Morning Commentary: Beauty is in the Eye of the Beholder
A daily summary and commentary of events and factors that affect the global markets, with a particular emphasis on the foreign exchange markets.
Beauty is in the Eye of the Beholder
Share this story:
Alan Rose Foreign Exchange Senior Trader
After absorbing two very weak key U.S. economic indices and watching equities and interest rates move to near panic situations this week, the market had mentally downgraded expectations for today’s U.S. jobs report. Investors remain apprehensive and nervous that the expanding and continuing trade war will cause the U.S. economy to continue to weaken. With manufacturing and brick and mortar retail near recession levels already, the consumer’s continued buying power and demand will be key going forward to sustain economic growth of nearly 2%.
Today’s U.S. jobs report for September largely met original market consensus which has provided a sigh of relief and a pause in the short term negativity plaguing the market. U.S. interest rates have rallied slightly after collapsing this week, and the DXY is mixed today. The NFP component was below expectations at 136,000 against expectations for 145,000. There were upward revisions to the previous months, but they were almost all related to government hiring which carries less weight than the private sector.
The highlight of the report was that the UR dropped from 3.7% to 3.5% which is a 50-year low. The labor force participation rate remained unchanged at 63.2%. Average hourly earnings, which is another key metric inside the report, was disappointing as it came in weaker than forecast at 0.0% and the YoY dropped to 2.9%. Other good news within the report was the fact that the jobless rate for Hispanics hit a new record low and the UR for African-Americans maintained its lowest rate ever.
Bottom line: Job growth continues to decelerate from last year. The average NFP in 2019 is 161,000 and declining; the average NFP in 2018 was 223,000. Markets have moved this week from a 53% probability of a Fed rate cut later this month to 92% today. The market continues to price in at least three more Fed rate cuts, and with U.S. interest rates declining while other G10 rates remain relatively steady, the U.S. dollar (DXY) looks more vulnerable going forward.
HERE ARE THE KEY NEWS STORIES FROM OVERNIGHT:
The Reserve Bank of India cut interest rates by 25 bps to 5.15% as expected. The central bank has continued to cut rates by small increments for the fifth time this year bringing the total to 135 bps of cuts. There was another sharp downgrade by the central bank for future growth, and the market continues to build in expectations for more rate cuts. The Indian rupee is unchanged on the session.
The U.S. trade deficit widened in August by more than consensus estimates to $54.9 billion primarily due to a record level of imports of consumer goods. Even as the trade deficit increased, the trade deficit with China declined sharply by 3.1% for the month. YoY, the trade deficit with China has fallen by 11.4%. The trade deficit with Germany rose to the highest level on record thanks to a record level of imports.
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.
Now accepting scholarship apps Celebrating 40 years of service -- A loan to an innovative company -- Affording your dream home -- Mergers and a new branch in Raleigh View this email in your browser Forward to a friend