US Non-Farm Reinforces Forex Range, Cuts Pressure On Rates And Gives Stocks Room

Originally published by AxiTrader

Market Summary (7.38 am Monday, August 6)

US non-farms undershot expectations with a headline print of 157,000 Friday. Unemployment was as expected at 3.9% and hourly earnings rose 0.3% to a 2.7% year on year rate.

That combination was a little bit of a Goldilocks result for US markets – headline at least anyway, traders ignored the addbacks, which took the number north of 200,000 - because it allowed 2’s and 10’s to ease a little to 2.65% and 2.95% respectively, while the curve sits at 30 points. That, in turn, helped stocks end the week higher Friday with the S&P 500 up 0.46% at 2,840. The Dow rose 0.54% to 25,462, while the Nasdaq 100 finished at 7,395 – up 0.32%.

That positivity was despite China hitting back with $60 billion worth of tariffs on US goods Friday night my time. Maybe Larry Kudlow’s suggestion China is a bad investment, and the Chinese shouldn’t underestimate President Trump gave traders comfort he’ll win this battle. IDK.

In Europe stocks were a little higher too on some reasonable earnings. The FTSE 100 in London rose 1.1%, the DAX was 0.55% higher and the CAC gained 0.33%. And of course a little bit of positivity on Friday has encouraged the bulls on the SPI to add 21 points to the small fall on the ASX Friday. The SPI is still clinging to its trendline and 6200.

On currency markets the release of the non-farms was a range reinforcer I tweeted at the time and I retain that view for the moment. Indeed the fall in the ISM non-manufacturing to 55.7 from 59 and the bigger than expected US trade deficit ($46.3 bilion) have knocked the CESI for the US down to -15 and seen both the Atlanta and New York Fed’s downgrade their very early calls on Q3 GDP to 4.4% (from 5%) and 2.58% (from 2.83%) on Friday.

But the euro's close at 1.1566 (it’s at 1.1571 this morning) was on the weaker side of the ledger after it tried and failed post-NFP to get back inside the wedge (within the range) it broke out of with Thursday, 1.1490 is the big level to watch. Unless or until that gives way euro, and the US dollar is in a range. And with the weaker CESI score and a market long of US dollars that’s the most likely short term scenario.

Elsewhere on Forex markets the yen gained ground with USD/JPY at 111.21 this morning, while GBP/USD is at 1.3007 after testing near the recent range lows Friday after Mark Carney said the chance of a no-deal Brexit risk is rising. Central banking 2018 is more art than it’s ever been it seems. On the commodity bloc the Aussie is back up near 74 cents helped a little by copper's recovery – it’s at 0.7396 this morning. The kiwi is at 0.6740 and USD/CAD is at 1.2992.

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On commodity markets it could be interesting today after weekend news that the Saudis are running tankers through the Red Sea shipping lane of Bab al-Mandeb. Oil was already lower Friday as traders fretted about the escalation of trade war tensions after China announced its $60 billion in tariff retaliation. WTI is at $68.49 while Brent is at $73.71 down 0.7% and 0.3% respectively. Copper rose 1.1% in a broad based industrial metals rally while gold recovered from its lows to $1213.

Bitcoin has collapsed another 5% after rejecting the trendline for the past couple of weeks and after news broke of a forced position liquidation and bail in for losses of other traders at Hong Kong based exchange OKEx.

On the day it’s fairly quiet with ANZ job ads out in Australia and a bank holiday in Sydney before German factory and construction data tonight.

Macro Stuff that affects everyone and everything – either today or eventually

International

• Cracking interview on Bloomberg Friday night between John Ferro and Larry Kudlow after the jobs report. But I wanted to highlight that he trash talked China saying “some of the currency fall though I think is just money leaving China because it’s a lousy investment, and if that continues that will really damage the Chinese economy… If money leaves China -- and the currency could be a leading indicator -- they’re going to be in a heap of trouble. And so I’m going to make the case that they are in a weak economic position. That’s not a good place for them to be vis-a-vis the trade negotiations”. Chinese foreign reserves data this week will be interesting. It’s out tomorrow evening.

• Here’s the relationship between the USD/CNY and reserves. It’s been much more volatile than in the past lately as the CNY moves have not shown up in reserves. Will this month be different?

• Oh and on trade, the President Tweeted over the weekend that the US has the upper hand on trade right now. CNBC reports that China’s state media said Saturday that the country will not accept US blackmail on trade. And and and, the Chinese Foreign Minister is trooling the Trump administration on their recent Indo-Pacific aid announcement.

• The Citibank Economic Surprise Index for the US has slipped further into negative territory after Friday’s jobs and trade data. At -15 the CESI for the US is at the lowest level it’s been at since September 2017. That doesn’t mean the data is weak, because clearly it is not. It simply means the data is weaker than expected which for traders – in the short run - is more important than the actual number anyway. What you’ll also notice in the table below is the sharp reversal in Australia recently. Canada, not on the table, is also back in positive territory after a sharp reversal lately. NB, Japan, EM, and China are slipping again too.

• And consistent with the US swing lower in data flow, and the weakness in many other places is the news that the aggregation of the manufacturing and services PMI’s by JP Morgan has global growth outlook at 4 month lows. David Hensley, Director of Global Economic Coordination at J.P.Morgan, said, “The July PMI data suggest that the rate of global economic expansion slowed to a four-month low, with rates of increase losing traction in both the manufacturing and service sectors”. But just like the analysis framework for the manufacturing PMI’s JPM are optimistic about the outlook, “although growth of new order intakes slowed at the start of the third quarter, an expected firming of final demand in the coming months combined with the inventory-drag in manufacturing nearing its end should hopefully provide a platform for global GDP growth to revive later in the year.” My bolding of hopefully folks!!! Hopefully, he’s right :S

Have a great day's trading.

Written By: Axi