The US$ made some good gains on Friday, while stocks and commodities gave up some ground after the US employment report showed that 224,000 jobs had been created in June, which suggests that the Fed will not necessarily cut rates on July 31. At the same time, the jobless rate last month ticked up from its 3.6%, 50-year low, to 3.7%, in part because the participation rate rose 0.1% to 62.9%. The Average hourly earnings rose 0.2% mm, below expectation of 0.3% mm. Markets are now pricing 27bp of easing at the July meeting (from 32bp pre-jobs report), with a total of three cuts priced by mid-2020.
The commodity currencies were hard hit by the data but did bounce off their lows, while the Euro and Sterling also had a tough session, with the Euro not helped by some very weak German data. May Factory Orders fell by -2.2% vs +0.2% m/m expected, and will not ease concerns about weakening activity in the German economy and the possibility of an iminent easing of policy in the EU by the ECB.
Bond yields bounced across the board, with the US10Y back above 2%, currently at 2.05%, lifting US$Jpy, which has been particularly sensitive to recent bond market moves. Gold and Silver both took a dive, but finished above their lows on the lower rate cut expectations, while WTI finished up by around 1.8%.
Stock markets also headed into reverse from their recent trend of daily new all-time highs but then recovered from their knee-jerk selloff, seen immediately after the US data, and finished down by around 0.5%, with the longer term uptrend fully intact.
Looking ahead, the coming week sees a steady flow of data, with the highlights being Fed Chair, Powell’s, testimonty to Congress (Tue) – which comes a couple of weeks ahead of the nect FOMC Meeting,- China CPI, FOMC Minutes (Wed), German/US CPI (Thur) and the June, China Trade Balance (Fri). Monday kicks off with a quiet calendar, with the Australian ANZ Job Ads being the only point of note in Asia. Europe will look to the German Current Account, Trade Balance (exp Eur 18.6 bio), Industrial Production (exp -0.4%, -1.4%yy) and the EU Sentix Investor Confidence Survey (exp 2.9), while the US will have nothing to go on at all and will spend the session disseminating Friday’s jobs data.
Economic data highlights will include:
Mon: ANZ Australian Job Ads, Japan Eco Watchers Survey, German Industrial Production, Current Account, Trade Balance, EU Sentix Investor Confidence Survey,
Tue: NAB Australian Business Conditions/Confidence, China New Loans, US Fed Chair Powell Speech, US NFIB Business Optimism Index, API Weekly Crude Oil Stock Inventory, Fed’s Quarles Speech
Wed: NZ Food Price Index, RBA’s Debelle Speech, China CPI/PPI, ECB Non- Monetary Policy Meeting, UK Manufacturing/Industrial Production, Trade Balance, Goods Trade Balance, GDP, US FOMC Minutes, Wholesale Inventories, EIA Crude Oil Stocks Weekly Change
Thur: Australian Consumer Inflation Expectation, Home Loans, Investment Lending for Homes, Japan Trade Balance, Tertiary Industry Index, German CPI/HICP, UK BOE FCP Minutes, US CPI, Jobless Claims, Monthly Budget Statement
Fri: China Trade Balance, Japan Industrial Production, EU Industrial Production, US PPI
Market moves, in brief:
FX: DXY 97.17 (+0.47%)
Bonds: US10Y; 2.041% (+4.66%), German 10Y; -0.363% (+9.03%), UK 10Y; 0.739% (+9.52%), Australian 10Y; 1.293% (-0.81%), NZ 10Y; 1.525% (0.00 %), China 10Y; 3.176% (-1.36%)
Stock Indices: DJI; -0.16%, S+P; -0.18%, NASDAQ; -0.10%, EUStoxx50; -0.46%, FTSE100; -0.66%, Shanghai Composite; +0.19%,
Metals: Gold $1399 oz (-1.10%), Silver $14.99 oz (-1.83%), Copper $2.661 lb (0.08%), Iron Ore $117.10 per tonne (NYMEX) (-4.92%),
Oil: WTI $57.72 pb (+1.80%)
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