As we stated in last week’s report, the early July attention was on the often market impactful US Employment Report during a holiday-shortened week, with the US Independence Day holiday observed in the US on Thursday.
Global markets continued to react in the first half of the week to the G20 Meeting in Osaka, Japan and the announcement from President Trump of the US and President Xi of China that an agreement had been made for the resumption of trade negotiations between the US and China after a trade truce was called.
In reaction, global financial markets went into “risk on” mode, which saw global stock averages surge to multi-month highs and for the major US equity indices, the S&P 500, Dow Jones Industrial Average and the Nasdaq 100 hit new record highs.
On the currency side, the “risk currencies” or “commodity currencies”, which include the Canadian, Australian and New Zealand Dollars, have extended strong June advances into the first week of July, again a reflection of growing risk appetite amongst traders and investors.
This “risk on” sentiment has not only echoed a positive view for the global economy due to the trade truce, but also a belief (as we looked at last week), that the Federal Open Market Committee Meeting (FOMC), the interest rate decision making arm of the US Federal Reserve bank (Fed), will cut rates in July and maybe further into 2019.
However, with traders coming back from Thursday’s US Independence Day holiday, the end of last week saw the release of the much-watched US Employment report on Friday 5th July.
The expectation for this data was that the keenly watched Non-Farm Payroll data (NFP) would come in at around 140-160K jobs added for June. The actual data, however, posted at 224K jobs, which is a positive for the US economy but also dampens hopes for significant rate cuts into the second half of 2019 from the Fed.
The reaction was initially negative for stocks on Friday, with the major US (and global) equity averages selling off, concerned about a less accommodating Fed. However, a strong turnaround rally later in Friday’s session, saw markets close the day and the week on a strong footing. This stronger data for the economy saw the US Dollar strengthen across the board against major currencies.
Further reaction to the US Employment Report, from both the markets and Fed Chairman Powell speaking on Tuesday, plus more notably he testifies before Congress on Wednesday and Thursday. Also watching for any other Fed Speakers and their reactions to the Employment to data. The other highlights for the week are the Bank of Canada Rate Decision Wednesday and US CPI Thursday.