Morning Commentary: Jobs, Jobs, Jobs

Foreign Exchange - Morning Commentary
Jobs, Jobs, Jobs
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Andrew Kositkun
Andrew Kositkun
Foreign Exchange Head Trader
Both the US and Canada published key jobs reports today and both countries hit it out of the park. 

Canada payroll data showed the economy adding 34.5k jobs against consensus for 17.5k jobs with the prior number revised down marginally.  The unemployment rate also dropped down to 5.5% and, most notably, wage data showed an acceleration to 4.4% which is near the cycle high.  

In the US, payrolls also firmly beat expectations with the report showing 225k jobs added to the economy against expectations for 165k additional jobs.  While there is some noise in this series, it is notable that the 3 month NFP average has moved to its highest level of the last 12 months.  The unemployment rate did tick up slightly to 3.6% from 3.5% and average hourly earnings missed on MoM (0.2% vs. 0.3%), however, wages rose on YoY terms (3.1% vs. 3.0%). 

While both these employment reports were positive, it is likely that neither changes the near term narrative for either country, a belief that is supported by today’s price action.  After initially spiking stronger, the CAD has quickly given up all its gains.  In Canada, the preferred measure for the BoC is monthly growth and the output gap rather than the employment report and the unemployment rate.  With the recent downgrades to the global economy, as well as downside risks from the coronavirus still looming, the BoC is unlikely to shift away from its dovish bias. 

In the US, the recent run of dollar strength is likely to continue.  Recent growth revisions have been to downgrade global growth as coronavirus concerns continue to persist.  This elevated level of uncertainty has supported anticyclical assets such as the USD.  Moreover, the strong US payroll number adds further support to the view of a resilient US economy versus the rest of the world that appears less certain. 
  • RBA released its Statement on Monetary Policy overnight and reaffirmed the bank’s optimistic outlook even as recent events create downside risk to domestic and global growth.  This underscored the RBA’s willingness to wait and watch.  As a result, markets have gone from pricing in ~42 bps of cuts this year to pricing in only ~30 bps of cuts within the span of 5 days.  However, the AUD is one of the G10’s worst performers as the markets are looking through these positive comments and focusing on coronavirus concerns and its economic impact.    
  • German industrial production came in well below expectations at -6.8% versus expectations for a -3.7% print.  Industrial production in France also disappointed, printing -2.8% versus expectations for -0.3%.  Poor European data combined with the strong US jobs report has put the euro under renewed pressure.   
  • Emerging Asian countries continue to put an emphasis on stimulus as a way to counter the impact of the coronavirus.  Thailand and the Philippines cut rates this week with India injecting liquidity.  Additionally, courts in Thailand have ordered parliament to vote on a stalled budget bill, calling it an urgent matter.
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