ADP And ISM Surprise Boost NFP Expectations

Better readings on three key US metrics heightened expectations ahead of Friday's nonfarm payrolls report and sent stocks to a four-year high. The Australian dollar was the top performer while the yen lagged. The calendar is light in Asia. Premium longs in CAD/JPY and silver hit all targets after today's market moves.

ADP employment rose 201K compared to 140K expected, sending USD/JPY and other risk trades soaring. The momentum continued when jobless claims slipped to 365K from 370K and the ISM non-manufacturing index improved to 53.7 vs 52.5 expected.

USD/JPY climbed above 79.00 for the first time since the FOMC minutes raised QE3 expectations on August 21. Those expectations are dwindling and talk of further BOJ deflation-fighting measures are weighing on the yen.
The bond-buying plan from Draghi was exactly as expected, leading to a 50-pip slide in the euro as those who bought the rumor turned around and sold the news. Some details were also disappointing, like news that the ECB wont immediately buy Irish and Portuguese bonds. ECB growth forecasts were also scaled down.

In any case, the periphery bond market cheered the news, even beyond 3-year maturities. Ten-year Spanish yields dropped 38 basis points and fell below support to 6.03%. Italian 10s fell a quarter-point to 5.26%. The cable touched the highest since May and closed above the 61.8% retracement of the summer decline for the first time.

Risk trades surged and closed near the highs even with the threat of the always-volatile nonfarm payrolls report (exp +130K). The S&P 500 closed at the highest since January 2011 and the NASDAQ at the highest since 2000. Look for mild position squaring in Asia as risk is pared ahead of NFP. At 2130 GMT, Australia will release trade balance numbers for July. The consensus is for a AUD 300m deficit; in June, there was a $9m surplus.

At 23:30 GMT, we get the AiG performance of construction index. The prior reading was 32.6.