Dollar Trying a Rebound as NFP Grew in May, Yen and Franc Weaken

Market overviews

Dollar attempts to rebound after non-farm payroll employment unexpectedly rebounded while unemployment rate fell. But strength is mainly centered against Yen, Swiss Franc, and to a lesser extent Euro. Commodity currencies continue to be the strongest ones, together with Sterling. Canadian Dollar also firms up on job growth but lags behind Aussie and Kiwi.

In Europe, currently, FTSE is up 1.59$. DAX is up 2.31%. CAC is up 2.80%. German 10-year yield is up 0.044 at -0.273. Earlier in Asia, Nikkei rose 0.74%. Hong Kong HSI rose 1.66%. China Shanghai SSE rose 040%. Singapore Strait Times rose 1.64%. Japan 10-year JGB yield rose 0.0102 to 0.040.

US NFP grew 2.5m, unemployment rate dropped to 13.3%

– advertisement –

US total non-farm payroll employment grew 2509k in May, well above expectation of -8000k decline. BLS said the improvements in the labor market reflected a “limited resumption of economic activity” curtailed in March and April due to coronavirus pandemic.

Unemployment rate dropped to 13.3%, down from 14.7%, beat expectation of 19.6%. Number of unemployed persons dropped -2.1m to 21.0m. Participation rate also rose 0.6% to 60.8%. Average hourly earnings, however, dropped -1.0% mom, below expectation of 0.7% mom.

Canada employment rose 290k in May, unemployment rate rose to record 13.7%

Canada employment grew 290k in May, well above expectation of -500k loss. That also represented a recovery 10.6% of the coronavirus related employment losses. Unemployment rate, however, rose to 13.7%, up from 13.0%, but better than expectation of 15.0%. That was the highest level on record too. Participation rate rose 1.6% to 61.4%, but stayed well below pre-coronavirus level of 65.5%.

ECB Lane: PEPP expansion proportionate to substantial downward revision of outlook

ECB Chief Economist Philip Lane said in a blog post that the decision to expand the PEPP is “the proportionate response to the substantial downward revision of the economic and inflation outlooks and the significant deterioration in financial conditions”.

He added, “the incoming economic and financial data and future projection rounds will provide essential guidance as to whether the pandemic-related negative shock to inflation dynamics has been sufficiently contained.” “Once the negative pandemic shock has been successfully managed, the primary focus of monetary policy can return to its underlying strategic goal of robustly achieving our inflation aim over the medium term.”

Limited progress made in Brexit negotiations

Little progress has been made regarding Brexit negotiations as UK and EU officials indicated.

UK chief negotiator, David Frost said, “progress remains limited but our talks have been positive in tone.” He added, “Negotiations will continue and we remain committed to a successful outcome. “We are close to reaching the limits of what we can achieve through the format of remote formal rounds,” Frost said. “If we are to make progress, it is clear that we must intensify and accelerate our work.”

EU chief negotiator Michel Barnier said, “this week, there have been no significant areas of progress … We cannot go on like this for ever.”

UK GfK consumer confidence dropped to -36, lowest since 2009

UK GfK Consumer Confidence dropped to -36 in May, down from -34. That’s the lowest level since January 2009, and not far from record low of -39 touched in July 2008.

GfK’s client strategy director Joe Staton said: “with no sign of a rapid V-shaped bounce-back on the cards, consumers remain pessimistic about the state of their finances and the wider economic picture for the year to come”. Meanwhile, “as the lockdown eases, it will be interesting to see just how the consumer appetite for spending returns in a world of socially-distanced shopping and the seismic shift to online retailing.”

Released form Europe, Germany factory roders dropped -25.8% mom in April versus expectation of -20.0% mom. Italy retail sales dropped -10.5% mom in April versus expcetation of -10.0% mom. Swiss foreign currency reserve rose to CHF 816B in may, up from CHF 800B.

Australia performance of services rose to 31.6, muted optimism from easing restrictions

Australia AiG Performance of Services Index rose to 31.6 in May, up from 27.1. While the data indicates slower pace of contraction, it’s still the second lowest result on record. In trend term, the index dropped -3.4 pts to 30.8, with declines across all services sectors.

AiG also noted, “heavy restrictions on activity in response to the COVID-19 pandemic have taken a large toll on most of Australia’s services industries… The recent easing of restrictions in some locations led to “muted optimism for businesses who responded later in May.”

Released in Asia, Japan household spending dropped -11.1% yoy in April, versus expectation of -12.8% yoy. Leading index dropped to 76.2 in April, down from 85.1.

USD/JPY Mid-Day Outlook

Daily Pivots: (S1) 108.79; (P) 109.00; (R1) 109.37; More..

USD/JPY rises to as high as 109.69 so far and broke 109.38 resistance. Intraday bias remains on the upside for a test on 111.71 resistance next. On the downside, below 108.61 minor support will turn intraday bias neutral and bring consolidations first.

In the bigger picture, at this point, whole decline from 118.65 (Dec 2016) continues to display a corrective look, with well channeling. There is no clear sign of completion yet. Break of 101.18 will target 98.97 (2016 low). Meanwhile, sustained break of 112.22 should confirm completion of the decline and turn outlook bullish for 118.65 and above.

Economic Indicators Update

GMT Ccy Events Actual Forecast Previous Revised
22:30 AUD AiG Performance of Services Index May 31.6 27.1
23:01 GBP GfK Consumer Confidence May P -36 -40 -34
23:30 JPY Overall Household Spending Y/Y Apr -11.10% -12.80% -6.00%
05:00 JPY Leading Economic Index Apr P 76.2 80.5 84.7 85.1
06:00 EUR Germany Factory Orders M/M Apr -25.80% -20.00% -15.60% -15.00%
07:00 CHF Foreign Currency Reserves (CHF) May 816B 800B
08:00 EUR Italy Retail Sales M/M Apr -10.50% -10.00% -20.50% -21.30%
12:30 USD Nonfarm Payrolls May 2509K -8000K -20537K -20687K
12:30 USD Unemployment Rate May 13.30% 19.60% 14.70%
12:30 USD Average Hourly Earnings M/M May -1.00% 0.70% 4.70%
12:30 CAD Net Change in Employment May 289.6K -500.0K -1993.8K
12:30 CAD Unemployment Rate May 13.70% 15.00% 13.00%
15:00 CAD Ivey PMI May 30.8 22.8