When jobs are not enough
Wednesday's Federal Open Market Committee meeting and Thursday's Inflation Report from the Bank of England both contributed to what looked a most peculiar reaction to Friday's US employment report. Job creation comfortably beat expectations yet the US dollar was hit by a selloff that made it the day's weakest major currency.
BoE governor Mark Carney said on Thursday that inflation would require interest rate hikes by the bank "more frequent than financial markets currently expect". He reasoned that a good Brexit arrangement, a revived global economy and rising numbers of people in work will create upward pressure on inflation. His message echoed that of Federal Reserve chairman Jerome Powell a day earlier. He described the current slowdown in inflation as "transitory" where, six weeks previously, it had been "one of the major challenges of our time".
Investors were not convinced, and they carried their suspicions with them into the Bureau of Labor report on Friday. It showed a net gain of 508k jobs over the last three months, 94k more than forecast, and unemployment at a 49-year low of 3.6%. However, the report also indicated lower-than-expected earnings growth. Investors evidently decided that slowing wage growth was a bad thing. They marked down the dollar, costing it a quarter of a cent against the euro and nearly a cent against sterling.
Sterling was the pick of the bunch on Friday, strengthening by an average of 0.5%. Britain's sole ecostat was not particularly sparkling but there was a good deal of excitement about a government Brexit arrangement with Labour.
The UK services sector purchasing managers' index was a tick short of forecast, at 50.4 instead of 50.5. Nevertheless it was higher on the month and back above the line at 50 that separates growth from shrinkage. As for Brexit, the story was hardly convincing. A number of Labour MPs have said they will support the government's withdrawal bill if it includes customs union membership and a confirmatory vote - AKA a second referendum.
Top performer overnight was the Australian dollar, which strengthened by a cent and a quarter. The draw there was the Reserve Bank of Australia's monetary policy statement, which left the benchmark Cash Rate unchanged at 1.5%. Although with the Australian general election due on Saturday week it was never really likely that the RBA would cut rates, investors were mindful of the risk that it just might.
RBNZ cut possible
The agenda for the London session is hardly more than a hotchpotch of random data widowed or orphaned by the May Day holidays. Tonight the Reserve Bank of New Zealand could well cut its Official Cash Rate by 25 basis points from 1.75% to 1.5%.
Of the two PMIs released overnight only Japan's Nikkei manufacturing measure made it into the growth zone. At 50.2 it was a point higher on the month. Australia's construction PMI was predictably well into the contraction zone at 42.6 but at least retail sales there increased by a useful 0.3% in March. German factory orders scored an unusual gain too, up 0.6% in March.
Tonight the Bank of Japan will publish the minutes of its policy meeting. China reports on trade and the US administration makes its decision on fresh tariffs.