The Canadian lower dropped 0.19 percent on Friday, but given strong fundamentals and a central bank likely to keep rates steady the loonie was the only major currency to end in the black agains the greenback this week. Job numbers in Canada were lower than expected after the gains in the past two months. The economy lost 2,200 jobs, but wages continued to rise putting the Bank of Canada (BoC) firmly on the hold camp when the central bank meets on Wednesday.
The Ivey PMI surprised to the downside with a larger than expected drop to 52.4 for a four month low as purchasing managers were less confident. The mixed picture of the Canadian economy continues, but as global growth slows down as trade disputes become more commonplace mixed is better than negative.
The Bank of Canada is likely to keep the 1.75 percent benchmark rate unchanged on Wednesday as inflation pressures remain to the upside. Housing datapoint will be published next week with Housing starts and building permits on Tuesday and the Thursday release of the new housing price index (NHPI) on Thursday. Prices have been stable but more construction is expected to be announced in the major metropolitan areas.
The US dollar is higher across the board on Friday after the US economy added 224,000 jobs, smashing expectations of a 162,000 new positions. The strong jobs report stopped the US stock record breaking run on its tracks, as it puts a question mark on the number of rate cuts this year that will be coming from the Fed. Before the NFP was published, the ADP had painted a bleak picture for the strongest pillar of the economy. Private payrolls went up less than expected and given the NFP miss last month, a repeat was on the table.
The impressive gains on the jobs front, could scale back the market’s pricing of multiple rate cuts, but the economy will still need the Fed to come to its aid, specially if the White House continues to keep more than one trade front open at the time.
Next week will be crucial for Fed watchers as it features multiple speaking opportunities for Fed Chair Powell as well as the publication of the minutes from the FOMC meeting last month.
OIL – Oil Higher on Middle East Tension
Oil prices rebounded on Friday with West Texas Intermediate rising 0.4 percent and Brent 1.48 percent. The rise of the US dollar after the monster jobs report did not put additional pressure on crude prices as Middle East tensions are keeping the price of crude bid.
On a weekly basis oil will end up in the red as the market is putting more stock on global growth downgrades after Trump and Xi failed to get a concrete win at the G20. The prolonged trade war has put a lot of pressure on crude prices and global growth keeps being downgraded as tariffs become more common place.
GOLD – Gold Drops on Big Dollar After Monster Jobs Boost
Gold was sideswiped by the strong jobs report and the yellow metal dropped 1.27 percent on Friday to finish with a weekly loss of 0.77 percent. Gold had lost some traction after the G20 when Trump and Xi announced a new round of negotiations, but given eh lack of details the metal was up again as investors flocked to it as a safe haven after the US fired new tariff threats at China and Europe.
Despite the setback gold remains above the $1,400 price level and next week Fedspeak and economic indicators could dent the dollar rally as Fed Chair Powell is due to testify in Washington and this time around the FOMC minutes are perfectly timed to bring more insights into what the next step for the US central bank will be.
Middle Easter tensions could renew interest in the metal, and any signs of softness from US indicators will keep the dollar under pressure. The strong NFP has reduced lofty probabilities of three rate hikes down to two, but if the Fed continues to cave to the pressure from the White House on rates, it could signal a commitment to stimulus via lower rates.
STOCKS – Record Rally on Pause After Strong Jobs Report
The blockbuster June jobs report derailed the record breaking streak as the strong employment indicator could be read as the market getting too ahead of itself in calling for the demise of the US economy. The June report was going to break above expectations given how badly the data missed in May. The 75,000 gain stoked calls for rate cuts almost immediately and even Fed member Bullard voted for one.
This report dispelled some of the questions marks around growth, but the Fed still has the last word and investors will take a look at their notes from the June meeting on Wednesday. It is known Bullard voted for a rate cut, but even he thinks 50 basis points is excessive as per his comments afterwards. The question is what do the other members think, and regardless of external pressure, how close is the Fed from going full 180 degrees on monetary policy by starting an easing cycle?
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