NFPs are back in the game
Investors woke up with a little hangover from 4th July holidays with European equities easing moderately and the greenback rising across the board. The Eurostoxx 50 edged down 0.20% to 3,535 points while the broader Eurostoxx 600 slid 0.25%. During the European morning, US futures edged down 0.10%, despite a solid session in Asia.
In the FX market, the buck extended gains against all of its G10 peers, gaining the most against the Swedish krona and safe-haven currencies. The Swedish krona gave up 0.30% as the rally is running of juice. Investors are not convinced that the Riksbank would maintain its hawkish bias anymore. It is difficult to go against the tide especially when central banks across the globe are moving in the other direction. Against such a backdrop, it is reasonable to expect future weakness of the krona.
However, today is NFPs day and unlike the past few months, when market participants lost interest in the report, investors are impatiently awaiting the release. Indeed, Non-Farm payrolls came took centre stage again lately as investors are trying their best to time the next rate cut from the Federal Reserve. Against a backdrop of uncertainty due to lack of significant progress on trade talks between China and the US, and escalating tensions with partners such as the EU, a sluggish report would sealed the fate of the Fed. Jerome Powell would have no choice but to deliver what Trump has been asking for months.
Market expectations are far too high. If Powell doesn’t deliver, it would trigger an equity sell-off and substantial dollar appreciation. In light of the events of the last few months, such a scenario would provoke the ire of President Donal Trump as well as several sharp tweets. NFPs are expected to come in at 160k, compared to 75k in May. Unemployment rate and participation rare are expected to remain stable at 3.6% and 62.8%, respectively. Average hourly earnings should print slightly higher, at 3.2% versus 3.1% previously.
GBP hammered by BoE, poor data
It seems that nothing can stop the British pound from collapsing after BoE Governor Mark Carney expressed concerns about global growth on Tuesday and following a series of weak data releases. Meanwhile, Brexit risk is also weighing on the currency, as favorite Conservative party candidate Boris Johnson hard Brexit stance may reinforce the Scottish National Party position regarding an independence referendum of Scotland, a situation that tends to challenge the BoE’s optimistic scenario and support a dovish U-turn.
GBP also faces the consequence of negative data as the release of June PMIs disappointed, starting with both manufacturing and construction, down 48 (prior:49.4) and 43.1 (prior: 48.6) and digging further into contraction territory while services PMI came at 50.2 (prior: 51), confirming stagnation in the UK strongest activity sector.
Cable is now trading at its lowest range since mid-June 2019, ignoring negative US ISM and ADP data due to Independence Day and decisive job data released on Friday. We expect GBP to remain under pressure following publication of US figures.
