Ahead of the most important macroeconomic event of the week, US nonfarm payrolls (Exp. +200,000, down from 215,000 and following a very poor ADP report two days ago), the markets have that sinking feeling again.

Futures seem unable to shake off what has been a steady grind lower in the past week, while the Nasdaq has been down for nine of the past ten sessions, after yet another session of jawboning by central bankers who this time flipped on the hawkish side, hinting that the market is not prepared for a June rate hike. Additionally, sentiment is showing little sign of improvement due to concerns over global-growth prospects as markets seek to close the worst week since the turmoil at the start of the year.

Perhaps its the suddenly ascendent dollars, which has rallied the most since November in the past week, which has not only pushed global markets lower but has resulted in the S&P futures sliding to session lows, down 0.3% as of this moment.

The MSCI World Index extended its biggest weekly decline since February as corporate earnings failed to reassure investors.

"We’ve turned a little bit cautious,” John Woods, chief investment officer for Asia-Pacific at Credit Suisse Private Banking, told Bloomberg TV. "One of the reasons why we’ve gone underweight equities recently is because valuations look stretched at the top of the range but also because the two interest-rate hikes we expect are not being fully priced in by the market."

Emerging markets headed for the worst week in four months with Turkey, Poland and South Africa providing focal points for selling. U.S. crude oil sank, set for its first weekly drop in more than a month and industrial metals were poised for their biggest weekly loss since 2013 as the aforementined Chinese bubble appears to have finally popped. Bonds and the dollar have been the main beneficiaries, with a gauge of the U.S. currency headed for its best week this year, while German bunds advanced.

"The top worry in the market is still slower growth perspective than feared, and central banks,” said Guillermo Hernandez Sampere, head of trading at MPPM EK in Eppstein, Germany. “We are on thin ice already and we don’t need more disappointments as the Fed is eyeing the job market very closely.”

As expected, pleas for more central bank handouts were quick: "We expect BOJ to do a U-turn in the coming months by opting for more easing and this is likely to result in renewed yen depreciation," said Salman Ahmed, the London-based chief global strategist at Lombard Odier Investment Managers, which oversees about $165 billion. "However, we are sometime away from this dynamic to take hold."

Perhaps the biggest reason for the drift lower is that late yesterday, four regional Federal Reserve presidents said they were open to considering an interest-rate increase in June. After financial markets were roiled in the first six weeks of the year, the central bank had adopted a more dovish stance. Of course, all that will take for these same 4 presidents to change their tune is for stocks to drop lower enough and back to square one we go. Recall how fast the Fed flipflops "With These Two Headlines, Fed "Credibility" Just Hit A New All Time Low."

As a result, concerns about the Fed and payrolls, have sunk Asian and European markets, with the Stoxx Europe 600 Index falling 0.6 percent as of 11:05 a.m. in London, extending its weekly drop to 3.1 percent. Miners and energy producers posted the worst performance among industry groups, tracking declines in oil prices and base metals. ArcelorMittal (MT) slid 4.9 percent, adding to the gloom as it posted a 33 percent drop in quarterly earnings. Tullow Oil Plc (TUWOY) tumbled 6 percent and Royal Dutch Shell Plc (RDS-A) lost 1.6 percent. Futures on the S&P 500 (SPY) lost 0.3 percent, after the index ended Thursday little changed, as investors awaited the jobs report to shed light on growth in the world’s largest economy and the trajectory of borrowing costs. Traders are pricing in only a 10 percent chance of a Fed interest-rate increase in June, with February 2017 the first month with at least even odds of a raise.

Global Market Snapshot

• S&P 500 futures down 0.3% at 2039
• Stoxx 600 down 0.6% to 330
• FTSE 100 down 0.4% to 6091
• DAX down 0.3% to 9818
• German 10Yr yield down less than 1bp to 0.16%
• Italian 10Yr yield up 2bps to 1.51%
• Spanish 10Yr yield up 2bps to 1.6%
• S&P GSCI Index up 0.2% to 348.3
• MSCI Asia Pacific down 0.5% to 127
• Nikkei 225 down 0.3% to 16107
• Hang Seng down 1.5% to 20142
• Shanghai Composite down 2.8% to 2913
• S&P/ASX 200 up 0.2% to 5292
• US 10-yr yield down than 1bp to 1.74%
• Dollar Index down 0.18% to 93.61
• WTI Crude futures down 0.1% to $44.26
• Brent Futures down 0.2% to $44.93
• Gold spot up 0.3% to $1,281
• Silver spot up 0.1% to $17.37

Top Global News

• Goldman (GS) Said to Extend Fixed-Income Job Cuts to 10% of Staff: Firm is also said to dismiss staff in equities division
• Evonik Said Near $3.5 Billion Acquisition of Air Products Units: Agreement excludes Air Products’ electronics division
• Herbalife Soars After Saying It’s Close to FTC Resolution: Co. expects to pay about $200m in potential settlement
• Credit Suisse (CS) Banker Case Said to Widen With Three New Suspects: Another three former employees as suspects in a case looking into unauthorized trades on the accounts of rich eastern Europeans
• Dish Network Is Said to Be Target of Negative Kerrisdale Report: Report to say Dish’s airwave holdings are overvalued, according to people familiar with the situation
• ArcelorMittal Sees Better Steel Market as Prices Rebound: Co. sees broad recovery in global steel market
• Facebook (FB) Must Face Privacy Claims Over Photo-Tagging Feature: Social network accused of violating Illinois biometrics law
• U.S. Trade Panel to Start Probe on 8 Smartphone Vendors’ Devices
• Teva (TEVA) Said Finalizing Asset Sales to Clear Allergan Deal: Reuters
• Ron Burkle, SBE Said to Near Deal to Buy Morgans Hotel: NYP
• JCPenney (JCP) Said to Take Cost-Cutting Measures: New York Post

Looking at regional markets, Asian stocks traded mostly lower following a subdued lead from Wall St. with participants tentative ahead of NFP. 8 out of 10 sectors fall with energy, finance underperforming and consumer stocks outperforming. The Nikkei 225 (-0.7%) caught up with losses on return from its 3-day absence with a firm JPY weighing on exporter names. ASX 200 (-0.2%) was pressured from the open by energy weakness but then recovered off worst levels following the RBA SOMP which suggested the RBA were still open to future rate cuts given the weaker inflation forecasts. Chinese markets (Shanghai Comp -1.9%) conformed to the negative tone amid lingering growth concerns and after the PBoC conducted a consecutive weekly net drain, with CNY 220b1n of funds exiting the interbank market. Finally, 10yr JGBs tracked T-notes higher as the cautious tone in the region underpinned demand for safe-haven assets.

Top Asia News

• China Ponzi Warning to Asset Managers Cites Pooling of Cash: Asset Management Association reiterates ban on money pooling
• CLSA Sees China Bad-Loan Epidemic With $1 Trillion of Losses: Soured credit may be at least 9x official number
• Indian State Power Giant Revives Threat to Cut Delhi Supplies: NTPC may halt supplies from May 10 over non- payment of dues
• RBA Sees Inflation Below Goal in 2016; Yields, Aussie Plunge: RBA cuts 2016 underlying inflation forecast to 1-2% from 2-3%
• Uber’s China Rival Said Close to Raising $2b in New Funding: Didi Kuaidi is close to raising funds in round that will give it valuation of ~$25b
• Macquarie’s Record Profit Run May Be Ending as Challenges Mount: Group FY net A$2.063b vs est. A$2.037b

European equities are trading modestly in the red ahead of the key risk event in the form of the latest payrolls report. 17 out of 19 Stoxx 600 sectors fall with basic resources, oil & gas underperforming and automobiles, real estate outperforming. 55% of Stoxx 600 members decline, 42% gain. Notable outperformers in Europe have been Italian banks after earnings from Banca Monte dei Paschi (BMPS IM), which saw Co. beat on expectations and announce bad loan provisions had fallen to their lowest level in 4 yrs, however failed to lift the FTSE MIB out of the red. While Bunds have seen somewhat of a subdued start to the morning with little in way of newsflow as all eyes remain firmly fixed on the US jobs data.

Top European News

• Monte Paschi Profit Surpasses Estimates on Lower Provisions: Bad-loan provisions drop to lowest in four years
• Telenor Said to Hire JPMorgan to Explore Sale of VimpelCom Stake: VimpelCom said to work with Morgan Stanley on valuation
• InterContinental Shares Fall on Mideast Sales Hit, Early Easter: Oil markets hit Middle East travel

In FX, as is always the case on NFP day we will be looking out for any major moves in the USD, currently EUR/USD and GBP/USD are gaining ground on the USD. The Bloomberg Dollar Spot Index was little changed on Friday, on course for a weekly gain of 1.3 percent.  The Aussie dropped as much as 1.4 percent to a two-month low and was poised for its biggest weekly loss since January.Australia’s central bank said underlying inflation is expected to be 1 percent to 2 percent 2016, down from the 2 percent to 3 percent it forecast in February. The authority cut its benchmark interest rate to a record low on Tuesday.

The yen rose 0.3 percent to 106.91 per dollar, trimming its weekly loss to 0.4 percent. The currency jumped 5 percent last week, prompting policy makers to warn of possible intervention, as the Bank of Japan unexpectedly refrained from adding to record stimulus at a policy review. Prime Minister Shinzo Abe said Thursday he was ready to respond to excessive currency moves if needed.

In commodities, oil fell as rising U.S. stockpiles and OPEC production cushioned the impact of declines in North American output. West Texas Intermediate crude dropped 0.5 percent to $44.08 a barrel, extending its weekly loss to 4 percent. Brent fell 0.7 percent to $44.70.U.S. crude inventories rose to the highest since 1929 while production slid the most in eight months last week, government data showed Wednesday. Canada’s supplies are sufficient to cover production losses from fires in the country’s oil-sands region, Genscape said. OPEC output climbed in April amid gains from Iran and Iraq.

Industrial metals in London were heading for their biggest weekly drop since 2013 on a resurgent dollar and rising concerns about the strength of demand in China, where authorities have taken steps to cool a speculative frenzy. Copper is down 5.1 percent this week to $4,791.50, poised for the biggest decline since November. Steel reinforcement-bar futures dropped by a record 9.5 percent this week on the Shanghai Futures Exchange. Iron ore and coking coal plunged by a similar amount on the Dalian Commodity Exchange after Chinese authorities clamped down on speculators. The USD weakness has also benefited spot gold, with the yellow metal higher by around USD 5/oz, although still some way off the USD 1300/oz level, which it saw earlier in the week.

The main event is reserved for this afternoon however with the release of the April employment report for the US. As highlighted earlier the main focus will be on the payrolls figure as well as average hourly earnings and the unemployment rate. Elsewhere, later on this evening we’ll also receive the March consumer credit data. There’s little in the way of Central Bank speak today, while on the earnings front we’ll receive quarterly reports from just 6 S&P 500 companies and 4 Stoxx 600 companies.

Bulletin Headline Summary From RanSquawk and Bloomberg

• Light newsflow has seen equities in modest negative territory ahead of the main risk event of the day in the form of the US nonfarm payroll report
• The USD has seen downside against major counterparts this morning, with the likes of GBP, EUR and JPY all seeing strength as a result
• Highlights today include the aforementioned US NFP report, Canadian jobs figures and potential comments from ECB's Visco
• Treasuries little changed in overnight trading as global equities and oil drop, precious metals rally ahead of today’s nonfarm payroll report.
• If Britain is a country of the brink of a revolutionary vote to defy its leaders and leave the European Union, there was little evidence of it in elections held Thursday
• Next week the Bank of England governor will present economic projections to guide investors on an outlook that has rarely been more clouded in doubt. He also has to balance how far to stray into the fraught political battle concerning Brexit
• A new accounting rule that will force banks to set aside provisions for bad loans long before they sour could cannibalize profits and eat into capital at U.S. lenders
• Chinese banks’ bad loans are at least nine times bigger than official numbers indicate, an “epidemic” that points to potential losses of more than $1 trillion, according to an assessment by brokerage CLSA Ltd
• China’s $237 billion social security fund posted a rare public advertisement for job openings in economic analysis, equity research and global fixed-income investment, fueling speculation that the state-run institution is preparing to boost holdings of riskier assets
• The world’s largest debt market is sound and traders’ ability to transact remains robust, U.S. Treasury Department officials said in premiering a liquidity gauge Friday in a blog to be posted on the government’s website
• BlackRock Inc.’s iShares iBoxx High Yield Corporate Bond ETF, the largest exchange-traded fund that buys junk bonds, has seen 27.8 million shares redeemed, or about $2.6 billion, in the last four days
• Goldman Sachs Group Inc. is cutting more jobs in its securities units, extending reductions in fixed-income operations this year to roughly 10 percent of workers there, according to people with knowledge of the situation
• Sovereign 10Y yields mixed, Greece rallies 17bp; European and Asian equity markets drop; U.S. equity- index futures lower. WTI crude oil falls, precious metals rally

US Event Calendar

• 8:30am: Change in Non-farm Payrolls, April, est. 200k (prior 215k)
  • Two-Month Payroll Net Revision, April, no ests. (prior -1k)
  • Change in Private Payrolls, April, est. 195k (prior 195k)
  • Change in Mfg Payrolls, April, est. -5k (prior -29k)
  • Unemployment Rate, April, est. 4.9% (prior 5%)
  • Average Hourly Earnings m/m, April, est. 0.3% (prior 0.3%)
  • Average Hourly Earnings y/y, April, est. 2.4% (prior 2.3%)
  • Average Weekly Hours All Employees, April, est. 34.5 (prior 34.4)
  • Change in Household Employment, April, est. 170k (prior 246k)
  • Labor Force Participation Rate, April, est. 63% (prior 63%)
  • Underemployment Rate, April, no est. (prior 9.8%)
• 1pm: Baker Hughes rig count
• 3:00pm: Consumer Credit, March, est. $16b (prior $17.217b)

DB's Jim Reid concludes the overnight wrap

And so welcome to random number generator day, also more commonly known as US nonfarm payrolls. The current consensus forecast is for a 200k print this afternoon although it’s interesting to see that the range of forecasts are from as low as 160k to as high as 315k. Our US economists are sitting at the lower end of that range and are forecasting for a below-market 175k gain. This is based on their view that upon closer inspection of the sectors responsible for job growth last quarter, the details reveal that retail trade has accounted for a disproportionate share of these gains (in the fact the pace of which is the fastest since 1994). They expect the pace of hiring in this sector to moderate somewhat closer to its 12-month average this month. As well as this, temp hiring, which has historically been a leading indicator of payroll growth, has declined over the same period and so these trends together contribute to their below-consensus forecast.

As usual we’ll also receive the other important details of the April employment report including average hourly earnings (market expecting +0.3% mom and +2.4% yoy), labour force participation rate (expected to be 63.0%) and the unemployment rate (expected to nudge down one-tenth to 4.9%). All of this data is due out this afternoon at 1.30pm BST so all eyes on then.

Markets have been trading cautiously all week leading into payrolls and a big part of that is the renewed fear and uneasiness about global growth. As a result we’ve also seen the Fed futures markets continue to price a lower probability of a hike at the June meeting despite the chorus of vocal support from Fed officials signalling that the meeting is ‘live’ – although in reality that is just in-keeping with the FOMC script so it shouldn’t come as too much of a surprise. Currently the probability of a 25bp hike next month is a lowly 10% and the lowest it’s been in months. In fact pricing for just one hike by the December meeting has now fallen below 50% and there’s little evidence to suggest that the gap currently between the Fed and the market is narrowing.

So the S&P 500 goes into today’s print on the back of three consecutive daily declines (in which it has shed -1.5%) and five in the last six days (in which it’s down -2.1%). It had looked as though we might be in for a better day yesterday with the index up as much as half a percent early doors, before gains were wiped out with the move down for Oil off the highs. The index closed a smidgen lower (-0.02%) but it is credit which seems to have been at the forefront of the risk-off moves of late. Last night the CDX IG index closed another 1.5bps wider. It means the index has weakened for the last 6 sessions and in that time is 11bps wider. It was interesting to see yesterday that the biggest HY ETF in the US (the iShares HYG Index) has had redemptions of around $2.3bn over the last four days and that the short interest in the fund is now up over 80% since mid-April. It’s worth noting that over a 4-day period the redemptions now are greater than during the selloff earlier this year and provides further evidence that this close to 3-month rally is quickly losing momentum.

In terms of that Oil move yesterday, WTI peaked back above $46/bbl mid-way through the day yesterday (and about +5% on the day) as the market reacted to the impact of the Canada wildfires and subsequent production curtailment in the Canada Oil Sands region, as well as the news of political infighting out of Libya and the potential knock on effect to output levels there. That said, $46 marked the high point for the day as prices quickly reversed with WTI trading all the way back down towards $44/bbl, which is where it’s hovering just north of this morning. That move coincided with another strong day for the US Dollar. The Dollar index rallied to a +0.65% gain yesterday, marking three consecutive daily gains.
Glancing at our screens this morning, markets look like they’re sent to end the week on a bit of a whimper in Asia. The focus has been on Japan where bourses have reopened following the public holiday. After initially opening positive the Nikkei is now down -0.89% with the Yen also posting a modest gain this morning. Some of that may also reflect data released in Japan overnight. The Nikkei services PMI for April was recorded as declining 0.7pts and into contractionary territory at 49.3. Combined with the manufacturing data, that has resulted in the composite dropping a full point to 48.9 and to the lowest since April 2014.

Elsewhere this morning we’re also seeing further losses for the Hang Seng (-1.30%), Shanghai Comp (-1.85%) and the ASX (-0.31%). The Aussie Dollar (-1.00%) has been the big focus for FX markets after the RBA revised down their inflation forecasts for this year.

Over the last 24 hours we’ve also had a host of Fedspeak to contend with. Yesterday we heard from St Louis Fed President Bullard who said that ‘my attitude about June is that it’s a live meeting in which we will have plenty of new data compared to March’. Dallas Fed President Kaplan backed this view up yesterday too, while overnight we’ve heard from these two officials again, along with Williams and Lockhart as part of a panel discussion. Lockhart highlighted that he doesn’t support a shift from the Fed’s 2% inflation target, while Williams questioned if the inflation goal is the right strategy for the future. Williams also said that in the face of another ‘negative shock’ then the Fed has a list of things that it can do including QE4, while negative rates are ‘at the bottom of the list’. Bullard also agreed with negative rates as being ‘very unlikely’.

Away from the Fedspeak, the data took a bit of a pause for breath yesterday. Ahead of today’s payrolls we received the latest reading for initial jobless claims which revealed an uptick in the number of claims last week to 274k (vs. 260k expected), a rise of 17k. While that was the highest reading in five weeks, the four-week average still remains at a lowly 258k. Meanwhile, closer to home in the UK the services PMI for April (52.3 vs. 53.5 expected; 53.7 previously) backed up what was a soft set of PMI indicators for the country last month. Combined with the first sub-50 manufacturing print for the UK in over three years, the composite declined 1.7pts last month to 51.9 and the lowest going back to 2013. With the Brexit referendum looming, the data points to some growth concerns for the start of Q2 and it’ll be interesting to hear what the BoE makes of the data.

Just wrapping up the price action yesterday, with a number of European holidays yesterday volumes were a bit thinner in the region although the Stoxx 600 (+0.32%) did manage to eke out a small gain for the first time in a week. Meanwhile core sovereign bond markets were stronger once again. 10y Bund yields eventually closed 4bps lower at 0.161% while Treasury yields were lower again too. The benchmark 10y year was 3bps lower at 1.746% and is now close to 20bps down from the highs in yield last month.

Looking at today’s calendar, it’s a particularly quiet close to the week datawise in Europe with just the latest industrial production for Spain due out. The main event is reserved for this afternoon however with the release of the April employment report for the US. As highlighted earlier the main focus will be on the payrolls figure as well as average hourly earnings and the unemployment rate. Elsewhere, later on this evening we’ll also receive the March consumer credit data. There’s little in the way of Central Bank speak today, while on the earnings front we’ll receive quarterly reports from just 6 S&P 500 companies and 4 Stoxx 600 companies.

Before we wrap up, there’s more important data out over the weekend from China too. On Saturday we’ll get the April foreign reserves data while on Sunday the all-important trade numbers are due out. So worth keeping an eye on those ahead of the open in Asia again on Monday.