US Market Insight: NFP, FOMC Minutes to Dominate Holiday-Shortened Week
With the Independence Day Holiday on the Forth of July, trading in
the US will be focused on the monthly jobs report and minutes from the
latest Federal Reserve meeting, which might reveal discussions about a
rate hike, even when markets expect no change until at least the end of
On Monday, the US commemorates its declaration of independence
from Great Britain. Stock and bond markets will be closed, along with
The holiday-shorten week will be on Friday, when the Bureau of
National Statistics will release its heavy-hitting non-farm payrolls
report for June. After the disastrous May reading, which revealed only
38,000 newly created private sector jobs, it is now expected to post
That would be the third straight month of a reading under 200,000.
New highs in AUD and NZD primarily, but the USD has come back against all its major counterparts including the JPY, which technically should be benefitting from the upturn in equities, though the 10yr yield has come off sharply also. EUR/USD support ahead of 1.1000 was well touted and now confirmed as we are back trading above 1.1050, while Cable has also recovered off the lows, with pre 1.2900 bids again winning out. 1.3000 eludes for now to keep a fresh downside test on the table. Stops seen through 1.3050 and more above 1.3100, but overall FX activity has calmed in the last few minutes, so some brief consolidation ahead of the NY cut. Nearby strikes of note see good size EUR/USD 1.1050-55’s, 100.00’s in USD/JPY and 1.2990-00’s for USD/CAD.
The U.S. economy may have added 287k jobs in June, but we’re not impressed. Judging from the performance of the dollar post payrolls, most forex traders share our views. When the report was first released, USD/JPY jumped to a high of 101.28, but it reversed quickly hitting a low of 99.99.
However the pullback to 100 was short-lived with the currency pair
bouncing back to its pre-NFP level within minutes. Part of this is due
to the rise in U.S. stocks and general improvement in risk appetite. But
100 is also a very important technical level and it is clear that there
were a lot of bids at that rate. Although job growth rebounded
strongly, the unemployment rate rose more than expected and average hourly earnings
growth slowed. Job growth was incredibly weak in May but instead of an
upward revision, the report was revised down by another 27k. And that
leaves the 2-month average at less than 150k. Jon Hilsenrath of the Wall
Street Journal argues that this may be enough for the Fed to raise interest rates in September -- a view we completely disagree with.
While it's true that Fed Fund futures went from pricing in
an 11% chance of tightening in 2016 to 22% post payrolls, there’s no
reasonable case for a rate hike before the end of the year, especially
since we don’t expect any of next week’s economic reports to provide
upside momentum for the dollar. The most important piece of U.S. data scheduled for release next week will be U.S. retail sales, and between the decline in wage growth, the sharp drop in gas prices in June and lower spending reported by the Johnson Redbook survey, all signs point to lower consumer spending and a more restrained increase in consumer prices. Six Federal Reserve Presidents are scheduled to speak but only two (George and Bullard)
are FOMC voters. Both have hawkish leanings but given the deterioration
in U.S. data and Brexit uncertainty, they could indicate that more
caution is needed on raising rates. With two monetary policy
announcements, continued Brexit risks, U.S. retail sales, Chinese trade and GDP numbers on the calendar, we anticipate another volatile week for the greenback. There may not be a tremendous amount of consistency as the dollar should remain weak versus the yen but strong against the European currencies and mixed versus the comm dollars.
surged 3.6% after Prime Minister Shinzo Abe’s ruling coalition
increased its majority in the upper house in parliamentary elections on
The win for Abe’s coalition fed hopes for a fresh package of stimulus measures to spur economic growth.
Risk appetite had already been boosted after data on Friday showing
that the U.S. economy added 287,000 jobs in June, well above the 175,000
jobs forecast by economists.
The stronger than expected jobs report indicated that the economic recovery is back on track.
But the data did little to alter the view that the Federal Reserve
will stick to cautious plans for hiking interest rates after May’s
payrolls figure was revised down to 11,000, the smallest monthly
increase since 2010.
The euro edged lower against the dollar, with EUR/USD slipping 0.2% to 1.1027, not far from Friday’s two-week lows of 1.1001.
The pound also slid lower, with GBP/USD easing 0.15% to 1.2933, not far from its post-Brexit low of 1.2794 set last Wednesday.
Investors were looking ahead to the outcome of the upcoming Bank of England meeting later in the week.
The BoE could potentially ease monetary policy to cushion the U.K.
economy from the impact of Brexit, which would also pressure sterling
The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was up 0.32% at 96.62.
Fed Labor Market Conditions Remain in Negative For 6th Mth in June
Conditions in the US labor market improved in June, data showed on
Monday, but remained in negative territory for the sixth consecutive
month, coming in worse than expected.
designed to illustrate expansion and contraction of labor market
conditions, booked minus 1.9 during the sixth month of the year,
compared to the up-revised figure of minus 3.6 snatched in May.
It hasn't booked a positive reading since December last year.
Economic desks had expected an improvement to 0.0 in June.
US NFIB small business optimism index June 94.5 vs 93.9 exp
US NFIB June small business optimism index 12 July 2016
Data out a few moments ago. Not a price changer but adds to the general US picture.
National Federation of Independent Business (NFIB) Small Business
Optimism Index is a composite of ten seasonally adjusted components. It
provides a indication of the health of small businesses in the U.S.,
which account of roughly 50% of the nation's private workforce.
YoY -4.8% vs. -4.6% estimate. Ex food and fuel YoY -1.7% in June
US import prices came in at 0.2% for the month of June. This comes
after a 1.4% increase in the prior month. However, YoY the price of
imported goods are still down -4.8%. This is up from -5.0% last month
but lower than the -4.8% estimate. Of course the data is still working
off the sharp fall in energy going back a year.
The reaction in the market to the data is limited (USDJPY is down about 10 pips so far.
Other details from the report:
import prices ex-fuel fell 0.3% after rising 0.3% in May
industrial supplies prices rose 2.1% after rising 6.2% in May
capital goods prices fell 0.3% after no change in May
auto prices unchanged\thi
consumer goods prices fell -0.2% after rising 0.2% in May
export prices rose 0.8% after rising 1.2% in May. Ex agricultural rose 0.5%
import prices ex-food and fuel fell 1.7% year on year in June
Turkish coup bid crumbles as crowds answer call to streets, Erdogan returns
Turkish military coup appeared to crumble on Saturday after crowds
answered President Tayyip Erdogan's call to take to the streets to
support him and dozens of rebel soldiers abandoned their tanks in the
main city of Istanbul.
least 60 people were killed in violence that erupted on Friday after a
faction of the armed forces attempted to seize power, officials said.
successful overthrow of Erdogan, who has ruled Turkey since 2003, would
have marked one of the biggest shifts in the Middle East in years,
transforming one of the most important U.S. allies while war rages on
its border. A failed coup attempt could still destabilize a pivotal
Erdogan, who had been
holidaying on the southwest coast when the coup was launched, flew into
Istanbul before dawn on Saturday and was shown on TV among a crowd of
supporters outside Ataturk Airport.
uprising was an "act of treason", and those responsible would pay a
heavy price, he told reporters at a hastily arranged news conference.
Arrests of officers were under way and it would go higher up the ranks,
culminating in the cleansing of the military, he said.
a crowd of thousands of flag-waving supporters at the airport later,
Erdogan said the government remained at the helm, although disturbances
continued in Ankara.
However, in an
emailed statement from the Turkish military General Staff's media
office address, the pro-coup faction said it was determinedly still
Calling itself the Peace at Home Movement, the faction also called on people to stay indoors for their own safety.
soldiers who had taken control of military aircraft were still firing
from the air and fighter jets had been scrambled to intercept them,
Prime Minister Binali Yildirim said, underscoring the ongoing