LCG:USD up on strong ADP data, but jobs at risk due to trade war. NFP in focus today.

6 september 2019

The US dollar gained against most G10 currencies, except the kiwi, amid the strong data tapered the dovish Federal Reserve (Fed) expectations. The ADP employment data revealed on Thursday that the US economy added 195’000 private jobs in August, versus 148’000 expected by analysts and 156’000 printed a month earlier, as the ISM non-manufacturing index showed a faster expansion over the same month. The US factory orders more than doubled to 1.4% in July, though the durable goods orders grew at 2% that month, versus 2.1% expected by analysts.

The US sovereign bonds sold off; the 10-year yield surged to a two-week high of 1.58% as investors trimmed their 50-basis-point cut bets in the FOMC’s September meeting. The Fed is still expected to lower its rates by 25 basis points this month. Investors will still keep an eye on Fed President Jerome Powell’s speech at an event hosted by the Swiss Institute of International Studies in Zurich today, although his speech should be no surprise to the market.

In focus today, the US nonfarm payrolls data could beat the soft market expectations. A consensus of analyst expectations points at 160’000 new nonfarm jobs in August, versus the past twelve-month average of 190’000. A strong NFP read near or above 200’000, could further soothe the dovish Fed expectations and boost the US dollar and the sovereign yields.

But a deeper look into the US jobs market hints that things may not be going as well in the coming months. In its latest monthly report, staffing firm Challenger, Gray & Christmas warned that the US companies plan to eliminate more than 10’000 jobs, citing the ‘trade difficulties’ as the root cause of the upcoming job losses for the first time.

Equities rally, FTSE lags on stronger pound

Equities extended rally worldwide, as the US and China announced to meet in early October. Though the chances of a deal remain slim, investors are happy with the ongoing trade discussions.

But the FTSE 100 index (-0.55%) remained on the back foot, as the rapid appreciation in the pound dented investors’ appetite for the British blue-chips. FTSE futures (-0.01%) hint at a soft start on Friday. While the energy stocks, which have underperformed the FTSE index in August, could hold on to their recent gains on improved oil prices.

WTI crude consolidates near the $56 a barrel, while Brent crude advanced past the $61 mark amid increased optimism on US-China trade talks and the third straight weekly decline in US oil inventories gave a boost to the depressed oil prices.

Pound gains.

The pound extended recovery as the UK’s opposition party asked Boris Johnson to seek extension of the Brexit deadline at the October 17 summit with the European leaders and throw a general election by October 29. Johnson responded that he would rather be ‘dead in a ditch’ than asking a delay at that meeting. According to the latest news, Johnson will be seeking Parliament’s support next Monday for a snap election before the European summit, with the idea of driving the country out of the EU by October 31st if he wins. But the chances of a snap election get slim as Johnson loses support of the MPs by the day.

Cable cleared 1.2295/1.2300 resistance (minor 23.6% Fibonacci resistance / 50-day moving average) and advanced to 1.2340 on a decreased likelihood of an imminent no-deal Brexit by the end of next month. The sterling market is soaked with speculative short positions, hinting that there is potential for a further short squeeze in the British pound, if British MPs continue taming Boris Johnson.

The EURGBP slipped below the 0.90 mark for the first time since July.

Meanwhile, the single currency remains sensitive to weak economic data after the German factory orders slumped 2.7% in July. Weakening global demand hints that the German industrial production could also miss the estimate of a 0.4% rebound in July at today’s release. Disappointing German data could further increase the bets of a 20-basis-point cut at the next European Central Bank meeting and weigh on the euro. Decent put options trail below the 1.1045 at today’s expiry.

The Euro-zone final GDP data, on the other hand, should confirm a 0.2% growth in the second quarter.

Opening calls

FTSE to open 7 points lower at 7264

DAX to open 10 points higher at 12137