Morning Commentary: “No Man is an Island” - John Donne

A daily summary and commentary of events and factors that affect the global markets, with a particular emphasis on the foreign exchange markets.

“No Man is an Island” - John Donne Share this story: Alan Rose Foreign Exchange Senior Trader

“No man is an island entire of itself; every man is a piece of the continent, a part of the main.”   Today’s U.S. jobs report is a reminder that the global economy is interconnected and that when other key economies of the world begin to slow, sooner or later that weakness makes its way to our shores. For the better part of a year or so, the U.S. economy has remained insulated as tax cuts and deregulation have helped to propel the economy forward, and at a faster pace; but over the past months, there have been clear signs of the U.S. economy slowing, and today’s jobs report puts an exclamation on that slowing.   May’s jobs report produced only 75,000 jobs against expectations of a gain of 175,000. In addition, April and March were revised lower. The good news was that the UR remained at a multi-decade low of 3.6% and the labor participation rate also remained at 62.8%. Inflation viewed through average hourly earnings (AHE) stayed benign at 0.2% and 3.1% YoY. U.S interest rates have moved sharply lower. U.S. 2-year interest rates initially collapsed again but are correcting back as we are writing.   Perhaps of equal importance are expectations regarding future Fed policy. The probability of the Fed cutting in June has risen from 19% to 28% and the greater likelihood of a Fed rate cut for July has risen from 66% to 76%. The U.S. dollar (DXY) has fallen sharply and is testing its lowest levels since March.   The key dynamic for traders and investors, with regards to the U.S. dollar going forward, is the fact that interest rate differentials are now moving against the U.S. dollar and will soon be validated by a Fed rate cut over the next few months. This is a reversal of the trend over the past year or so where the Fed was raising interest rates while other G7 and G10 countries were cutting their rates. How much this resonates with the investment community remains to be seen, but the interest rate differential that has kept the U.S. dollar steady to stronger is no longer the pillar that it once was. HERE ARE THE KEY NEWS STORIES FROM OVERNIGHT: The Canadian dollar is one of the top performing currencies today on the back of a better than expected May Canadian jobs report. Canada produced jobs gains of nearly 28,000 (all full-time) against expectations of a gain of 5,000. The UR dropped sharply from 5.7% to 5.4%. Hourly wages remained at 2.6%, but the labor force participation rate did drop from 65.9% to 65.7%.

If we can help you with any Foreign Exchange needs, please email foreignexchange@cnb.com or call (800) 447‑4133. Want to learn more about international finance, economics, and global events? Sign up for our other Foreign Exchange emails and videos!

Follow City National Bank on social media:

Non-deposit investment products: • Are not FDIC insured, • Are not deposits or other obligations of City National Bank and are not guaranteed by City National Bank, and • Are subject to investment risks, including possible loss of the principal invested. This report is for general information and education only and was compiled from data and sources believed to be reliable. City National Bank does not warrant that it is accurate or complete. Opinions expressed and estimates or projections given are those of the authors as of the date of the report with no obligation to update or notify of inaccuracy or change. This report is not a recommendation or an offer or solicitation to buy or sell any financial instrument discussed. It is not specific investment advice. Financial instruments discussed may not be suitable for the reader. Readers must make independent investment decisions based on their own investment objectives and financial situations. Prices and financial instruments discussed are subject to change without notice. Instruments denominated in a foreign currency are subject to exchange rate and other risks. City National Bank (and its clients or associated persons) may engage in transactions inconsistent with this report and may buy from or sell to clients or others the financial instruments discussed on a principal basis. Past performance is not an indication of future results. This report may not be reproduced, distributed or further published by any person without the written consent of City National Bank. Please cite source when quoting.

Unsubscribe from this list  |  Update email preferences This message has been sent to bank@banking.offers.report. Please do not reply to this email. To ensure the delivery of future emails, please add foreignexchange@emails.cnb.com to your email address book or safe sender list. Copyright ©2019 City National Bank – All Rights Reserved. 350 South Grand Avenue, 12th Floor, Los Angeles, CA 90071 City National Bank is a subsidiary of Royal Bank of Canada. TERMS & CONDITIONS  |  PRIVACY STATEMENT NMLSR ID# 536994 | City National Bank Member FDIC