Though markets are substantially calmer now than at the opening of this week, jitters surrounding the health of the US labor market still abound, and the United States Dollar trades with a moderately positive tinge today.
Overview
European equities slid in London trading, and US stocks are set to open only slightly higher today after losing steam on their recovery yesterday, as the debate surrounding global central bank policy continues. US markets, in particular, are likely to be more sensitive than usual to any data released concerning the employment picture – as one side of the Fed’s dual mandate shows a streak of weakness, interest rate swaps reflect that. Though traders have pulled back on their bets of easing in a big way since Monday, expectations of 110 basis points of cuts this year are still much higher than they were before last Friday’s non-farm payrolls figures, and traders do still believe there is a good chance the Fed cuts interest rates by 50 bps in September.
This hypersensitivity to labor figures showed this morning after initial jobless claims came in slightly lower than expected, showing 233,000 new claims and falling 17k from last week. Continuing jobless claims were as expected, ever so slightly below last week’s figures. The Dollar caught a bit of a bid after the release, and treasury yields climbed on the signal that perhaps the employment situation is not as dire as Monday’s massive selloff would have markets believe. In the runup to the release at 8:30 this morning, the emerging-market ‘fear index’ ticked upward and safe haven currencies like CHF and JPY were strengthening, though such moves have now been pared back. As we emphasized earlier this week, as well, summer holidays around the world are likely thinning out the FX market, which increases volatility. The VIX, though recovered substantially from its peak above 60 on Monday, is still running higher than its average reading, showing markets are not out of the proverbial woods just yet.
What to Watch Today…
- Monex USA Online is always open.
GBP ⇓
In a dearth of data out of the UK this week, Pound Sterling has been at the mercy of the global economic mood and has lost substantial ground against USD since Monday’s panicked opening. Most of its slide came Tuesday as the world entered recovery mode, losing nearly a percent of ground on that day alone. GBP weakness continues this morning on the heels of positive labor market figures out of the US. Much of the larger concern for GBP comes from economists’ interpretation of new Chancellor Rachel Reeves’ economic plan, saying that her policy conditions could hamstring growth in a nation already facing a rather stagnant economy.
MXN ⇑
Mexican Peso’s volatile streak and recovery from Monday’s massive selloff continues today ahead of Banxico’s policy decision due out at 3 PM Eastern. Mexico did release CPI figures ahead of that decision earlier this morning, showing inflation grew 1.05% last month which was slightly above expectations. The annual and core figures were also above expectations, though the annualized core reading was lower than last month. Traders are split on whether or not Banxico is likely to cut interest rates by 25 basis or hold steady, but even a cut is likely to come paired with more hawkish rhetoric given this morning’s CPI data.
