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Asian bourses reversed losses and ended the trading week in positive territory as Hong Kong’s top official, Leung Chun-ying agreed for a fresh round of talks with pro-democratic activists.   China’s non manufacturing PMI released in the overnight session eased to 54.0 in September from 54.4 the previous month, its fourth consecutive month of decline, primarily due to a drop in new orders and places fresh pressure on China to provide more stimuli to bolster the economy as concerns mount on the global growth outlook.

The yen shrugged off a stronger than anticipated PMI in September with a reading of 52.5 as bill purchases from the Bank of Japan took center stage and weakened the yen toward the 109 handle.   In its effort to spur inflation, the Bank of Japan purchased a record 3.5 trillion yen of Treasury bills and has pushed down the three-month yield to -0.02% and the two year government bond yield at 0.06%. Comments from Governor Haruhiko Kuroda that a weaker yen is unlikely to pose a threat to the economy fueled further losses for the currency.

The euro has traded on the defensive as ECB President Mario Draghi failed to reassure markets that the ECB will do “whatever it takes” to expand its balance sheet at his press conference on Thursday where markets were looking for further details on its plan to buy secured debt.

The Euro zones’ economic woes deepened with the release of PMIs from France and Italy which came in below the key level of 50 that separates contraction from expansion at 48.4 and 48.8 respectively. Germany served as the only bright spot with an improved reading from 54.9 to 55.7.   The euro zone as a whole slipped to a ten month low of 52.0 in September from 52.5 in August.   In other economic data, retail sales for August rebounded from 0.5% to 1.9% on an annualized basis.

In a speech to the Institute of Directors, UK Chancellor George Osborne cited that weak euro zone growth is the largest near term risk to UK growth. Compounded with a softer PMI reading at 58.7, it builds concerns that next week’s economic docket of industrial and manufacturing production, trade balance and housing data could miss expectations as well which could lead the pound below the 1.6000 handle.

As we head into the North American session, a strong nonfarm payroll report has lifted the US dollar.   For the month of September, 248,000 jobs were added to the economy and the unemployment rate declined to 5.9% from 6.1% the prior month.   August figures were also revised upward from 142,000 to 180,000.

With a labor market that is gaining traction, wage growth which is one of the areas that is scrutinized by the Federal Reserve stalled at 2.0% on an annualized basis.   This set of data supports the view that the era of cheap money is coming to an end and that the Federal Reserve remains on the right trajectory toward policy normalization.   Trade balance for the US in August narrowed to $40.1 billion with September Services PMI, Composite PMI and ISM non-manufacturing PMI on deck later this morning.

The Canadian dollar is weak due to broader US dollar strength as a result of a strong US jobs report and softer domestic fundamentals where August trade balance showed a surplus of $0.61 billion, missing estimates of $1.6 bn.   Further, an escalation of global growth concerns has driven oil and commodity prices lower which has also weighed on the loonie.

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