Month: July 2016

US Macro

It’s often said that the time to worry about the US Dollar is when everyone is optimistic. With the FED seemingly on hold until 2017 and rumors of an impending US recession capping the Greenback over the last quarter, committed USD bulls have been few in numbers.

However, from both a technical and fundamental perspective, the USD had a very good week last week. The economic data points were helpful with Service Sector ISM printing its highest number of the year; including forward looking gains in export orders. The Headline Non-Farm Payroll (NFP) numbers snapped back by 287,000 new jobs, which was the strongest employment gain in eight months.

Looking ahead, we expect the US inflation data later in the week to reflect the firmer tone of the growth aggregates as the Atlanta FED GDP tracker is now showing the Q2 rebound could reach 3%. This is at a time when EU data is well and truly rolling over, the fallout from the UK “Brexit” vote is still be calibrated and Japanese officials are scrambling for solutions for rising deflation and falling economic growth.

US Macro

Due to the July 4th holiday last week, the June US Non-farm Payroll Data (NFP) will be released at 8:30 NY Time today. For FX investors, the delay was probably a good thing since the market has now had another five trading sessions to rebuild its technical indicators which were stretched to extremes during the fallout of the June 23rd UK “Brexit” vote.

However, looking back to last month’s surprisingly weak 38,000 new jobs posted on the May headline report, A solid rebound in June, combined with a positive revision, could push the major FX pairs back into the “Brexit” price ranges……..with the exception of USD/JPY.

Most economists and forecasters expect a strong recovery in in the overall NFP report with headline growth estimated between 160k and 180K. These estimates are supported by a sharp rise in the employment component of the ISM Non-Manufacturing Index (from 49.7 to 52.7) and weekly jobless claims at a four-month low. And while last month’s ADP private employment report didn’t give any indication of the horrible headline data, yesterday’s print of 172k outpaced last month’s posting of 168k.

With such a firm outlook for some “payback” from last month’s employment weakness, we expected to see the USD trading higher against the JPY. Instead, the pair has dropped for the last five sessions in a row and at 100.30 is over 450 points below the 30 day moving average at 105.00. It’s widely accepted that the strong JPY is a source of pain for Japanese industry; especially in light of the recent Chinese Yuan devaluation. In addition, the Nikkei 225 Index is down over 20% this year while most other G-7 bourses are within range of yearly highs.

The Bank of Japan meets at the end of the month and are under growing pressure to stimulate the economy further. Knowing that easing rates further into negative territory will have a limited impact on the economy (and perhaps a negative effect on USD/JPY), we wouldn’t be surprised to see a combination of policy levers announced including both monetary and fiscal measures.

US Macro

A week after UK voters chose to leave the EU, a growing number of market commentators are arguing that the media, politicians and some economists exaggerated the impact that a “Brexit” vote would have on the UK economy and British assets. The frequent stream of reports about a second referendum, Scotland vetoing the decision to leave the EU, political infighting and UK never planning to invoke Article 50, suggest the financial media were firmly biased to the “remain” camp.  

In addition, caustic comments from EU officials about how to renegotiate trade and security agreements with the UK suggests that many well pensioned bureaucrats on the continent are very angry that: 1) a majority of UK voters were willing to fight the EU status quo. And 2) The UK Government is willing to honor the will of the UK voters. It’s clear that this type of pure democratic process doesn’t sit well with the unelected policymakers in Brussels.  

Social Media, on the other hand, has largely celebrated the “Brexit” vote as a revolution of grassroots politics and consolidating objections about wage stagnation, immigration politics and the lack of self-governance. This rebellious timbre of the referendum has reverberated into other regions of the world where similar anti-status quo movements are gaining popularity.