The US Job Report
Friday June 3rd 2016
It has been a rich week in terms of economic data/events but with limited market movements with the exception of today. On Tuesday, right after the UK/US holidays we had the monthly (May) manufacturing data from China: Official Manufacturing PMI 50.1 vs exp. 50.0; Caixin Man. PMI 49.2 vs exp. 49.3; China’s Steel PMI 50.9 down 6.4% from April. Picture remains rather gloomy but maybe not as bad as expected? The high corporate debt though could represent a problem in near future. On Europe, we had some decent inflations figures (YoY): European CPI 0.8% vs exp. 0.8%; German CPI 0.3% vs Exp 0.3%; Italian CPI 0.3% vs exp. 0.2%; French CPI 0.4% vs 0.3%. What is more, for France and Italy we saw also the GDP numbers (QoQ): French GDP 0.6% vs Exp. 0.5%; Italian GDP 0.3% vs exp 0.3%. It is Europe really bottoming out after Draghi spent almost quarter a trillion Euro? Still difficult to say but could well be the case. It is also worth highlight the Indian GDP number which came out very strong at +7.9% vs exp. +7.5% (QoQ) and some positive signals from the Brazilian economy: Braz. Ind. Production (MoM) +0.1% vs exp. -0.9%; Braz. GDP (QoQ) -0.3% vs exp. -0.8%. Last but not least, after some good US Manufacturing data during the week today the USA posted the worse Job report number since 2010: US Non Farm Payrolls (May) +38K vs Exp. 164K. Will Mrs. Chairman Yellen stick to her “summer rate hike” ? Traders are now betting on September. At the moment we see EUR/USD +1.7%, Gold +2.5%, US 10-years +1.00% and equities down roughly -1.00%.
The forex market listened very carefully on what Draghi had to say on Thursday but not great hint was given and the press conference could be summarized as follows:
EUR/USD had a fairly muted reaction and traded around 1.1150 level and waited for the US Job report (see above) due today. In the few hours after the release the currency reached the 1.1345 level with a movement of nearly 200 pips. It is Dollar weakness all across the board: Dollar Index -1.5% at 94.10.
Moving to the commodities markets this week we saw the OPEC meeting which once again ended with no production ceiling agreement but all the ministers were united in their optimistic outlook. U.S. output declined for a 12th week and crude stockpiles dropped, according to a report from the Department of Energy’s statistical arm. Brent has surged almost 80 percent from a 12-year low in January amid disruptions from Nigeria to Venezuela, while U.S. output declines under price pressure from OPEC’s policy of sustaining production. The group needs more time to come up with a new production ceiling, outgoing Secretary-General Abdalla El-Badri said after the meeting in Vienna, adding that it’s hard to find a target when Iranian supply is rising and significant Libyan volumes are halted. Price reaction was muted with Brent and Crude oil hoovering around the 50$ level.
The base metals complex enjoyed a quiet week with very low volumes on LME select, again with today as exception. After the Chinese data release we saw some selling pressure especially on Copper touching a weekly low at 4565 $ (3M). Nevertheless dip buying is still evident for now and the red metal is due to end the week on a positive note:4680$ (3M) at the moment. Even Nickel build up a good floor at 8330$ which was tested many time this week but managed to hold pretty well. Upward pressure yet is still moderate as well but could be a starting point for a decent reversal. Different story on Zinc rallying to 2013$ (3M) for the first time in 10 months on the back of the well-known supply/demand reasons. It may be slightly too much and good selling pressure could come up at 2050$ level especially after Glencore’s 2100 target to re-start full operations. Tin recovered sharply and moved almost 1000$ from last week’s low; fundamentals appear to be still good but we always have 7155mt in the LME warehouses. Dead cat bounce or real recovery? On Lead it is worth highlight the big divergence on the Zinc/Lead spread +272$ from the -200$ of only few months ago. Aluminium looks rather supported along with the oil prices despite the sluggish fundamentals. Warehouses are estimated to hold as much as 15 million metric tons, with less than three million tons in London Metal Exchange warehouses, according to Norsk Hydro ASA, Europe’s third largest producer of the metal. Hydro sees the global market largely in balance at the end of 2016, but outflows from warehouses to the physical market represent a ”joker” when forecasting prices, the executive said. A move to the downside could be in the cards but buyers will probably step in again around the 1500$ level.
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