Rates as of 05:00 GMT


Market Recap

Friday was a big day for the markets – a disappointing nonfarm payroll figure, and the end of Trump’s punative tariffs on Mexico before they even started. Stocks had a great day as expectations that the Fed would cut rates soon increased even further (the implied rate on the August to October Fed funds futures were down 6-7.5 bps) and the Mexico deal took away one of the major risks to the auto sector.In this “risk on” environment, the commodity currencies gained while the safe-haven CHF and JPY fell, along with the dollar itself.

Note though that the implied rate on Fed fund futures rose across the curve this morning.  Perhaps after further reflection, market participants have concluded that Trump’s Mexican adventure was one tariff too far for the Republican Party and the pressure is now on to make a deal with China, too. As a result, there may be less pressure for the Fed to cut rates any time soon, and less pressure to cut rates longer term. I would expect the dollar to recover this morning as people reconsider the likely interest rate path for the Fed. Today’s JOLTS report in particular should reinforce the idea that the lower-than-expected job numbers were a result of a lack of workers, not a lack of jobs, as I discussed on Friday (see below). 

CAD was the biggest gainer on a constellation of good news for the country. The resolution of the Mexico tariffs question makes it more likely that Congress will approve the US-Mexico-Canada Agreement, the agreement formerly known as NAFTA. Plus, while the US had disappointing employment numbers Friday, Canada gained 27.7k jobs, much more than the 5.0k expected, and unemployment rate fell to 5.4%, the lowest since the data series started in 1976. Plus oil prices rebounded for the second day. I expect CAD to continue to do well for now. Speculators are still short (see below) and as the mood changes, there’s plenty of room for them to reverse their positions.

On the other hand, AUD was lower this morning. It went shooting up vs USD Friday when the employment data came out (as did most other currencies), but has steadily come off this morning as China’s trade data showed a much larger-than-expected fall in imports (-8.5% yoy vs -3.5% expected).


Commitments of Traders (COT) report

The COT report showed a big increase in GBP shorts and also NZD shorts. JPY shorts however were cut back. That seems to be a “risk off” mood, which would go along with the feeling in the market early last week. However, I think we are likely to see a reversal of that move during this week as the rapid resolution of the US-Mexico spat should help to bring a “risk on” atmosphere to the markets.


Today’s market

It’s short-term indicator day for the UK, with the monthly GDP figures, industrial & manufacturing production, and the trade balance all coming out at the same time. The message from the GDP figures and the production data are expected to be the same:  output in Britain is slowing. That’s negative for GBP.

Meanwhile though, the trade data are expected to show some narrowing in the deficit. The problem is, just by looking at the change in the overall figure we can’t tell whether it’s caused by a rise in exports (good) or a fall in imports (bad). A narrower deficit caused by a fall in imports would suggest slowing demand, which is negative for the currency (just as China’s larger surplus, caused by a fall in imports, was bad for AUD). Just as an first impression a narrower deficit should in theory be good for the currency, but in this case, coupled with signs of a slowdown in output, I’d guess that the market is likely to ignore that message and instead take it as a negative for the currency.

The US Job Openings and Labor Turnover Survey (JOLTS) report will take on greater-than-usual significance today in the wake of the latest nonfarm payrolls, which showed that job growth is slowing. The JOLTS report is expected to show job openings remaining at a historically high level.

But perhaps more important is the change in the number of jobs available.The growth in the number of available jobs has basically stalled, which bodes ill for the growth of payrolls in the future.

Nonetheless, given that the number of unemployed persons is falling, the consensus JOLTS figure would give the highest ever ratio of open jobs to unemployed persons, meaning that there are plenty of opportunities out there – if the right person can be found for the job.


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Marshall Gittler

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