Morning Commentary: Return of the Jobs

Foreign Exchange - Morning Commentary

Return of the Jobs

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Andrew Kositkun
Andrew Kositkun
Foreign Exchange Head Trader
The government's latest jobs report was printed this morning.  In addition to revising last month's dismal jobs number up from 20K to 33K, the Bureau of Labor Statistics reported that the U.S. economy added 196K jobs in March against expectations for 177K jobs.  The U.S. dollar and U.S. yields both moved down sharply after the numbers but have since retracted those losses, illustrative of a market searching for direction against a backdrop of uncertainty.    
 
Looking deeper into the numbers, the unemployment rate stayed constant at 3.8% and the labor force participation rate fell to 63.0% from 63.2%.  Notably, average hourly earnings growth fell to 0.1% from 0.4% month over month, validating the Fed's narrative of muted wage pressures.  However, a longer work week may have played a role in this as a longer work week, defined by the number of hours worked, tends to reduce average hourly wages.  Wages is a key measure that the markets and the Fed look at as it informs inflation expectations.  To this end, the market implied probability for a rate cut this year remains above 50% despite this positive headline number. 
 
Canada also reported its jobs data this morning with the number of Canadian jobs falling 7.2K against expectations for a gain of 6K jobs.  However, wages were up 2.3% year over year against expectations for a 2.2% rise. 
 
Clearly, the headline number in Canada disappointed, but the CAD remains roughly where it was prior to the jobs report.  Despite slowing GDP growth, the Canadian jobs market has been strong, adding jobs in the 6 consecutive months and setting the markets up for an adjustment.  Overall, nothing in this report is likely to concern the Bank of Canada and change its current path. 
HERE ARE THE KEY NEWS STORIES FROM OVERNIGHT:
  • President Trump has stated that the U.S. and China could be close to a trade deal and suggested that a deal could be completed within the next four weeks.  Additionally, Chinese President Xi Jinping has indicated that substantial progress has been made and is calling for a quick conclusion to negotiations.  Notably, a summit between the two presidents, which is seen as a precursor to a deal, has yet to be scheduled.   
  • Additionally, President Trump has pivoted from his threat to close the border between the U.S. and Mexico in the coming days to a “one year warning.”
  • PM May has written to EU Council President Tusk to request an additional delay to June 30.  Included in the letter was the indication that the U.K. would make "responsible preparations to hold elections" should the U.K. be unable to exit before May 23.  One of the key sticking points to a longer extension has been the U.K.'s participation in the upcoming EU Parliamentary elections.  Conversely, President Tusk has been floating the idea of a 1 year extension with the option to leave earlier should a deal be approved.    
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