Previous Day's Market Highlights
Thursday’s main event was the European Central Bank’s (ECB) latest monetary policy decision where, as expected, interest rates were left unchanged. However, focus fell on a revision to the ECB’s forward guidance, which now indicates that rates will remain at their present levels until the end of the first half of 2020, pushing back a first rate hike by at least 6 months as the ECB continue to struggle against persistently low inflation. Projections for inflation going forward were little changed, though expectations for GDP growth in 2020 and 2021 were downwardly revised due to continued global economic uncertainties. The ECB’s dovish message continued in the post-meeting press conference, where President Draghi affirmed that the ECB are ready to use “all the instruments that are in the toolbox” should the manufacturing sector’s slowdown begin to spread to other parts of the eurozone economy. Draghi also affirmed that adequate policy space remains for all necessary policy measures, while confirming that the next rate move is not guaranteed to be a hike - all clear dovish policy signals. Other matters discussed at the meeting pertain to the financial plumbing in the eurozone - namely a decision to continue pricing the TLTRO programme (cheap, long-term bank financing) at an attractive interest rate as well as shelving plans to tier the negative deposit rate. For the euro, news that policy would be kept on hold for longer was less dovish than some had been expecting, seeing the euro gain 0.5% over the course of the day.
Elsewhere, sterling remained confined to recent ranges, giving back gains after a brief rally on the back of hawkish comments from BoE Governor Carney. Carney stated that the MPC would likely have to raise interest rates further should the economy perform as expected, though Brexit-related uncertainties mean policymakers hands are tied for now. The pound ended the day 0.15% higher against the dollar, while shedding 0.4% against the euro.
Across the pond, the dollar sank to the bottom of Thursday’s FX leaderboard, losing 0.4% against a basket of peers. The greenback’s fall came as markets continued to ratchet up bets on the Fed cutting rates in addition to tentative trading ahead of today’s labour market report. Thursday’s economic releases were all second-tier, though weekly jobless claims figures surprised to the downside, printing 218,000 for a second consecutive week - a potential negative sign for today’s labour market report.
Away from FX, European equity markets were subdued, with the pan-continental Stoxx 600 trading largely unchanged, shrugging off the ECB’s latest policy decision. Meanwhile, in the US, the benchmark S&P 500 gained 0.6% after reports the imposition of tariffs on Mexican imports would be delayed. Finally, oil prices held steady after yesterday’s tumble to 5-month lows. Global benchmark Brent traded flat, while US WTI fell modestly by 0.3%.
|Currency Pairing||08:00 Today||Vs 08:00 Yesterday||Four-Week High||Four-Week Low||% Change|
Today's Market Highlights
The first Friday of the month means one thing for financial markets - jobs day. The monthly US labour market report will be released this afternoon, showing the employment situation in May. Headline nonfarm payrolls are expected to have increased by 185,000 - slightly above the 3-month average of 169,000. A downside surprise to the payrolls figure is a possibility after Wednesday’s disappointing ADP employment change release showed just 27,000 jobs added to the US economy - though the correlation between the two data points is doubtful at best. As always, in addition to May’s payrolls figure, revisions to the previous two months will also be closely watched. However, likely of more interest to markets than payrolls will be both earnings and unemployment figures. This is the case due to the US nearing full employment, hence upward pressure on wages can be expected. Consensus expectations are for both the unemployment rate and average hourly earnings to remain unchanged from the previous report - with unemployment at 3.6% and average hourly earnings increasing by 3.2% on a year-on-year basis. An above-forecast release would help to alleviate some of the economic pessimism currently sweeping financial markets, supporting the dollar - especially as increasing wages should feed through into increased consumer spending, underpinning growth in the coming quarters.
Labour market data for May is also due from Canada this afternoon. The typically volatile net employment change figure is expected to pull back significantly after recording the biggest one-month jobs gain on record in April, with an increase of around 8,000 jobs expected this time around. Average hourly wages are also expected to soften, falling to 2.4% on a year-on-year basis, while the unemployment should hold steady at 5.7%. Such a release, while softer than April’s bumper data, would see the labour market remain a bright spot in the Canadian economy.
Elsewhere, no major releases are due from either the UK or eurozone. For the pound, the UK’s political landscape will remain the centre of attention, with PM May due to step down as Conservative Party Leader today. The race to succeed her formally begins on Monday. Meanwhile, for the euro, markets are likely to continue mulling over yesterday’s ECB policy decision. There are no central bank speakers due today.
Looking ahead to next week, the data calendar is relatively quiet, with only a few major releases to note. From the UK, markets are likely to look towards monthly GDP figures and labour market data for April - while continuing to keep a close eye on political developments as the Conservative Party leadership contest formally begins. Elsewhere, CPI figures from the US will attract significant interest amid ever-increasing bets on a Fed rate cut, while labour market data from Australia will be examined for signs of continued weakness. Finally, in the world of central banking, only the Swiss National Bank (SNB) are due to release their latest policy decision. Markets expect no change to interest rates, with negative rates having become the ‘new normal’ in Switzerland, with a hike in this economic cycle appearing incredibly unlikely.
Today's Economic Calendar
|1:30pm||USD||Nonfarm Payrolls (May)||185k||263k|
|1:30pm||USD||Average Hourly Earnings (y/y - May)||3.2%||3.2%|
|1:30pm||USD||Unemployment Rate (May)||3.6%||3.6%|
|1:30pm||CAD||Net Employment Change (May)||8k||106.5k|
|1:30pm||CAD||Average Hourly Wages (y/y - May)||2.4%||2.6%|
|1:30pm||CAD||Unemployment Rate (May)||5.7%||5.7%|