Markets
The recent global bond rally took a breather today. Both German Bunds and the US Treasuries held an downward bias. After the recent steep increase, markets readied for some profit-taking going into the June US payrolls even though risk sentiment was shaky. The move down accelerated after June payrolls’ growth rebounded more than markets had anticipated. Other details of the report also helped to dismiss the doubts that arose on the health of the labour market since the May payrolls release. Inflationary pressures from rising wages still remain muted, leaving the path for a July rate cut wide open. Markets did scale back bets on a 50 bps rate cut though. US yields rose. The curve shifted north with yield changes varying from 9.1 bps (2-yr) to 8.4 bps (10-yr). German yields followed in lockstep although the rise stayed limited. The 2-yr yield increases 1.4 bps at the time of writing. The 10-yr yield bounced of resistance at -0.40% this morning and adds 4 bps. Peripheral spreads end the week widening. Greece and Italy add 3 bps, Portugal (+5 bps) underperforms.
The dollar was in rather good shape this morning as trading restated after the 4th of July holiday and as (US) investors prepared for the key US payrolls report. EUR/USD drifted lower in the 1.12 big figure. Admittedly, very poor German factory orders maybe weighted on the euro too. However, broad-based USD strength was also visible in the likes of USD/JPY. The pair returned north of 108, even as global equities traded in negative territory. The dollar rebound was support by a tentative rise in US yields. Job growth was strong (224k) but wages disappointed (3.1%) and the unemployment rate rose from 3.6 to 3.7%.The summarize, the US labour report was strong, but some details were a bit mixed. Other indictors might give a different picture, but at least this report supports the case for a 25 bp July rate cut, rather than a 50 bp cut. At first, there was some hesitation, but finally US yields extended their intraday rise. The dollar also profited, but gains are quite modest. EUR/USD trades currently in the 1.1230 area. USD/JPY outperforms and is changing hands in the 108.50 area.
Sterling remained in the defensive today as the campaign battle between the two contenders become PM continued. Almost every day, other potential issues/side-effects related to Brexit come to the forefront. Yesterday Boris Johnson tried to downplay the risk of (a no-deal) Brexit splitting the UK union. The issue isn’t new but only illustrates the multiple possible side-effects of Brexit that need to be addressed at some point. Several conservative MP’s also still try to find a way to block a no-deal Brexit. Sterling remained on the defensive today. Cable slipped lower in the 1.25 big figure. This was mainly due to intraday USD strength. Even so, the key 1.25 support area is coming within reach. EUR/GBP (0.8975 area) held near recent top, even as the euro wasn’t in a good shape overall.
News Headlines
US net job growth reaccelerated in June to 224 000, from a meagre 72 000 in May indicating that the US labour market is still in good shape. However, other details in the report painted a more mixed picture. Wage growth again disappointed at 0.2% M/M and 3.1% Y/Y. The jobless rate rose from 3.6% to 3.7%, but this was due to a rise in the workforce, which as such should be considered a positive.
The June Canadian job report disappointed, registering a net job loss of -2 200 vs. a rise of 9 900 expected after two strong months. The job losses were solely on the account of part time employment. Hourly wages accelerated to 3.6% yoy, the fastest pace since June 2018. The participation rate stabilized at 65.7%. The loonie lost ground to about USD/CAD 1.31.
