back a month to early October, as financial firms grapple with the risks, even for the vaccinated. Meanwhile, Amazon.com Inc. said corporate employees won’t have to return to the office regularly until January, but stopped short of a vaccine mandate. Across an industry that was already split on returning to work, policies are diverging more than ever. One way companies are seeking to lure back workers: Free meals. Meanwhile, the Biden administration is considering using federal regulatory powers and the threat of withholding federal funds from institutions to push more Americans to get inoculated against the virus.

Bill battle

The U.S. Senate is heading toward a weekend vote on its $550 billion infrastructure legislation, in part thanks to the unresolved issue on how to modify a provision of the bill on reporting requirements for cryptocurrency transactions for tax collections. Majority Leader Chuck Schumer’s attempt to rush passage late Thursday was thwarted in part by pressure from crypto advocates who said the original version of the bill unfairly targeted them and was too broad in scope. Another pending amendment would allow state and local governments to use up to 30% of their unspent Covid relief funds on infrastructure projects. The final passage of the big bill was pushed until at least Saturday.

Markets steady

Stocks are largely steady ahead of the payrolls report. The MSCI Asia Pacific Index was down 0.2% while Japan’s Topix index was little changed. In Europe the Stoxx 600 Index was flat at 5:45 a.m. Eastern Time. S&P 500 futures were also broadly unchanged, the 10-year Treasury yield was at 1.24% and oil was around $69 a barrel. 

Coming up... 

In a very light day for releases aside from the jobs report for July, we get Canada unemployment at 8:30 a.m., before U.S. wholesale inventories data at 10 a.m. The Baker Hughes rig count comes at 1 p.m. Norwegian Cruise Line Holdings Ltd., Dominion Energy Inc., Ventas Inc. and Draftkings Inc. report earnings. The G-20 research ministers meet in Trieste, Italy.

What we've been reading

Here's what caught our eye over the last 24 hours.

  • Delta impact increasingly threatens some parts of U.S. economy.
  • Mystery of missing workers, explained.
  • China sees sports as growth driver.
  • Secret fundraising magic of Trump cards.
  • Alibaba said to warn of higher taxes as crackdown widens.
  • Asian economies upended by delta.
  • A black hole warping space and time. 

And finally, here’s what Stephen’s interested in this morning

Japan has the world's second-largest government bond market. It's 10-year benchmark bond hit 0% earlier this week for the first time this year --- and yet few were watching, or cared, because they don't really matter.

Just 25 years ago, everyone was watching. It's the mid-1990s, Bon Jovi and Madonna are top of the charts, Japan is the world's second-largest economy and changes in nation's huge bond markets are a key yardstick for investors and macro traders, offering great insight into how the global business cycle is shaking out.

A former colleague who traded Japanese bonds for over 20 years said, back then, everybody who was anybody was active in Japan bonds. All the big banks, hedge funds, real money, plus a huge domestic presence, and as the market developed -- with interest rate swaps and repos  -- it only got bigger and better.

Fast-forward to today. The Bank of Japan owns almost half of the nation’s government bonds, and is still waiting for Godot (inflation). These bonds barely trade. One day earlier this week, there were zero trades in the 10-year benchmark, despite there being a bond auction. Is this a sign of things to come for other developed central banks (looking at you ECB) who are now addicted to bond buying? Perhaps, but that's a question for another day.

relates to Five Things You Need to Know to Start Your Day

Enter: China. This is shaping up to be the Japanese government bond of the old days. China, now the world's number two economy, offers a fixed-income and rates market that can give you a helpful temperature check on the global business cycle.

In the book, "Trading Fixed Income and FX in Emerging Markets: A Practitioner’s Guide" -- the bible on how to trade and interpret emerging-market bonds -- the authors called China bonds "JGBs for Millennials."

They're right and it would be prudent for investors to look at what's happening there. China bonds have been incredibly active, benchmark yields have dropped for seven straight weeks, and now sit around the lowest levels since June 2020. The economy is slowing down, business surveys are worsening and shutdowns due to the virus outbreak have forced economists to rethink lofty growth estimates.

The easing has begun with a surprise cut in banks’ reserve ratio requirement last month kick-starting the rally. Half of Wall Street seems to be recommending Chinese debt as more easing is on the way. And the other half just hasn’t realized it yet.

Follow Bloomberg's Stephen Spratt on Twitter at  @StephenSpratt

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