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China-US Meeting And US Jobs In The Spotlight

Dollar higher ahead of NFP

The US dollar is higher against most majors currency pairs before the China-US summit and the release of the US employment report. Chinese President Xi Jinping has landed in Florida to meet with US counterpart Donald Trump to hold bilateral talks where trade and North Korea will be on the agenda. The two day meeting is sure to bring some market direction with the other driver being the US jobs report.

The U.S. non farm payrolls (NFP) will be released on April 7, at 8:30 am EDT (12:30 GMT). The forecast calls for a print of over 170,000 new jobs added to the US economy even after an impressive 235,000 announced last month. Although the headline number has shown consistent growth market watchers will be focusing on the average hourly earning for signs of higher pay leading to higher spending form US consumers. Analysts anticipate the hourly earning to gain 0.2 percent and allow the Fed to be patient on rates.

US employment has been the strongest pillar of the economic recovery and has kept pace with the US Federal Reserve two rate hikes in December (2015 and 2016) and the 25 basis point interest rate rise in March with the promise of more coming this year if the economy grows as expected. The Trump administration has struggled to recapture the optimism of the post election victory when the pro-growth policies were announced, but so far have not been delivered. Minutes from the March FOMC meeting showed internal debate on inflation and growth that could make the central bank rethink their hawkish view on the number of rate hikes this year.

The EUR/USD lost 0.06 in the last 24 hours. The single currency is trading at 1.0642 as political risk is one of many factors dragging it downwards. French elections anxiety has been dampened after the latest televised debate, but situations in Italy and elections later in the year in Germany have not painted an encouraging scenario for European unity.

Mario Draghi said on Thursday that the policies of the European Central Bank (ECB) remain appropriate and even despite positive signs of recovery it is too soon to talk about reducing stimulus. This means that the divergence between the Fed and the ECB will only grow as the Fed slowly but surely continues on a tightening path while the ECB is still unsure when it will abandon its expansionary policies. The German central bank governor does not agree in full with the ECB and would rather see and end to stimulus sooner rather than later.

The price of energy gained 1.33 percent during the Thursday trading session. West Texas is trading at $51.50 in a week that has seen the price of crude rising despite a larger than expected buildup of inventories in the US. Oil started the week barely above $50 and broke under that price level as inventory data started to be published hinting that despite all the effort from the Organization of the Petroleum Exporting Countries (OPEC) to stabilize prices. US crude inventories showed a buildup of 1.6 million barrels last week when the market had forecasted a drawdown of 100,000.

Fundamentals don’t fully explain the move as there is ample evidence of oversupply in the market, yet the price is still rising even as there are more US producers waiting to ramp up production. Asian markets that have been limited by the OPEC cut, have turned to US oil which reduces the overall negative impact of increased US crude. China has surpassed Canada as the main destination of US oil.

A disruption in Canadian supplies after the shutdown of the Syncrude oilseeds facility in Alberta has also helped WTI march higher.

The USD/CAD gained 0.186 percent in the last 24 hours. The pair is trading at 1.3408 ahead of employment data for both the US and Canada. The private payroll report published on Wednesday in the US has boosted optimism around the NFP to be published on Friday. The ADP had two massive data points back to back that have analysts improving their forecast for the NFP that is coming of a 235,000 jobs added and is now expected to deliver above 170,000. Canadian job gains are anticipated to be around 5,700 after a strong 15,300 last month. The data for both will go out at the same time with the market focusing on the US data before digesting the Canadian employment report.

The Canadian dollar has not fully taken advantage of the rise in oil prices as investors are anxious about macro events around the globe. The meeting between Presidents Trump and Xi in Florida could have far reaching implications for trade ahead of any Nafta renegotiation talks with Canada and Mexico. Risks are offsetting the rise in commodities with analysts also expecting the Bank of Canada (BoC) to remain in the sidelines as the U.S. Federal Reserve slowly hikes rates and as evidenced by the minutes released this week start trimming their balance sheet.

Market events to watch this week:

Wednesday, April 5
4:30am GBP Services PMI
8:15am USD ADP Non-Farm Employment Change
10:00am USD ISM Non-Manufacturing PMI
10:30am USD Crude Oil Inventories
2:00pm USD FOMC Meeting Minutes
Thursday, April 6
7:30 am EUR ECB Meeting Minutes
8:30am USD Unemployment Claims
Friday, April 7
4:30am GBP Manufacturing Production m/m
8:30am CAD Employment Change
8:30am USD Average Hourly Earnings m/m
8:30am USD Non-Farm Employment Change

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