Markets Quiet Ahead of US Jobs Data

close up of world map marc

  • During the North American session, the June jobs data will be the highlight
  • The next UK Prime Minister will be the first woman since Margaret Thatcher
  • Japan reported May current account data overnight
  • Brazil reports June IPCA inflation

The dollar is mixed against the majors as markets await US jobs data. Kiwi and sterling are outperforming while the Swiss franc and the Loonie are underperforming. EM currencies are mixed. RUB and TRY are outperforming while KRW and PHP are underperforming. MSCI Asia Pacific was down 0.6%, with the Nikkei falling 1.1%. MSCI EM is down 0.3%, with Chinese markets down 0.6%. Euro Stoxx 600 is up 0.5% near midday, while S&P futures are pointing to a lower open. The 10-year UST yield is flat at 1.39%. Commodity prices are mixed, with oil up 0.5%, copper flat, and gold down 0.3%.

The FX market is quiet ahead of the US jobs report.  Most of the major currencies are trading within recent ranges, though cable and dollar/yen remain near the bottom of their respective ranges.

During the North American session, the June jobs data will be the highlight.  ADP jobs data came in slightly better than expected at 172k vs. 160k consensus and a revised 168k (was 173k) in May.  For NFP, consensus is 180k vs. 38k in May.  Average hourly earnings are seen picking up to 2.7% y/y from 2.5% in May, while the unemployment rate is seen ticking up to 4.8% from 4.75 in May.

Markets are basically pricing in no move by the Fed in July or for all of 2016, for that matter.  It will take a lot to change this view, especially in light of the perceived dovish FOMC minutes Wednesday.  Still, every journey starts with a single step and a strong jobs report today would be a good start.  There are no Fed speakers today.

Canada also reports June jobs data.  Consensus is for a 5k change in net employment, down from 13.8k in May.  Last month’s reading was unbalanced, with a 60.5k increase in full-time employment offset a bit by a -46.8k drop in part-time employment.  The Loonie is lagging today, with some lingering weakness after the sharp drop in oil prices yesterday.

The next UK Prime Minister will be the first woman since Margaret Thatcher.  The two top vote-getters amongst Tory parliamentarians were Theresa May and Andrea Leadsom.  Tory party members nationwide will now choose between these two, and the winner will be declared on September 9.

Elsewhere, the UK reported May trade.  The overall deficit was smaller than expected at –GBP2.3 bln, while the April deficit was revised down to –GBP1.95 bln.  The Q1 current account deficit was a larger than expected –GBP32.6 bln, and so markets will be watching the external accounts carefully as another source of potential sterling weakness.

Germany reported May trade and current account data.  Exports contracted -1.8% m/m vs. expectations for a 0.4% gain, while imports rose 0.1% m/m vs. 0.7% expected.  This comes after weaker than expected German industrial orders and IP this week, and the eurozone economic data is consistent with a somewhat slower pace of growth in Q2 after the unusually strong 0.6% advance in Q1.  Consider that over the past five years (20 quarters), growth has averaged less than 0.15% a quarter.  France reported May IP at the expected -0.5%m/m, but the y/y rate was a weaker than expected 0.5%.

Japan reported May current account data overnight.  Despite strong seasonal patterns, the surplus worsened slightly to JPY1.4 trln from JPY1.6 trln on a seasonally adjusted basis.  Typically, April deteriorates from March and May tends to improve upon April.  The bulk of the deterioration can be traced to the trade balance.  However, due to size of the sums involved, the yen’s strength has a larger impact on capital flows than trade flows.  Japan’s primary income surplus overwhelms the trade balance by a large order of magnitude.

Brazil reports June IPCA inflation, which is expected to rise 8.9% y/y vs. 9.3% in May.  While still above the 2.5-6.5% target range, this was the lowest since June 2015.  However, IGP-M wholesale and PPI measures of inflation have started to accelerate again.  BCB has been on hold since its last 50 bp hike to 14.25% back in July 2015.  The first quarterly inflation report from Goldfajn was quite hawkish, and recent developments suggest August 31 is the earliest it will cut rates, rather than July 20.