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Non-farm Payrolls rose 213k, beat expectations. But unemployment rate and wage growth miss

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    ActionForex.com
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    Dollar trades notably lower in early US session despite stronger than expected headline NFP number. Non-farm payroll report showed 213k growth in June, above expectation of 190k. Prior month’s figure was revised up from 223k to 244k. Unemployment rate rose to 4.0%, up from 3.8%. But that’s mainly thanks to rise in participation rate from 62.7% to 62.9%. Wage growth was a miss though as average hourly earnings rose 0.2% mom versus expectation of 0.3% mom. Also from the US, trade deficit narrowed slightly to USD -43.1B in May.

    From Canada, the employment market rose 31.8k in June, above expectation of 24.0k. Unemployment rate rose to 6.0%, up from 5.8%. Also, that’s due to rise in participation rate from 65.3% to 65.5%. Trade deficit widened to CAD -2.8B in May.

    Chinese Premier Li: Trade war is never a solution

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      ActionForex.com
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      In response to the start of US section 301 tariffs on USD 34B in Chinese import, Chinese Foreign Ministry spokesman Lu Kang said in a daily media briefing that “after the United States unfairly raised tariffs against China, China immediately put into effect raised tariffs on some U.S. goods.” Lu also reiterated that “On the specifics of the trade issue, from the start China’s position has been very clear and consistent. The United States at all levels is very clear on China’s position,”

      Commenting on the issue, Chinese Premier Li Keqiang said in Bulgaria that trade war is “never a solution” and there will be no winner. And, “it benefits no one and it would undermine the multilateral free trade process,” he said. “If one insists on waging a trade war it would hurt others and themselves.”

      He reiterated that China is committed to further opening up its markets. But, “if any party resorts to increase of tariffs, china would take measures in response to protect china development interests and safeguard multilateral trade regime and rules.”

      Japan cabinet revised down fiscal 2018 growth forecast

        By
        ActionForex.com
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        Japan Cabinet Office presented new economic projections at the Council on Economic Fiscal Policy today.

        For current fiscal 2018, the economy is projected to grow 1.5% in real term. That’s a downgrade from prior projection of 1.8%, down at the start of the year. In nominal terms, the economy is projected to grow 1.7%, sharply lower from prior forecast of 2.5%, due partly to slowdown in property investment.

        The office forecasts the economy to grow 1.5% in the fiscal-2019, in price adjusted real terms. That’s after adjustment to the planned sales tax hike in October 2019. In nominal term, GDP is projected to grow 2.8%.

        For the current fiscal 2018, overall CPI is projected to be at 1.1%, unchanged from prior estimate. Overall price CPI is forecast to rise 1.5% in fiscal 2019. With adjustment on the sales tax hike, overall CPI is projected to slow to 1.0%.

        UK May and ministers to work on the Brexit blueprint in the Chequers

          By
          ActionForex.com
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          UK Prime Minister Theresa May is set to have a “sleepover” meeting with her cabinet in the Chequers to straighten out all issues on post Brexit relationship with EU. Supposedly, another white paper will be published on July 9 as the government finally agrees on a unified position, as the blueprint for further negotiations with the EU. The pressing issue is how the UK would likely to replace the membership of the EU’s customs union which still provides “frictionless trade”. The border of Irelands is another sticky issue that hasn’t been solved.

          Ahead of the meeting, May said “we want a deal that allows us to deliver the benefits of Brexit – taking control of our borders, laws and money and by signing ambitious new trade deals with countries like the US, Australia and New Zealand.” And, “this is about agreeing an approach that delivers decisively on the verdict of the British people – an approach that is in the best interests of the UK and the EU, and crucially, one that commands the support of the public and parliament.”

          Dollar recovers mildly ahead of Non-farm payrolls, reactions likely temporary

            By
            ActionForex.com
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            Dollar trades mildly higher today but stays mixed for the week ahead of US non-farm payroll report.

            Markets are expecting 190k growth in non-farm payrolls in June, down from May’s 223k. Unemployment rate is expected to be unchanged at 3.8%. Average hourly earnings are expected to have another month of 0.3% mom growth.

            Overall, other employment indicators pointed persistently healthy job markets in the US, even though momentum might have slowed a little bit. ADP private employment came in slightly weaker than expected at 177k versus expectation of 180k. Employment component of ISM manufacturing dropped -0.3 to 56.0. Employment component of ISM non-manufacturing dropped -0.5 to 53.6. Initial jobless claims averaged 221.25k in June, staying a ultra-low level historically. Conference board consumer confidence dropped from 128.8 to 126.4 in June but stayed high.

            Barring any large surprise that deviate drastically from expectation, reactions to NFP should be temporary. Fed is on course for two more rate hikes this year. And, a month or two of data are not going to alter that path.

            FOMC Minutes: Slope of yield curve to be monitored

              By
              ActionForex.com
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              The minutes of the June FOMC meeting provided little inspirations to the markets overnight. It’s noted that job gains had been strong, unemployment rate hade decline, growth of household spending had picked up, business fixed investment continued to grow strongly, headline and core inflation have moved close to 2%, long term-inflation expectations were little changed. “Members viewed the recent data as consistent with a strong economy that was evolving about as they had expected.”

              Flattening of the yield curve was a topic discussed during the meeting as that “might signal about economic activity going forward”. A numbers of factors were brought forward, including “reduction in investors’ estimates of the longer-run neutral real interest rate; lower longer-term inflation expectations; or a lower level of term premiums in recent years relative to historical experience reflecting, in part, central bank asset purchases.” And that could ” temper the reliability of the slope of the yield curve as an indicator of future economic activity.” A number of the meeting participants said that “it would be important to continue to monitor the slope of the yield curve.”

              The minutes also noted that escalating trade tensions have already started hurting investments. The minutes pointed out that “many district contacts expressed concern about the possible adverse effects of tariffs and other proposed trade restrictions, both domestically and abroad, on future investment activity.” And, “contacts in some districts indicated that plans for capital spending had been scaled back or postponed as a result of uncertainty over trade policy.” And, most policymakers noted that “uncertainty and risks associated with trade policy had intensified and were concerned that such uncertainty and risks eventually could have negative effects”.

              Trump threatens tariffs on USD 500B of Chinese goods as section 301 tariffs ready to go

                By
                ActionForex.com
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                US Section 301 tariffs on USD 34B of Chinese imports are going to take effect at 12:01 Eastern time Friday, that is, just hours away. Ahead of that, Trump raised his threat again and warned of tariffs on up to USD 500B of Chinese goods. He told reports that “you have another 16 (billion dollars) in two weeks, and then, as you know, we have $200 billion in abeyance and then after the $200 billion, we have $300 billion in abeyance. Ok? So we have 50 plus 200 plus almost 300.”

                China Foreign Minister Wang Yi, also State Councilor, slammed trade protectionism as “short-sighted” behavior that could harm all sides. And he reiterated China’s position that unilateral acts would go against the rules of the WTO and pose damages to the multilateral global trading system. China said earlier that its retaliation will start once the US tariffs kick in.

                ISM non-manufacturing rose to 59.1, employment dropped 0.5 to 53.6

                  By
                  ActionForex.com
                  -

                  US ISM non-manufacturing composite rose to 59.1 in June, up from 58.6 and beat expectation of 58.0. Business activity rose 2.6 to 63.9. Employment, however, dropped 0.5 to 53.6.

                  Some quotes from respondents:

                  “Tariffs, freight [issues] and labor shortages continue to have an inflationary influence on costs.” (Construction)

                  “Crude prices are causing concern, as it is a driver in newsprint inks. Tariffs on paper and aluminum are causing apprehension about future pricing. Suppliers are posturing and threatening price increases, and we are doing our best to reject increases.” (Information)

                  “Trade tariffs are creating price uncertainty.” (Management of Companies & Support Services)

                  “Domestically, we are still experiencing a shortage of transportation providers that is getting worse each month when retiring drivers or drivers moving into other opportunities are not being replaced. Internationally, there is a shortage of flat racks [that] has caused late shipments. The tariffs on steel and aluminum have also had some negative effects on our supply of material, but we have applied for exemptions.” (Other Services)

                  Full release of ISM non-manufacturing.

                  Dollar decline continues after ADP and jobless claims misses

                    By
                    ActionForex.com
                    -

                    Dollar stays weak and suffers some additional selling after slightly worse than expected employment data.

                    ADP report showed 177k growth in private non-farm jobs, below expectation of 180k. Prior month’s figure, though, was revised up from178k to 189k.

                    Initial jobless claims rose 3k to 231k in the week ended June 30, higher than expectation of 221k. The four week-moving average of initial claims rose 2.25k to 224.5k. Continuing claims rose 32k to 1.74m in the week ended June 23.

                    German Merkel supports lowering car tariffs, but not only for US

                      By
                      ActionForex.com
                      -

                      German Chancellor Angela Merkel said today that she would back lowering tariffs on US auto imports. But she also emphasized that “When we want to negotiate tariffs, on cars for example, we need a common European position and we are still working on it.”

                      Nonetheless, she added that “I would be ready to support negotiations on reducing tariffs but we would not be able to do this only with the U.S.”

                      It sounds like Merkel is keeping her stance to push for “plurilateral agreement” with US, Japan and South Korea.

                      Into US session: Euro strong on ECB, stocks and yields

                        By
                        ActionForex.com
                        -

                        Entering into US session, Euro is trading as the strongest one for today. It’s partly lifted as delayed reaction to news that some ECB policy makers are unhappy with market pricing of too slow rate path. Euro could also be following stocks and yields higher on news that Trump is offering a zero auto tariffs solution for trade dispute. At the time of writing, DAX is up 1.5%, CAC is up 1.2%, FTSE is up 0.56%. 10 year German bund yield is up 0.0153 to 0.321.

                        Sterling follows as the second strongest as supported by comments from BoE Governor Mark Carney. He reiterated that recent data pointed to Q1’s slowdown as being temporary. And the economic developments are broadly in line with the May projections. That gives a little more support for the chance of an August rate hike. Meanwhile, Yen is trading broadly lower as risk aversion eased, followed by Dollar as the second weakest.

                        We’d like to point out that from Action Bias tables, there is no overwhelming momentum in the markets yet. Euro could be having a relatively strong near term corrective up move against Dollar and Yen only and it’s just neutral against Sterling, Swiss and Australian Dollar. Similar picture is seen in Yen crosses.

                        Sterling lifted mildly as domestic data gave Carney some confidence

                          By
                          ActionForex.com
                          -

                          BoE Governor Mark Carney delivers a speech titled “From Protectionism to Prosperity” where he also talked about monetary policy. He noted that the current path the economy is going is “consistent with the MPC’s current projection”, with the assumption of a relatively smooth Brexit.

                          Since the May meeting “international data have been mixed” with robust growth in the US and fading momentum in Eurozone. And there were marked loss of momentum in some merging markets. However, domestically, Carney said “the incoming data have given me greater confidence that the softness of UK activity in the first quarter was largely due to the weather, not the economic climate.”

                          He pointed to some “number of indicators of household spending and sentiment have bounced back strongly” erratic Q1. Labor market has “remained strong” and there is “widespread evidence that slack is largely used up.” Pay and domestic cost growth have “continued to firm up broadly. And headline inflation is still “expected to rise in the short term” due to energy prices.

                          The overall impressions from Carney is that he’s rather confidence that economy developed as expected. And that would add to the case for an August rate hike.

                          Sterling is limited mildly against Dollar and Yen after the speech.

                          Full speech here.

                          Eurozone retail PMI rose 0.1 to 51.8, diven by German consumers

                            By
                            ActionForex.com
                            -

                            Eurozone retail PMI rose 0.1 to 51.8 in June. The overall gain was driven by German consumers while sales fell slightly on annual measure.

                            Commenting on the latest retail PMI survey data, Trevor Balchin, Economics Director at IHS Markit, said:

                            “The eurozone retail sector continued its recent solid run of growth in June. Sales have risen month-on-month since April 2017, except for a blip in April this year.

                            “The three largest economies in the eurozone continued to show widely differing trends, however. Germany posted a nineteenth straight monthly increase in retail sales, and the strongest expansion in nearly three years. In contrast, Italian sales fell for the seventh time in eight months, albeit at a weaker pace. France registered a decline for the first time since March 2017.

                            Full Eurozone retail PMI release.

                            Euro jumps in delayed reaction to ECB talks

                              By
                              ActionForex.com
                              -

                              Euro trades broadly higher today as buying picks up in early European session. It could be seen as late reaction to reports regarding ECB. Markets are fully pricing in a 10bps hike to the deposit rate only in December 2019. Odds of a September 2019 hike is at around 80%. And it’s reported that some ECB policy makers are unhappy with it.

                              A sticky point is that ECB is clear with its communication that rates will remain at present level at least through the end of summer of 2019. That left markets with some rooms for interpretation on whether it means the end of “September.

                              But, we’d like to highlight one thing. Fed is clear with its projection of two more hikes this year. And fed funds futures are pricing in only around 50% chance for that. So, in our view, there’s nothing special for ECB officials to be unhappy about.

                              EU working on plurilateral car agreement to avoid trade war with US

                                By
                                ActionForex.com
                                -

                                The Financial Times reported that EU is considering negotiations with the world’s largest car exporters to prevent and all-out trade war. The talks would involve the US, South Korea and Japan, aiming at a so called “plurilateral agreement” to reduce tariffs to an agreed level for a specified set of products. In such setting, the deal could be struck without involving all of WTO member nations.

                                European Commission President Jean-Claude Juncker is believed to bring the proposal to the US for his meeting with Trump later in July. German Chancellor Angela Merkel also told the German parliament yesterday that Juncker will travel to the US and “submit proposals setting out what we can do.” Merkel urged that it’s worth trying to defuse this conflict, so that it doesn’t turn into a real war”. But she also emphasized that “we need two parties for that to happen.”

                                Separately, it’s also reported that Trump would agree to end the trade dispute on car if both EU and the US would drop all auto tariffs. German newspaper Handelsblatt reported that US ambassador to Germany Richard Grenell had met with executives from Daimler, Volkswagen and BMW to brief the idea.

                                BoJ Masai: US protectionist moves are downside risk of greatest concern

                                  By
                                  ActionForex.com
                                  -

                                  BoJ board member Takako Masai said in a speech that “outcome of protectionist moves in the United States as the downside risk that is of greatest concern”. In the short term, “growing uncertainty over U.S. trade policy will likely lead to a sharp rise in volatility in global financial markets”. This could lead to “adverse effects on the sentiment of firms and households.”

                                  In the medium-to-long term, “if such protectionist moves were to increase globally, this may significantly affect the business strategies of global firms, and the subsequent impact on the capital flow of trade and investment cannot be ignored. ” Masai added he will closely monitor “whether the protectionist moves entail the risk of causing any imbalances in the global capital allocation.”

                                  Full speech here.

                                  RBA Heath confident on sustainable pick-up in non-mining business investment

                                    By
                                    ActionForex.com
                                    -

                                    RBA Head of Economic Analysis Department Alexandra Heath said in a speech today that recent data have been positive. She pointed to picked up in growth to 3% over the year to March quarter. And, the central forecasts is for growth to be at or above 3% over 2018 and 2019. With that, there will be a “further gradual reduction” in spare capacity and a “gradual increase in wage and inflationary pressures”.

                                    The improvement came as the drag from falling mining investments has diminished. According to Heath, such negative effect form mining will also be done by early next year. Public sector also played a part in the contribution. There was also significant increase in non-mining investment. And, Heath added that “we are now more confident about a sustainable pick-up in non-mining business investment.”

                                    Full speech here.

                                    In to US session: Sterling strong after PMI hat-trick

                                      By
                                      ActionForex.com
                                      -

                                      Entering into US session, Sterling is trading as the strongest one for today. UK scored a hat-trick of PMI upside surprise in June and added to the case for August BoE rate hike. Yen followed as the second strongest as global investors remain on the defensive side. US Section 301 tariffs on China and the latter’s retaliation is set to start on July 6. Euro is trading as the weakest one for no apparent reason. Canadian Dollar is the second weakest as WTI crude oil dips back below 74 handle.

                                      Trading is actually rather subdued this week. Yen is the generally stronger one as seen in weekly Top Mover table. But we’re talking about less than 50pips difference from prior week’s close, except EUR/JPY.

                                      Action Bias table is also generally neutral for Dollar pairs. With US on holiday, World Cup having two days of rests before quarter final, it’s time to have a break today.

                                      UK PMI services rose to 55.1, Q2 rebound opens door for August BoE hike

                                        By
                                        ActionForex.com
                                        -

                                        UK PMI services rose to 55.1 in June, up from 54.0 and beat expectation of 53.9. Markit noted “robust and accelerated upturn in business activity, with new work increased at fastest pace for 13 months. Input cost inflation also intensified.

                                        Chris Williamson, Chief Business Economist at IHS Markit, which compiles the survey:

                                        “Stronger growth of service sector activity adds to signs that the economy rebounded in the second quarter and opens the door for an August rate hike, especially when viewed alongside the news that inflationary pressures spiked higher.

                                        “The survey data indicate that the economy likely grew by 0.4% in the second quarter, up from 0.2% in the opening quarter of 2018. The sharp rise in business costs, linked to surging oil prices and the need to offer higher wages, suggests inflation will also pick up again from its current rate of 2.4%.

                                        “It remains encouraging yet also surprising that current business activity continues to show such resilience amid relatively moribund confidence regarding the year ahead outlook. The survey once again highlights how the business outlook remains clouded by widespread concerns about the impact of Brexit uncertainty in particular.

                                        “Such a divergence between current and expected future activity stokes worries that the upturn is being fueled by short-term spending, based on hopes that uncertainty will lift, and likely masks a lack of longer-term business investment.”

                                        Full UK PMI services release.

                                        Eurozone PMI services revised up to 55.2, survey data points to above 0.5% GDP growth in Q2

                                          By
                                          ActionForex.com
                                          -

                                          Eurozone PMI services was revised up to 55.2 in Jun, from initial estimate of 55. It also improved from May’s reading of 53.8. Eurozone PMI composite was revised up by 0.1 to 54.9, up from May’s 54.1.

                                          Ireland lead by hitting 5 month high to 58.1. pain hit 17 month low at 54.8.

                                          Chris Williamson, Chief Business Economist at IHS Markit said:

                                          “Eurozone growth regained momentum in June, rounding off a respectable second quarter performance, for which the survey data point to GDP rising by just over 0.5%. June also saw new orders and employment growth perk up, suggesting rising demand continues to motivate companies to expand capacity.

                                          “Firms’ costs and average selling prices for goods and services are meanwhile rising at rates close to seven-year highs, which will likely feed through to higher consumer price inflation in coming months.

                                          “The upturn in the pace of economic growth and resurgent price pressures adds support to the ECB’s view that stimulus should be tapered later this year, but the details of the survey also justify the central bank’s cautious approach to policy.

                                          “In particular, a weakening in business optimism to the lowest for over one-and-a-half years reflects intensifying nervousness about the outlook for the economy, notably in manufacturing, as trade-war talk escalates. Service sector companies – generally less affected by international trade – are more upbeat about the year ahead, though less so than earlier in the year as domestic political issues once again add to uncertainty about the outlook.

                                          “With many service companies – notably transport – dependent on a healthy manufacturing sector, any downturn in trade could soon spill over to the service sector.”

                                          Full Eurozone PMI service release.

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