Stellar NFP and steady Wages show Fed was right about transitory effects

The US dollar initially extended gains following the release of US non-farm payrolls and wage data.  The strong headline payrolls reading saw a bigger than expected increase in hiring and steady wages, which saw softness in Manufacturing and Retail, led Fed fund futures to see the chances of a rate cut be pushed into 2020.

US Data – Labor market remains unstoppable

EUR- Core inflation rises to 6-month high

Brexit – Conservative and Labour lose big

Stocks – S&P slight rebound after biggest selloff in 5 weeks

Oil – OPEC on verge of collapse according to Iran

Gold – Settling higher after  NFP report 

US Data

The Fed may have been right about the transitory effects we are seeing with inflation.  The economy is performing nicely, wages did not go up as much as economists expected, but steady wages could help inflation stabilize in the coming months.  The headline number for nonfarm payroll report was 263,000 jobs were added, bringing the unemployment rate down to 3.6%, the lowest levels since 1969.  Wages stayed steady at 3.2%,  slightly below expectations of 3.3%.  The dollar initially surged against all of its major trading partners following the better than expected labor data.

Today’s wrath of economic data points that business investment could be coming back on the backdrop of continued solid gains in the labor market.  The key report of wages showed that consumer inflation is coming along, albeit not as fast as economists were targeting.  This does not change the patient stance that will require us to see data throughout the summer before the Fed signals the next policy move.

EUR

The April flash estimate for eurozone inflation rose to the highest level since November at 1.7%, a tick above the consensus, and 0.3% above the March reading.  Core inflation, which strips out volatile components also rose to a 6-month high at 1.2%.  The euro posted a little reaction following the release, but if we continue to see better data from the euro area along with higher inflation, that will be a turning point for the euro.

Brexit

Conservatives and Labour both had a tough night with results from local elections.  The key message sent was that the public is frustrated with the current leaderships handling of Brexit.  Early tallies show Pro-EU Liberal Democrats thrived, gaining 304 seats, while Conservatives lost 450 seats and Labour saw roughly 80 spots go other parties.

Oil

Iran’s oil minister can tell his country is feeling the pain of the US sanctions.  Today, he warned OPEC that they are the verge of collapse as Saudi Arabia appears set to take on their lost crude sales.  Despite a shortage in spare capacity to make up for the immediate shortfall, oil remains under pressure.

Crude prices remain vulnerable on concerns OPEC + will not be able to maintain a meaningful production cut agreement going forward and on the backdrop that we are likely to see increases in production from the US, Saudis and Russians.  Brent crude is finding tentative support from the $70 level and West Texas Intermediate crude is seeing buyers ahead of the $60 level.

Earlier bullish catalysts are no longer dominating the headlines, Eastern Europe has found replacements for contaminated Russian crude and the Venezuelan turmoil does not appear to reaching a key climax just yet.

Oil is poised for a second weekly decline and if we continue to see the US production pickup in velocity, crude prices could see a sustained pullback here.  Oil did get a boost following the impressive US labor and wage data.

Gold

The precious metal is not benefiting from a strong US economy and expectations global growth concerns will continue to be alleviated from a trade deal between the US and China.  Gold prices initially spiked lower following the labor report but settled slightly higher as the dollar was not able to hold onto its gains.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Ed Moya

Ed Moya

Senior Market Analyst at OANDA
With more than 20 years’ trading experience, Ed Moya is a market analyst with OANDA, producing up-to-the-minute fundamental analysis of geo-political events and monetary policies in the US, Europe, the Middle East and North Africa. Over the course of his career, he has worked with some of the world’s leading forex brokerages and research departments including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including BNN, CNBC, Fox Business, and Bloomberg. He is often quoted in leading print and online publications such as the Wall Street Journal and the Washington Post. He holds a BA in Economics from Rutgers University. Follow Ed on Twitter @edjmoya ‏
Ed Moya