Daily Market Pulse

Jobless rate falls to 10.2%


The July Non-Farm Payroll numbers and the US unemployment rate were released this morning. Analysts have forecasted 1.48 million jobs will be added in July, which is fewer than the 4.8 million jobs added in June. July NFP has been released at 1.763 million, higher than the expected 1.48. Unemployment has now moved to 10.2% as well. Yesterday, Weekly initial jobless claims hit their lowest level in the “pandemic era”, as 1.186 million people applied last week. The market survey by Dow Jones reported 1.42 million. That helped the equity markets, as the DOW finished up 185 points but the USD remains under pressure as Congress and the Trump administration remain far apart in negotiations for a new aid package. The USD is trading higher this morning after President Trump issued executive orders to address the threat posed by Chinese apps TikTok and WeChat. The order will go into effect in 45 days. The move caused Asian equity markets to fall and DOW Futures are lower as the US equity markets are expected to open around 175 points lower. US Treasury yields are lower this morning with the 10-year note trading at 0.5198% and the 30-year bond trading at 1.1776%. 


EUR/USD is trading near overnight lows this morning as there is some risk-off trading based on President Trump’s overnight announcement. Technically, the single currency has fallen below the moving averages and is testing support levels. Covid-19 cases are still rising in Europe, with over 1,000 daily cases reported in Germany, France, and Spain. Despite these outbreaks, the situation in Europe is still better than in the US and provides support for the EUR. German industrial output beat estimates rising 8.9% in June, which also has supported the EUR. Eurozone Industrial Production also came in better than last month. Industrial Production year-on-year improved to -4.9% from the previous release of -7.8%. The direction on US stimulus talks, the NFP release, and the latest pressure on US-China relations may direct the EUR today. 


GBP/USD is also feeling the effect of the USD bounce, trading near overnight lows. Sterling also being pressured as UK Chancellor Rishi Sunak stated overnight that the “furlough program” is not sustainable in the long-run. These comments were a reminder that the UK’s economic success has its limits. UK unemployment stood at 3.9% in May, the same number as it had been in January before the pandemic but that number includes the government paying people their salaries while they are at home. Brexit returns to the news this morning as the UK government is allocating GBP355 million pounds in custom controls between the UK and Northern Ireland, a customs border in the North Sea. Previously, PM Johnson had been denying any need for this. GBP bulls still look to take the pound higher, after the upbeat message given from the Bank of England yesterday as 2020 growth forecasts were upgraded and negative interest rates are off the agenda for the time being. 


USD/JPY is higher this morning, trading just below overnight highs. The Japanese Cabinet Office issued a statement overnight announcing that it would spend 1.1 trillion JPY, about $10.4 billion, from budget reserves. According to Reuters, the additional spending will be used to support small firms and households that have been affected adversely by the coronavirus crisis. As the second-wave of the virus is affecting everyone, including Japan, the Japanese government is hoping that this additional stimulus will support the economy. At the moment, USD/JPY is caught between the strong USD rebound overnight and the “risk-off” market mood.


USD/CAD is higher this morning as oil prices fell due to worries that fuel demand growth could drop amid a resurgence of coronavirus cases. Brent crude fell $0.06 to $45.03 per barrel, and U.S. West Texas Intermediate crude fell $0.02 to$41.93 per barrel. According to a Bloomberg news report, President Trump will announce that the US will reimpose tariffs on some Canadian Aluminum imports. Canadian exports of aluminum were US$8.33 Billion during 2019, according to the United Nations COMTRADE database on international trade. Canadian deputy PM Freeland said that the US tariffs on Canadian aluminum products are “unwarranted and unacceptable” and said that Canada will act swiftly by imposing dollar-for-dollar countermeasures. This news is not positive for the Canadian Dollar and could see some further pressure placed on the loonie during the trading day. 


On Thursday, Mexico's health ministry reported 6,590 new confirmed infections and 819 additional fatalities, bringing the total in the country to 462,690 confirmed cases and 50,517 fatalities. The virus is spreading quickly; just over two weeks ago it reported 40,000 deaths. Mexico's health ministry has conceded the real numbers of coronavirus cases and associated deaths are likely significantly higher than reported. Latin American countries have found it hard to enforce strict lockdowns to curb the spread of COVID-19, in part because a large proportion of its population is poor and works in the informal economy. Mexico has the third-highest death toll worldwide after Brazil and the United States.


Chinese exports rose 7.2% in July, while imports fell by 1.4%. The Chinese trade surplus was reported to be $62.3 billion, widening from June’s $46.4 billion. China’s top diplomat Yang Jiechi has urged the US to create favorable conditions for the implementation of the Phase One trade deal. He said that he hopes the US will strengthen cooperation with China to create favorable conditions for the implementation of the phase of the trade agreement reached in January. The continuing tension between the US and China over the coronavirus mishandling, Hong Kong, Taiwan, and the tech issue could likely jeopardize the trade deal. President Donald Trump has repeatedly voiced his disinterest in the trade deal with China last month. 


Brazilian President Jair Bolsonaro issued a decree on Thursday that will set aside 1.9 billion reals ($356 million) in funds to purchase and eventually produce the potential COVID-19 vaccine being developed by AstraZeneca PLC and Oxford University researchers. Brazil’s unemployment rate rose to a three-year high of 13.3%, official figures showed on Thursday, as the coronavirus-fueled shock to the economy continued to inflict severe damage on the labor market, particularly the services sector. That was only slightly higher than the 13.2% economists had expected, but the underlying figures were uniformly weak and suggest the labor market is far more fragile than the official headline rate would indicate. A record number of Brazilians are out of the workforce completely, a record low number as a share of the working population has a job, and the underemployment rate surged to an all-time high, the statistics agency IBGE said. Thursday’s figures showed that 83.3 million people were working, the lowest number since the series began, IBGE said. That was down almost 8.0 million, or 9.6%, from the same period last year, both record declines.


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