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Jobs Report for the US due tomorrow, ADP yesterday signals a miss on estimates

By OFX

The greenback has fallen away over recent days as fears over Italian politics fade and risk returns to the markets. EUR/USD which got close to falling through 1.15 has since rallied and is now heading to 1.17 as I write. Yesterday’s data from the States was a little weak with both notable releases falling short of expectations. The ADP Non-Farm Employment Change figure was 178k vs. expected 191k and the second estimate of GDP for Q1 saw a slight downward revision to 2.2% y/y from 2.3%. These underweight readings added some extra downward pressure to the dollar and increased risk appetite throughout the afternoon.

Today there is a slew of mid-tier releases including Core PCE Price Index m/m released at 0.2%; Personal Spending m/m printed at 0.3%; Initial Jobless Claims decrease from 234k to 221K. FOMC members Bostic and Brainard giving speeches today. With relative calm returning to world markets all eyes will now turn to tomorrows US Jobs Report.

With relative calm returning to world markets all eyes will now turn to tomorrows US Jobs Report. The S&P equity Index rebounded the most in 3 weeks, up 1.27% while US 10-Year Treasury yield recovered a bit from Tuesday lows (2.76%) and is now sitting around 2.85%. WTI crude oil also had a massive recovery, spiking more than 2% to approximately $68.10, which was also supportive of a weaker dollar.

The Bank of Canada yesterday as was expected left interest rates unchanged at 1.25%. In the rate statement, the BOC did make some critical edits to its wording. The edits signaled to market participants that the central bank is ready to raise rates, as the wording changes from “cautious” to “gradual.” The BOC said that it will remain data dependent and that it will closely monitor domestic and global economic fundamentals. The loonie gained on all its G10 counterparts on the release of the statement as market participants raise the probability of a July rate hike.

West Texas Intermediate touched a low of 66.34 dollars per barrel yesterday and then rose as high as 68.63. The reverse in oil of 2% higher from its low yesterday added to the Canadian dollar’s best daily performance since the beginning of the month.

Canadian annualized 1st quarter GDP today was expected at 1.8% and releases lower at 1.3% previous was 1.7%. MoM GDP for March was lower than previous of 0.4% but better the consensus of 0.2% and was posted at 0.3%. The loonie has since weakened against its trading peers since the 8:30 am release.

Relief was sighed throughout Europe and the wider world as Italy’s latest bond auction was well received by investors with 10-year debt yielding 3% and the bid to cover ratio at 1.5. Although the yields were the highest in four years it was in line with the secondary market and the bid to cover was higher than the last auction highlighting good demand and confidence from investors.

Today sees May’s Flash CPI data from the EZ with the overall reading expected to rise to 1.6% and the core number expected to move up to 1.0%. We could see some volatility around 10 am when released as this is the last Inflation reading before an expected QE taper announcement from the European Central Bank in June.

Today is expected to bring a statement from the US/EU over proposed tariffs on EU steel exports to the States. The Trump administration is proposing 25% tax on steel and 10% tax on aluminum in an effort to support the domestic industry. Implementation has already been delayed once and should it happen again expect the commodity currencies to rally. GBP/EUR sits at 1.1375.

GBP/USD regained the 1.33 handle overnight as concerns over Italy’s political impasse started to fade. It’s been a quiet week data and Brexit-wise for the pound, however, we finally get something to report on this morning with Net Lending to Individuals expected to rise from £4.2B to £5.2B m/m.

Top tier data kicks off tomorrow with Manufacturing PMI numbers with a small decline from 53.9 to 53.5 predicted. Recent comments from Mark Carney re a soft patch the UK economy is going through mean data will come under extra scrutiny, especially next Tuesdays Services PMI. Cable currently hovers around 1.33.

The Australian dollar rallied strongly through trade on Wednesday as political tensions within Italy eased and risk sentiment found renewed demand. Jumping 1% the AUD surged off intraday lows of 0.7480 to touch session highs at 0.7581, as investors bought back positions that sold in a panic on Tuesday.

This week has seen the AUD trade in a broader trading range than last yet our local unit still remains firmly entrenched within key support and resistance handles at 0.7450 and 0.7590 with wider levels holding at 0.74 and 0.76. The surge in risk-based selling and buying has done little to change our longer-run outlook and we are still looking to next month’s FOMC policy meeting for broader direction and guidance on U.S monetary policy. If 3 H2 rate hikes are signaled the US yield advantage would sit 1% above our own central bank rate marker and make upside momentum hard to come by as move into 2019.

Attention today turn to Q1 Capex data, China Manufacturing news and US PCE Index print. As political tensions ease macro indicators should garner more impotence in governing direction however while the outlook remains uncertain risk trends will still drive short-term volatility.

The New Zealand Dollar rallied during the overnight session to be the second-best performing currency over the past 24 hours. A stark reversal on the Asian session, the Kiwi, initially dipped to a low of 0.6883 before rebounding strongly on the back of improved risk appetites and positive headlines out of Europe. Opening this morning at 0.6985 against the Greenback, the NZD continues to test key resistance at the psychologically important level of 0.7.

With all eyes on the political headlines out of Italy, markets reacted strongly to news of the Italian bond market easing and a new attempt at forming a government. 2-year Italian bond yields fell just over 100bps on the day, reversing more than half of the incredible move higher on Tuesday night. The news calmed markets across the world, including the NZD market which saw almost an immediate impact. While the rhetoric in Italy remains fluid at best, the market welcomed the relief nonetheless. The Kiwi also outperformed against all of its’ crosses, posting 0.6 against the Euro, a four-month high against the Sterling at 0.5260 and 0.9223 against the Aussie. Closer to home, Investors now turn to the ANZ Business Survey as the key local focus for direction.