The major economic release of non-farm payrolls from the US that markets had spent all week holding their breath for finally came out this morning with more of a whimper than a bang.
Overview
In response, the United States dollar initially jumped down into negative territory, but as traders begin to parse through the details of the full report, the USD is recovering most of its initial losses. The headline figure of 142,000 jobs added last month is decidedly underwhelming, but within that, the US unemployment rate did return downward to 4.2% after jumping up to 4.3% last month.
Holistically, traders are reading the data basket as a whole as mixed, keeping Dollar weakness fairly muted. There are certainly some details in the report that do give markets pause, such as the net two-month revision of negative 86,000 jobs, but when coupled with a drop in unemployment and a rise in average earnings, the story as a whole really isn’t such a bad one. After August’s downside surprise on this same release, today’s numbers, by comparison, do look fairly benign. Since that early August report in July, the US has received some other employment and economic indicators that have helped tamp down traders’ panic about the health of the US economy as a whole. Overnight interest rate swaps have jumped up a bit and traders are fairly evenly split on expectations of 25 versus 50 basis points of easing later this month, but it is likely in our view that such expectations are still overblown. We are sticking with our call for 25 basis points of easing in September and no more than 75 basis points of cuts this calendar year.
At the time of writing, the Bloomberg Dollar Spot Index has swung wildly but is now back to flat on the day’s trading session. The MSCI Emerging Markets Index is losing substantial ground, and most G10 currencies have pared off most, if not all, of their gains against USD. Federal Reserve Bank of New York President John Williams also spoke this morning immediately following the release of payroll data and echoed Powell’s call for some easing from the Fed but declined to comment on exactly how much.
What to Watch Today…
- Monex USA Online is always open.
CAD ⇓
The Loonie is one of a handful of currencies trading in decidedly negative territory against USD this morning after Canada released its own employment figures for the month of August. While the US report was not exactly rosy, Canada’s employment picture by comparison is fairly clearly in rougher shape. Our neighbors to the north saw a pithy 22,100 jobs added last month, below expectations of 25,000. Canada’s unemployment rate also rose to 6.6%, which looks especially bad in comparison with the US’ drop in the same reading.
MXN ⇑
The Mexican Peso is a winner off the back of today’s employment data from the US, gaining roughly half a percent following the data release. Through the first half of this calendar year, MXN carried a very strong inverse correlation in pricing with JPY, but since the Bank of Japan’s interest rate hike in early August prompted the unwind of much of the market’s favorite carry trade, such a correlation has diminished, and the Peso has been able to move more with its peers as of late. MXN reached its weakest point against USD in nearly two years during intraday trading yesterday and has since been able to recover some ground.
