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Markets await US Jobs Report.

By Jake Trask

Yesterday saw a rebound in the Markit/CIPS UK Services PMI following March’s disappointing reading with the gauge pushing up from 51.7 to 52.8 in April. Markets had penciled in 53.5 so the miss saw a modest sell off in the pound with GBP/USD dipping back under 1.36 however the reaction was pretty muted. The report’s authors noted: “The overall expansion signalled by the three surveys in April was the second-weakest since the Brexit vote, pointing to a quarterly rate of GDP growth of around 0.2% at the start of the second quarter….The disappointing services data will add to expectations that the MPC will take its finger firmly off the rate hike trigger. Any further slowing will also raise questions as to whether the November rate hike may have been ill-timed.” Overnight the results of the UK local elections has been announced with (as I write) UKIP being the big loser, the Tory’s treading water and Labour and the Lib Dems making gains. GBP/USD is still under 1.36.

Today see the monthly Jobs Report from the States with Non-Farm Payrolls predicted to rise 190k for April, the unemployment rate expected to drop to 4% from 4.1% and monthly earnings expected to moderate from 0.3% to 0.2%. As always the headline figure is the NFP however wages are likely to be the markets focus as a higher than expected print would add weight to the argument for the Fed raising rates four times this year rather than the expected three. Yesterday afternoon saw a mixed bag of middle impact data with Prelim Unit Labor Costs q/q and ISM Non-Manufacturing PMI falling short whilst Prelim Nonfarm Productivity q/q and Unemployment Claims beat estimates. To finish off the week there is a slew of Fed-speak with FOMC members, Dudley, Williams, Quarles and Bostic all speaking at various functions tonight.

The economic slowdown in the Eurozone of late has seen a lot of last year’s gain erased and persistently under-target inflation isn’t helping its cause either. Latest figures released yesterday saw CPI miss target with the overall reading slipping to 1.2% and the core reading dropping to 0.7% from 1%. Yesterday also saw the latest EU Economic Forecasts released which highlighted the moderation in output in the Eurozone and the potential risks caused to global growth from Trump initiated trade disputes. EUR/USD remains under pressure with 1.20 acting as resistance ahead of this afternoons American Employment data.

The Aussie has pared recent losses against the greenback rising back above 75 cents bolstered by better than expected Trade Balance and Building Approvals numbers on Thursday with extra support added by the Reserve Bank of Australia’s latest Monetary Policy Statement which upgraded core inflation and unemployment forecasts. AUD/USD trades at .7530 with GBP/AUD just above 1.80.

Canadian Trade Balance figures fell short yesterday with a deficit of CAD4.1B registered almost twice the CAD2.3B predicted. The pace of monetary policy tightening between the neighbours expected to diverge as the BOC likely sees its pace fall as the Fed holds steady or increases. This combined with recently highlighted household debt levels and potential trade friction could see USD/CAD head back above 1.30 before too long. GBP/CAD is at 1.7450.

There has been little data of note from New Zealand to end the week with next week’s Inflation Expectations and RBNZ policy decision the next major events. The Kiwi is hovering around 70 US cents this morning. GBP/NZD sits at 1.9330.