💼⛑UBS: Payrolls Present Two-Way Risks For FX, Rates & Equities

• UST yields have resumed have resumed their move higher, with lOs (1.5852%) now the highest since mid-June. The US Senate passing a short-term debt-ceiling increase is combining with a rebound in oil prices, sending yields higher. This move is echoed though APAC fixed income markets, with Australia and New Zealand underperforming (i.e. higher yields).

• In FX, this manifests in cross-JPY upside, with AUD and NZD outperforming. Zooming out this week, high-yielders, including BRL, MXN, ZAR are underperforming in a warning to their peers in Asia (e.g. IDR and INR). Aside from China's return from Golden Week today, US non-farm payrolls offer fascinating two-way risks for rates, FX and equities (UBSe: 635k, UBS Big Data: 400k, cons: 500k, whisper: 510k, last: 235k).

• A weaker-than-expected headline number would offer scope for further short-covering in AUD and NZD. However, a strong out turn consistent with our Economics team's expectations and combined with a pick-up in earnings growth could drive a further material selloff in USTs that boosts USD and undermines the nascent recovery in Growth equities. The unusual positive relationship between USD, UST yields and oil prices in recent weeks could reassert itself on a strong payrolls print that locks on a taper announcement at the November FOMC meeting and also brings forward rate hike expectations.