Focus on Payrolls

Markets went nowhere on Thursday amid thinner liquidity due to Independence Day, ahead of today’s all-important US labour market report.

Previous Day's Market Highlights

This section of today’s Morning Note will be perhaps one of the shortest I’ve written, with Thursday’s FX price action easily summarised in a few words - nothing much happened.
The lack of volatility can be put down to the US Independence Day holiday dramatically thinning liquidity, resulting major pairings treading water throughout the day. Thursday’s only notable data release came from the eurozone in the shape of May’s retail sales figures, which declined by 0.3% MoM, falling short of expectations. The euro was however unfazed by the release, as well as ignoring very dovish comments from the ECB’s Rehn, indicating that stimulus is required now, and until the bloc’s economic prospects improve. Thursday’s major mover was the kiwi dollar, which lost 0.3%, erasing some of its recent gains.
Other asset classes were also quiet. In equities, the pan-European Stoxx 600 added 0.09% amid thin trading volumes, while US markets were closed. Oil markets were also subdued, both Brent and WTI shedding 0.4% as demand concerns continued to weigh.

Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1150 1.1270 1.1119 1.42%
GBP/USD 1.2580 1.2784 1.2506 2.17%
EUR/USD 1.1285 1.1412 1.1181 2.02%
GBP/AUD 1.7880 1.8422 1.7852 3.09%
GBP/NZD 1.8755 1.9414 1.8674 3.83%
GBP/CAD 1.6445 1.6963 1.6397 3.93%

Today's Market Highlights

The first Friday of the month means only one thing for financial markets - jobs day. This afternoon sees the release of the monthly US labour market report, recording the employment situation in June. Headline nonfarm payrolls are set to bounce back from a disappointing June, with consensus estimates pointing to a gain of around 160,000 jobs - modestly above the 3-month average of 151,000. However, after last month’s lacklustre figure and back-to-back disappointments in the ADP  employment change measure, a downside surprise to the payrolls figure should not be ruled out. As always, in addition to June’s jobs number, revisions to the previous two months will also be closely watched. 
Meanwhile, barring the headline figure, markets will continue to look for signs of labour market tightness in the unemployment rate and earnings data. Unemployment is set to hold steady at a 49-year low of 3.6%, while average hourly earnings are set to increase at 3.2% YoY, a modest increase on May’s figure. Overall, today’s jobs data is likely to have a significant impact on the Fed’s next policy move, or at least the market expectations of the next rate decision. Should May’s downside surprise prove not to be a one-off, the prospects of looser monetary policy (either through a prolonged easing cycle or a 50bps July cut) would likely increase, resulting in a weaker dollar. As such, market direction will likely depend more heavily on the headline number than the earnings data. 
Elsewhere, while the data calendar is quiet in both the UK and eurozone, labour market data from Canada is due. Expectations are for unemployment to tick up modestly to 5.5% from last month’s record-low, while the net employment change and average hourly wages figures will be closely watched. Overall, the report should show the Canadian labour market remaining relatively tight, a factor likely to exert upward pressure on prices going forward. A better than expected release would likely see the Canadian dollar continue its recent run of strength, along with increasing the prospects of the Bank of Canada leaving policy settings unchanged for the foreseeable future. This afternoon’s Canadian Ivey PMI figures (exp 55.0) will also be closely watched as a useful leading indicator of economic performance. 
Looking ahead to next week, the economic calendar is once again busy, with monetary policy remaining front and centre. Of primary interest will be remarks from Fed Chair Powell during his 2-day Congressional Testimony (Weds & Thurs) as markets continue to aggressively price in policy easing. Additional signs of imminent interest rate cuts will likely weigh on the dollar. Meanwhile, the Bank of Canada’s latest rate decision should see policy remain unchanged, with the Canadian economy recovering well after a sluggish start to 2019. Minutes from both the Fed’s and ECB’s latest policy meetings will also be released, which will be examined for hints of future policy shifts - especially with both central banks mulling looser policy and additional monetary stimulus. A number of economic releases are also due, with focus falling primarily on Thursday’s US CPI inflation figures as the pace of price increases remains relatively benign. Other notable figures include UK GDP figures for May, in addition to industrial production from the eurozone. 

Today's Economic Calendar

Time Currency Release Consensus Previous
1:30pm USD Nonfarm Payrolls (Jun) 160k 75k
1:30pm USD Unemployment Rate (Jun) 3.6% 3.6%
1:30pm USD Average Hourly Earnings (YoY - Jun) 3.2% 3.1%
1:30pm CAD Net Change in Employment (Jun) 10.0k 27.7k
1:30pm CAD Unemployment Rate (Jun) 5.5% 5.4%
1:30pm CAD Average Hourly Wages (YoY - Jun) 2.55%