Jobs matter

4 minute read


Investors were highly impressed by Friday's October employment report from the Bureau of Labor. Ahead of it, they were far from enthusiastic about the USD: once they had seen the numbers they changed their tune. The only surprise was the monthly change in nonfarm payrolls but there was a big gap between the forecast 190k increase and the 250k uplift that the report delivered. Revisions to the previous two months cancelled out one another, leaving a net figure 60k larger than expected. Although earnings were in line with forecast there was good news there too. Average hourly pay was up by 3.1%, the biggest annual increase in more than nine years. Together the numbers appeared to strengthen the case for another rate hike by the Federal Reserve next month and they took the USD into a narrow lead.


Purchasing managers' index readings from the euro zone were mostly disappointing. Only one of them - for Spanish manufacturers - exceeded analysts' forecast and even that one, coming in at 51.8, lacked sparkle.  Pan-Euroland scored a 52.0 and Germany did only slightly better at 52.2.   The EUR could offer nothing to counteract the bullish mood surrounding the USD and it lost 0.5% on the day. All of that loss came during New York's morning session: there was little movement for the EUR into the weekend or this morning in Europe.  A Reuters survey of FX strategists, published at the end of the week, found them looking for the EUR to be 2% higher ($1.16) in three months' time. However, they were not confident about their predictions; more than three quarters saw risks to the downside.


Had they appeared in isolation, the Canadian employment figures might not have hurt the CAD.  Unemployment ticked down to 5.8% as 11.2k jobs were added. Both numbers were better than expected, though wages rose by only 1.9%, falling short of the expected 2.3% increase.  The real problem was that the Canadian data came out at the same time as much better employment numbers from the United States. The contrast was impossible to avoid, and the Canadian balance of trade data further  hampered the CAD: instead of a small surplus in September Canada reported a $420m deficit.  The USD strengthened by 0.3% against the CAD.


Britain is one of few countries to publish a purchasing managers' index for its construction sector.  It came in on Friday at 53.2, more than a point above forecast and the previous month's reading. It was not enough to prevent losses for the GBP during the New York session. During the weekend the media came to sterling's assistance with another story about an imminent Brexit agreement with the European Union. As had been the case a few days earlier, Downing Street dismissed the story as "speculation" but investors have begun to suspect there is some truth behind these reports, and that the prime minister might be preparing to force her party rebels to accept a compromise deal. The GBP spiked as the Far East opened this morning and still looked well-supported ahead of New York's opening. It is unchanged from Friday's pre-opening position.


The USD is 0.3% higher against the JPY, principally  as a result of a generally upbeat mood among investors. The yen's unchanged position against the CHF suggests that safe-havens in general are not in demand. There were no economic data to affect the JPY but there was a focus in the media overnight on comments by Bank of Japan governor Haruhiko Kuroda. He said in a speech what whilst the bank must carry on with its stimulus program, it is no longer necessary to be "decisively implementing a large-scale policy to overcome deflation". BoJ-watchers came away with the idea that Kuroda San was hinting that he wants to normalize monetary policy.

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