NFP Fallout Supports Dollar For Now

Monday May 9: Five things the markets are talking about.

Historically, the first trading session after a non-farm payroll (NFP) print tends to be the least volatile day of the month, and today’s opening session, thus far, is holding true to that statement.

From an economic fundamental viewpoint, the next couple of trading sessions are rather anticlimactic when compared to last week’s data points.

The highlight of this week is Thursday’s Bank of England (BoE) monetary policy decision. Currently, Governor Carney is in a tough spot given the looming Brexit vote next month and recent reports confirming that the uncertainty surrounding the referendum is already negatively affecting the economy.

1. Non-farm payroll (NFP) fallout

Friday’s jobs report should be keeping the Fed in standby mode as it considers “whether” and “when” to begin normalize short-term interest rates again. Fed talk has warned a June rate increase is possible if the economy regains momentum after a slow Q1, but April’s disappointing jobs release (+160k vs. 2015’s monthly average of +229k) undermines that argument. A downtick in labor-force participation does as well.

It’s not all bad, with an increase in average hourly earnings of +2.5% from a year earlier, Fed officials are looking for signs of wage increases as slack in the labor market diminishes.

Taken altogether, Friday’s report does not entirely eliminate the possibility of a June increase, but new rounds of data on consumption, inflation and hiring will need to show improvement to convince the Fed that its a go in June.

Futures odds for a rate increase at the June meeting have fallen to +6% from +13% and by year’s end, the odds have dropped to +48% from +57%.

The USD is basically at two-week high against the bulk of European currencies despite the recent miss in payrolls.

2. Greece on the agenda

Euro area finance ministers (Eurogroup) are holding an extraordinary meeting in Brussels today to discuss the Greek bailout. Will Greece be able to win some much-needed financial breathing space after six years of turbulence?

The Eurogroup and the IMF will assess whether Greek Prime Minister Tsipras has made enough budget-tightening commitments to gain another disbursement of emergency loans.

Last week, the Greek Parliament had secured enough votes to pass tax and pension reforms ahead of today’s meet, but any other additional contingency measures could not be passed by parliament as it was seen as counterproductive.

Germany believes that the Eurozone finance ministers should start talks on debt relief for Greece as everyone knows Greece will require it at some point.

3. German manufacturing orders surge

Data released this morning showed that German manufacturing orders rebounded sharply in March, helped by a surging demand from foreign orders.

Total orders for Germany’s important manufacturing sector rallied +1.9% in the month. The market had been expecting a +0.6% gain. Even the negative revisions were a positive. February’s order print were revised down to reveal a monthly decline of -0.8%, compared with the original -1.2% fall reported.

Foreign demand rose +4.3% from February, while domestic orders disappointed, falling -1.2% from the preceding month. Analysts note that in annual terms, total orders for Germany’s manufacturing sector decreased -1.2% from March 2015, but rose +1.7% when taking account of the number of working days in each month.

4. Saudis make a change at the top, but no change in policy

Saudi Arabia issued a royal decree to fire oil minister Al-Naimi and have replaced him with the chairman of Saudi Aramco, Khalid al-Falih. He was appointed on the weekend to head the newly expanded Ministry of Energy, Industry and Mineral Resources.

The new incoming oil minister has vowed to stick to his predecessor’s policy of defending market share against higher cost shale by keeping production at near-record levels. The country, with the world’s second-largest oil reserves, pumped +10.27m barrels a day in April.

Elsewhere, BP Canada declares “force majeure” related to Alberta wildfires. With Alberta’s fires continuing to run out of control, officials are expected to be fighting fires for month and with that, BP’s deliveries are to be impacted throughout the month of May.

5. Soft China trade data weigh on regional bourses

Overnight, China’s trade data was a mixed bag (April trade balance CNY: +298b vs. +255.0be).

The trade balance print in USD and CNY did print a three-month high, but the closely watched imports component fell for the eighteenth consecutive month, which suggests a fall in domestic demand for materials.

Breaking down the numbers – imports came in at -5.7% vs. +0.3%e, while exports were also below forecast at +4.1% vs. +4.3%e.

Shipments to the U.S and Japan were especially soft: -9.3% y/y vs. +9.0% prior and -11.8% vs. 9.3% prior respectively, even as E.U exports increased +3.2%.

China state researcher now estimates Q2 GDP to remain at its seven-year lows of +6.7% as long as the government maintains a “prudent monetary policy and proactive fiscal policy.”

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