Rates as of 06:00 GMT

Market Recap

It was a relatively quiet day yesterday and is likely to be similar today, in between Friday’s nonfarm payrolls and tomorrow’s testimony by Fed Chair Powell.

The FX market showed a clear “buy dollar” bias, with the dollar gaining against most currencies in a continued aftershock from Friday’s payroll data.

It’s noticable that the “safe haven” currencies, JPY and CHF, did worse than the “risk on” commodity currencies even though US stocks were lower and Asian stock markets are doing poorly this morning. That perhaps shows the difference between “risk off” caused by bad economic news and “risk off” caused by good economic news that changes the outlook for Fed policy. If growth in the US is stronger than people had thought, then perhaps there’s no need for the commodity currencies to depreciate. Note that gold was off sharply this morning too, which is a significant “risk on” indicator.

Commitments of Traders report

The usual Friday evening Commitments of Traders (COT) report came out Monday evening because of the July 4th holiday in the US.

Speculators sharply increased their short EUR and short AUD positions. The change in EUR positioning was significant, I think, because EUR/USD has been so stable recently. It suggests to me that some people are expecting a breakout in volatility in the pair after Draghi goes.

Today’s market

There are no European indicators or speakers out today.

The action will start early in the US day, when the National Federation of Independent Businesses (NFIB), the small business association, releases its monthly optimism survey. It’s expected to decline slightly, which would be in line with what’s happening with consumer confidence as well, particularly the jobs survey – so this should probably come as no surprise.

Canadian housing starts are expected to rebound slightly, although it’s not expected that they’ll be enough to erase the downward trend. The May Bank of Canada statement said that “…housing market indicators point to a more stable national market, albeit with continued weakness in some regions.” Data like this won’t do much to change that assessment either way. In that respect, I think it’s neutral for CAD.

The Job Openings and Labor Turnover Survey (JOLTS) report is one of my favorites. It’s the converse of the unemployment figures:  how many jobs are looking for people, not how many people are looking for jobs. It’s predicted to be about the same as in the previous month, and in fact predicted to be exactly the same as the six-month moving average – which I suppose is as good a guess as any.

While that may be down a bit from the record high earlier this year, the number of unemployed persons has been falling, too. If the figure comes in as predicted, there would be 1.27 job openings for every unemployed person, equal to the second-highest ratio on record. That shows a still-robust labor market. USD positive

Overnight we get some inflation data.

I won’t make too much of Japan’s producer price index. If the consumer price index, the target for the Bank of Japan, doesn’t get the Bank of Japan to change rates, neither will the PPI. I just present it to keep you (and me) abreast of inflation trends in Japan. As you can see, there’s no signs of upstream pressure on prices – on a yoy basis, they’re expected to be up only 0.4%, which is nothing. So it’s unlikely we’ll see any faster inflation any time soon in Japan. JPY negative, that is, assuming anyone cares, which may be too much to assume.

Next up though are the Chinese inflation data, which are of much more interest to the world. They’re expected to show no change in consumer price inflation and some further deceleration in producer price inflation. Both are bad news for the markets. Consumer prices aren’t accelerating that much yet, but if they continue to rise, it could force the authorities to slam the brakes on – thereby further damaging global growth prospects. Odd that your retirement may depend to some degree on the health of Chinese pigs, but there you are. Meanwhile, it’s the producer price index (PPI) that matters for overseas economies, because it’s a measure of the price rises in goods that China exports. Central banks that are looking to see if there’s inflation on the horizon are likely to be disappointed, because there’s no sign at all of inflation at the factory gate. In fact it more looks like some companies may be cutting their prices to maintain market share while the US imposes tariffs on goods from China.

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Marshall Gittler

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