The remarkable thing about Friday’s US employment statistics is how little difference they made to currencies. A forecast loss of 8 million from nonfarm payrolls materialised as a net increase (including revisions) of just under 10 million jobs, yet the dollar lost ground to sterling and picked up no more than half a cent against the euro.
Instead of rising close to 20%, US unemployment fell from 14.7% to 13.3%. Average monthly earnings growth slowed from 4.7% to 1.0%, reflecting an uplift in lower-paid workers. That was the first big surprise. The second one hit investors at exactly the same time when Canada announced a 290k increase in employment, another major departure from forecast: 500k job losses had been predicted. The uptick in unemployment from 13% to 13.5% was a disappointment but it was still better than the forecast 15%.
Taken separately, the US or Canadian data could easily have been dismissed a fluke because they were so far adrift from forecast and out of tune with the recent trend. However, arriving at the same time from different sources, investors had to infer a bigger collective story. Somehow, the North American economy pulled something out of the bag in May. It may not be a reversal of the downturn but it is a material improvement. The US dollar was on average unchanged against the other majors. The Loonie went up by 0.5%, helped this morning by news that OPEC had agreed to continue with reduced production for another month. For the first time in a week the yen was not the back marker: its place was taken by that other unwanted safe-haven, the Swiss franc.
On Thursday the European Central Bank almost doubled the scale of its Pandemic Emergency Purchase Programme and pushed out its end date at least to June 2021. With inflation estimated to be well below its 2% target in a year’s time, analysts see that cut-off date being extended indefinitely.
The ECB announcement came as a relief to investors, who had feared the bank might hold back in order to pressurise EU governments into implementing fiscal stimulus. By teatime on Thursday the euro had added almost one and a half US cents, some of which it had to give back in the wake of Friday’s US employment data.
European economic statistics on Thursday and Friday were not numerous. The two that stood out, if only for their awfulness, were the 10.5% fall in Italian retail sales and the 25.8% plunge for German factory orders. UK consumer confidence was lower but better than expected at -36. UK house prices fell 0.2% between April and May, yet sterling was Friday’s top performer.
There is almost nothing on the agenda for today’s London session. The big-ticket items have already been and gone, with China’s trade figures, Japan’s gross domestic product for the first quarter and German industrial production. None was especially pretty.
China’s trade surplus widened by 39% in May only because the 3.3% decline in exports was eclipsed by a 16.7% fall in imports. Japan’s GDP shrank by 0.6% in Q1, a slightly bigger contraction than the 0.5% estimated previously. Germany’s 17.9% drop for industrial production was even worse than the expected 15.5% decline.
Today brings Euroland investor confidence, Canadian housing starts and not much else. Tonight Britain’s BRC reveals its retail sales numbers for May.