Gathering dollars and government debt while investors avoid risky bets

The dollar strengthened and government bonds tightened ahead of U.S. job data on Friday, and those setting them in the Federal Reserve will be closely monitored.

The U.S. dollar index, which measures the currency against its peers, strengthened on Wednesday and recorded a monthly gain of nearly 3 percent.

Investors have also bought government debt, which – like the dollar – tends to rise, when uncertainty causes investors to refrain from buying riskier assets.

Yields on the reference ten-year U.S. treasury, which is reversed from its price, fell 0.04 percentage points at one point, to 1.44 percent, before returning slightly to about 1.46 percent. The German equivalent yield of the Bund fell 0.03 percentage points to minus 0.20 percent.

Economists polled by Bloomberg expect a report on non-payrolls on Friday to show that U.S. employers added just over 700,000 jobs in June, up from 559,000 the previous month.

But fund managers are reluctant to give big roles ahead of job reports, as economists ’predictions for April payrolls have been shown to be wild inaccurate and the one for May also entered well below forecasts.

“Job data has become very difficult to predict,” said Ken Taubes, U.S. chief investment officer for Amundi. “We had professional economists who misunderstood it by the hundreds of thousands.”

The ADP national employment report on Wednesday showed U.S. private sector employers added 692,000 jobs in June, down from 886,000 a month earlier, but ahead of economists ’expectations for 600,000 increases.

Michael Pearce, a senior U.S. economist at Capital Economics, warned that the ADP survey “completely missed the slowdown in wage growth evident in official figures due to labor shortages in recent months.”

“That way we would treat the poll with an even greater dose of skepticism than is normal,” he said.

David Lefkowitz, head of shares of UBS Global Wealth Management, said a weak report on Friday could push expectations around the Fed’s timeline for tightening monetary policy.

Most economists surveyed the inaugural FT-IGM survey sees a 75 percent or higher chance of at least two U.S. interest rate increases by the end of 2023, in line with the so-called point of individual central bank projections.

On Wall Street on Wednesday, the blue chip S&P 500 closed more by 0.1 percent. The profit of the index exceeded 2% in June, which is the fifth month in a row.

The technically heavy Nasdaq Composite, meanwhile, fell 0.2 percent, after setting a new record this week. Across the Atlantic, the Stoxx Europe 600 slipped 0.8 percent across the region.

Analysts have increased their forecasts for 2021 earnings per share for companies by 15% since January, Citi said, while companies are benefiting from the reopening of economies and the introduction of vaccines. Earnings expectations have risen the most for companies whose happiness is linked to economic cycles, such as industry groups and material manufacturers, Citi found.

But the prices of companies’ equity and debt instruments have already been so raised by this optimism that “wherever you look, nothing remains in terms of value,” said Tatjana Greil Castro, co-manager of public markets at Muzinich & Co.

“So now it’s all about the Fed and how much liquidity it will continue to pump into the markets,” she said.

Global oil brand Brent added 0.5 percent to $ 75.13 a barrel, trading around its highest point since April 2019, while buyers dismissed concerns about expanding the Delta variant of Covid-19 to focus on declining U.S. oil inventories.

Additional reporting by Shubham Saharan of New York