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Greenback lower and all eyes on unemployment reports

Albert Edwards
by Albert Edwards on July 04, 2019


USD weaker as private businesses hired only 102K workers in June (less than 140K expected). Treasury bond yields also lowered, and the trade deficit widened to $55.5 Billion USD in May (worse than expected -$54.0 billion and previously revised to -$51.2 billion in April). In addition, the goods trade deficit with China increased 12.2% to 30.2 Billion USD (despite the recent increase in import tariffs on Chinese goods). Initial Jobless claims for last week was 221K (previously revised to 229K). A 25bps rate cut is still priced in for this month (even though the labour market is cooling). President Trump nominated two candidates to the Federal Reserve board (Christopher Waller and Judy Shelton) and both support lower interest rates. Markets will focus on the Unemployment Rate for June available tomorrow (expecting 3.6%) and Non-Farm Payrolls (expecting 160K).

Canadian dollar highlights:

CAD stronger as crude oil prices increased, business and consumer sentiment are higher, and GDP for April was stronger than expected. The Canadian economy is improving while U.S. is recovering. Canada’s exports also improved in May and caused a trade surplus for the first time in 10 months. CAD strength also due to expectations that the Federal Reserve will cut 50 bps more than the Bank of Canada. Unemployment Rate for June expecting 3.6% tomorrow.

Euro highlights:

EUR weaker as markets are still concerned about trade tensions and the European Central Bank may follow the Federal Reserve and cut interest rates. EUR also defensive after the latest U.S. threat of tariffs on additional European goods. Christine Legarde (Managing Director for the International Monetary Fund) has been nominated to succeed Mario Draghi in October. Legarde has warned about global trade tensions and encouraged both central banks and governments to do more. Markets are expecting the central bank to be patient and keep monetary policy on hold this month and use new economic forecasts for the September meeting.

British pound highlights:

GBP remains defensive and vulnerable after the services sector struggled in June. The economy was flat in Q2 and continues to suffer due to Brexit uncertainty and global trade tensions. Bank of England Governor Mark Carney also warned about the growing risks from a no-deal Brexit and protectionist trade policies. Boris Johnson still leads the Tory party leadership contest and Jeremy Hunt trails.