Overview:  Ahead of a report that is expected to show that employment jumped by around a million in the US last month, the dollar remains lower on the week against all the major currencies and all but a handful of emerging market currencies.  The US 10-year yield remains below 1.60%, and alongside British and Australian benchmark rates, has eased this week.  In the Asia Pacific region, the most equity markets advanced. Still, despite a stronger than expected composite Caixin PMI and a larger than expected trade surplus, Chinese stocks bucked the regional trend and fell and secured a holiday-shortened weekly decline.  European equities are slightly firmer, and the Dow Jones Stoxx 600, like the MSCI Asia Pacific Index, is set to snap a two-week decline.  US futures have edged up after the Dow set new record highs yesterday as the Fed's financial stability report warned over the vulnerability of investors to stretched valuations.  Gold jumped 1.6% yesterday, matching its best gain in nearly two months and overcoming the $1800 level for the first time since late February.  The next immediate target is near $1820, the halfway mark of this year's range, and above there, the $1850-$1855 beckons, where the 200-day moving average and the (61.8%) retracement of this year's decline is found.  Oil is slipping lower for the third consecutive session, which pares the strong gains seen at the start of the week.  Around $64.60, June WTI is still up about 1.5% for the week.  

Asia Pacific

China may be confronting a united front of criticism and pressures, but its economy is surprising on the upside.  Earlier today, helped by a stronger than expected Caixin service PMI, the composite reading was lifted to 54.7 from 53.1 in March.  Economists had expected a small decline. Also, the April trade surplus jumped to $42.85 bln, 1.5x greater than the median Bloomberg forecast.  Exports jumped by nearly a third, while imports surged by more than 40%.  Imports were flattered by a surge in aircraft imports last month.  Higher priced commodities and increased volumes were also evident in some commodities, like iron ore.  Despite the wider trade surplus, PBOC reserved rose by about $28 bln to nearly $3.2 trillion last month. It was the first month this year that Chinese reserves have risen and are still a little lower than at the end of last year.  Separately, note Beijing is hosting a UN Security Council event today at which a couple of Chinese officials and the US Secretary of State will speak.  Expect a rhetorical clash.  

Japan's labor cash earnings rose for the first time in 12 months, but the 0.2% increase may reflect a change in the composition of the workforce--fewer part-time employees, perhaps due to discouragement.  Base pay of full-time workers increased by 0.3% after a 0.1% increase year-over-year in February. Overtime pay fell by 6.2% year-over-year, after a 9.1% drop in February.  Aggregate hours worked edged up by 0.4%, following the 4.5% drop previously.  The important takeaway is the year-over-year readings are distorted by the base effect and that the small increase likely has little impact on inflation measures. Lastly, reports suggest the formal state of emergency in several large prefectures, including Toyko, is likely to be extended to the end of the month.  

The dollar traded in a JPY108.90-JPY109.70 range on Monday and has remained in that range for the rest of the week.  The JPY108.85 area is a (38.2%) retracement of the leg up that began around JPY107.50 in late April.  The pullback in US yields did not help the dollar's cause.  The Australian dollar is pausing after approaching the $0.7800-hurdle yesterday. It has toyed with the level repeatedly over the last couple of months but has failed to close above it since early March.  There is an option struck for a little more than A$1 bln that expires today.  China was on holiday for the first three sessions of the week, and yesterday and today, the yuan firmed on the back of the softer greenback.  The US dollar approached CNY6.4530 today, its lowest level since late February.   The PBOC dollar fixing, which has become more transparent, was unexpectedly firm at CNY6.4678.  This was a bit more than the normal variance from market expectations (Bloomberg survey of bank models) was for CNY6.4651.  If the PBOC were to issue a mild protest of the yuan's strength/dollar weakness, this is one way it could do it. 

 Europe

The tensions around Jersey, which saw both the UK and France sent naval forces to the area, have de-escalated.  Although the conflict was never really likely, the show of force and bravado and rapid escalation illustrates that tensions over Brexit may be more intense than generally understood.  Earlier, the consequences of Brexit seemed to inflame the Northern Irish border.  The Good Friday Agreement has been weakened by Northern Ireland remaining in the EU customs regime while the rest of Britain is out.  The full results of the UK's local election are not known yet, but it does appear that the Tories have done well, including picking up a traditional Labour stronghold.  In Scotland, the SNP is close to but may fall a seat shy of a majority. However, it can form a majority with the independent-minded Greens.  It will likely continue to push for a referendum on independence, which the UK government will oppose. 

While the EU supports a discussion about waiving patent considerations to expedite the manufacturing of the vaccines, the German government expressed its opposition.  The argument is both ideological, that drug companies need the incentive of profits to make the R&D investment, and practical grounds, that the main obstacle to wider production is not intellectual property rights but the absence of manufacturing capacity and raw materials. The waiver will take some time to negotiate, as all 164 members of the WTO must agree.  Note too that Moderna waived its patent right last October.  

Germany reported a larger than expected 2.5% jump in March industrial output.  The median forecast was for a 2.2% gain in Bloomberg's survey.  More interesting was its trade report.  The March surplus of 20.5 bln euros was a little less than expected, as exports rose 1.2% (around twice the expected increase), but imports surged by 6.5% (the median forecast was for a 0.8% increase).  However, the current account surplus was stronger than expected at 30.2 bln euros, nearly a third larger than anticipated.  The German current account surplus was little changed last year from 2019.  France also reported March trade figures. The trade and current account deficits were larger than expected, and its industrial output figures also undershot expectations.  Last year, the French current account shortfall practically tripled from an average of 1.3 bln euro deficit in 2019 to a 3.6 bln average deficit in 2020.  Separately, Italy reported a 0.1% decline in March retail sales, which was considerably better than the 0.6% decline economists projected.  Spain's March industrial output just missed the 0.5% increase that was expected with a 0.4% gain.  Lastly, note that late today, Moody's will announce the conclusion of the results of its review of Italy's credit rating, while Fitch does the same for France. 

The euro rose to new highs for the week today, near $1.2090.  An 850 mln euro option at $1.21 expires today.  A move above $1.21 targets last week's high near $1.2150.  Initial support is seen near $1.2050.  The euro settled last week around $1.2020.  Sterling is bid near $1.3920 in late morning turnover in Europe.  It has hardly traded out of the range it too set on Monday (~$1.38-$1.3935). On the top side is $1.40, which sterling has not closed above since late February.  On the downside is $1.38, which it has not traded below for the better part of three weeks. 

America

Today's main focus is on the US employment data, but Canada's jobs report, and Mexico's CPI is also on tap. Expectations that the grew a million jobs, or perhaps more accurately, around a million people returned to their jobs, have been in place since the March report.  Unemployment is forecast to fall below 6%.  Even if these forecasts are in the ballpark, it would still leave some 7 mln fewer employees than on the eve of the pandemic.  There will be another employment report before the FOMC meets again.  Arguably significant further progress toward maximum employment is being seen.  Canada reported a monster job gain of over 300k jobs in March.  Proportionately, it is as if the US would have reported around a 3 mln increase.  Canada had reported a nearly 260k increase in February.  After these two months of incredible improvement, the median forecast in Bloomberg's survey anticipates a loss of around 150k jobs. The unemployment rate, which fell to 7.5% in March from 8.2% in February, backs up to 8.0%.  Mexico's price pressures are rising, and the headline rate is expected to have risen that a four-year high a little above 6% year-over-year last month. The base effect and energy play a big role, but Banxico cannot resume its easing cycle with such a report.  

The US dollar fell to a fresh four-year low against the Canadian dollar yesterday near CAD1.2140 but has come back better bid today, reaching CAD1.2180-CAD1.2190 in the European morning.  Diverging job reports could see the greenback recover a bit further.  Important resistance is seen around the previous support CAD1.2265-CAD1.2275.  There is a $370 mln option at CAD1.2195 that expires today.  The Mexican peso is bid at new highs for the week ahead of the opening of the North American session.  The US dollar is trading near MXN20.05, having peaked earlier this week near MXN20.33.  Last week's lows were near MXN19.85.  Last week, the dollar snapped a four-week decline, but this week is off nearly 1%.  

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