Dollar and Treasury Yields Lifted by U.S. Jobs Report

August 4, 2017

The dollar rebounded sharply, advancing 1.0% against the euro, 0.8% relative to the yen and sterling, 0.7% versus the loonie, 0.6% vis-a-vis the Australian dollar, 0.5% against the Swiss franc and kiwi, 0.3% versus the peso and 0.2% relative to the yuan.

The 10-year Treasury yield climbed six basis points to 2.28% and exerted coattails on the comparable bund (up 3 bps) and gilt yield (+2 bp).

U.S. equities already were trading close to record highs and strengthened only marginally further. Stocks in the Pacific Rim closed overnight up 0.4% in South Korea and Taiwan and by 0.3% in India and Hong but fell 0.5% in Singapore, 0.4% in Japan, and 0.3% in China and Australia.

Gold dropped back a full percent to $1,262 per ounce. WTI crude oil is hovering very close to $49.00 per barrel.

Today’s session has seen the release of several important economic indicators, led by the U.S. jobs report. Non-farm payroll jobs rose 209K in July, their second straight increase of over 200K following a rise of 231K in June. The unemployment rate dropped back to May’s 4.3% level after June’s 4.4%, and the participation rate and employment-to-population ratio nudged higher. The one persistent cloud in the report is that on-year growth in wages was at 2.5% for a fourth straight time. In light of the very low jobless rate, wage inflation is puzzlingly low.

An additional piece of favorable U.S. news was the report of a diminished $43.642 billion goods and services trade deficit in June, which was $2.75 billion less than in May. Merchandise exports and imports both grew 7.4% on year during the first half of 2017.

Canada also released monthly labor market and trade data.

  • Canada’s unemployment rate dropped 0.2 percentage points in July to 6.3%. Employment rose 10.9K after out-sized increases in the two prior months and was led by self-employed workers.
  • Canada’s C$ 3.60 billion trade deficit in June significantly surpassed expectations, as exports dropped 4.3% on month while imports edged 0.3% higher.
  • The Canadian IVEY-PMI index slid back 1.6 points to a 2-month low of 60.0 in July, which still connotes solid improvement in economic activity.

German industrial orders grew 1.0% in June, twice as much as forecast and following a 1.1% advance in May. Orders were 5.1% greater than in June 2015 and posted a 0.8% average rise between the first and second quarters of 2017. Domestic capital goods orders, a leading indicator of business investment, shot up 7.5% in June and rose 1.4% in the second quarter.

The German construction purchasing managers index increased 0.8 points to a 4-month high of 55.9 in July.

But Germany’s retail PMI slumped 3.8 points to a 6-month low of 50.7 in July. This slower rate of activity contributed to depressing the Euroland retail PMI to a 4-month low of 51.0. The French retail PMI (54.1) was 2.1 points lower than in June and at a 2-month low, while Italy’s retail PMI edged up 0.2 points but remained below the 50-no change level at 47.3.

The Swedish services purchasing managers index climbed 1.8 points to 59.0 in July, a 3-month high.

The global services and composite PMIs, compiled by J.P. Morgan, each slid to 3-month lows last month of 53.7 and 53.5, respectively.

The Reserve Bank of Australia published its quarterly Monetary Policy Statement, which embodied a 0.5 percentage point downward revision of expected GDP growth to a range of 2-3%.

The National Bank of Romania left its key interest rate (1.75%) and reserve requirement (8%) unchanged. There were seven interest rate cuts between August 2014 and May 2015, which collectively halved to the current level.

Japanese labor cash earnings were 0.4% less in June than a year earlier. That swing below zero after a 0.6% on-year increase in May was unexpected.

Australian retail sales growth slowed to 0.3% on month in June but performed better in the second quarter than in the first period.

British new car registrations, a proxy for sales, slowed to a 9.3% on-year decline last month.

In the year to July, consumer prices rose 2.8% but producer prices fell 2.8% in The Philippines.

Mexican consumer sentiment deteriorated in July.

Copyright 2017, Larry Greenberg. All rights reserved. No secondary distribution without express permission.


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