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Greenback defensive on trade optimism and slow job growth

Albert Edwards
by Albert Edwards on November 04, 2019


U.S. dollar highlights:

USD stable and trending lower as markets are confident the world’s two biggest economies will end the trade war (therefore lowering safe-haven demand). After last Friday’s jobs report indicated slow growth in October, USD was under pressure; however, wages and hiring increased higher than expected. In addition, non-farm payrolls increased by 128K (versus expected 89K) and the unemployment rate was 3.6% (from 3.5% previously in September). Commerce Secretary Wilbur Ross is optimistic Phase One of the trade deal with China will be signed this month. Ross also said licenses for American companies to sell components to Huawei Technologies Co. will be coming “very shortly”. All eyes on Presidents Trump and Xi Jinping to sign a deal in the U.S. (after the Asia-Pacific Economic Cooperation summit in Chile was cancelled).

Canadian dollar highlights:

CAD stronger on higher oil prices and positive progress in trade talks. Chinese manufacturing activity also increased and this improved market sentiment (risk on). Factory activity in Canada also expanded to the highest level since February. The Bank of Canada kept interest rates unchanged at 1.75% last week to support CAD, however, Governor Poloz mentioned the possibility of a future rate cut (due to slowing U.S. and global economies).  All eyes on the unemployment rate for October available Friday (expecting 5.5%).

Euro highlights:

EUR stable as new European Central Bank President Christine Lagarde replaced Mario Draghi last week. Lagarde will speak in Berlin today and the Eurogroup meets later this week. The Eurozone expanded 0.2% quarterly in Q3 (versus 0.1% expected). Inflation is slowing due to Brexit uncertainty and Lagarde is expected to continue lowering interest rates to boost the economy. All eyes on the Producer Prices report tomorrow (expecting 0.1% monthly) and Retail Sales for September (available Wednesday).

British pound highlights:

GBP defensive after Nigel Farage’s Brexit party announced they would fight the ruling Conservatives if Prime Minister Boris Johnson does not abandon his Brexit deal. Farage gave Johnson until November 14 to agree to his demand and markets are now concerned the opposition Labour party may get more support. Political parties started their campaigns last week to prepare for the December 12 snap election. The risk of a no-deal Brexit has diminished, however, increase political tensions are affecting GBP lower. All eyes on the Bank of England’s Interest Rate Decision, Consumer Prices and Monetary Policy Report (available Thursday).