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US employment report was stronger than April, but payroll gains were again below market expectations.

Posted: 7th June 2021

Trade ideas & Daily market report June 7th 2021

Market highlights.

  • The US employment report was stronger than April, but payroll gains were again below market expectations.
  • US bond yields moved lower following the data with the 10-year yield below 1.60%.
  • Wall Street equities posted gains to near record highs on expectations that Fed policy would remain very accommodative.
  • The dollar retreated sharply following the data, although there was no follow-through selling on Monday.
  • EUR/USD was unable to regain 1.2200 amid underlying indecision.
  • GBP/USD posted net gains, but was again blocked at 1.4200 and dipped lower on Monday.
  • Commodity currencies rallied after the US data, although momentum was lacking.
  • The Canadian dollar was also hampered by a weaker than expected domestic jobs report.
  • Oil prices were underpinned by demand hopes, but WTI retreated significantly from 32-month highs.
  • Precious metals posted gains after the jobs data, but edged lower on Monday.
  • Cryptocurrencies were subjected to choppy trading with buying interest limited.

EUR/USD

Tight ranges prevailed ahead of Friday’s New York open with inevitable caution ahead of the US employment data with the dollar maintaining a slightly firmer tone.

US non-farm payrolls increased 559,000 for May following a revised increase of 278,000 the previous month, but this was still below consensus forecasts of a 650,000 increase for the month. Private payrolls increased 492,000 for the month after a 219,000 increase the previous month. Manufacturing jobs increased 23,000 on the month, but there was a 20,000 decline in construction jobs for May while retail jobs also declined for May.

The unemployment rate declined to 5.8% from 6.1% and slightly below consensus forecasts of 5.9% with the labour-market survey recording a solid employment gain.

Average earnings increased 0.5% on the month with an annual increase of 2.0% from 0.4% previously which maintained some concerns over inflation developments.

The dollar dipped sharply following the data with an assumption that the data was no strong enough to trigger a shift in Federal Reserve stance. In this context, there were expectations that the yield structure would continue to undermine US currency support over the next few months with EUR/USD peaking just above 1.2180.

CFTC data recorded an increase in long Euro positions to 109,000 in the latest week from 104,000 previously which will maintain the potential for sharp position adjustment if there is a shift in Fed policy or another catalyst, but markets assumed there was no immediate catalyst for a change which undermined US support.

There is likely to be some caution ahead of this Thursday’s ECB policy meeting with the US also releasing its latest trade data. The dollar overall was unable to secure a significant recovery on Monday with EUR/USD unable to regain the 1.2180 level in Asia and edging lower to near 1.2150 at the European open after slightly weaker than expected German industrial orders data.

USD/JPY

US Treasuries rallied following the US employment data with a decline in the 10-year bond yield to below 1.60% which sapped dollar support. There was an immediate USD/JPY break below the 110.00 level which triggered further losses and a retreat to near 109.50.

The US dollar was unable to recover ground as yields remained at lower levels later in the session which continued to undermine underlying US currency support.

There should be no further comments on monetary policy from Federal Reserve officials ahead of the June 16th policy meeting. In comments over the weekend, Treasury Secretary Yellen stated that higher interest rates would be a net plus for society and the Federal Reserve while monetary policy can handle inflation risks.

Overall yen sentiment remained weak with weak domestic wages growth limiting the scope for increased spending. Chinese export growth in the latest trade data was slightly lower than expected which dampened risk appetite to some extent, although overall moves were limited. The dollar overall was unable to make headway, although there was caution over further selling. USD/JPY traded around 109.40 in early Europe as the yen was resilient on the crosses with EUR/JPY just above 133.0.

Sterling

The UK construction PMI index strengthened to 64.2 for May from 61.6 the previous month and the strongest reading since September 2014. New orders increased at the fastest pace on record while cost inflation also hit a record high while there was a further strong increase in supplier delivery times as supply-side issues continued.

Sterling edged higher amid underlying optimism over the recovery outlook. The UK currency also jumped higher against the dollar after the US employment data, but there was further GBP/USD resistance on approach to 1.4200 and there was a retreat to 1.4160 at the US close while EUR/GBP pared losses to trade around 0.8590.

CFTC data recorded a significant decline in long, non-commercial Sterling positions to 24,000 from 31,000 previously, reversing the gains seen previously. The data suggested that hedge funds were happy to trim long positions when the currency approached 3-year highs against the US currency.

Markets continued to monitor developments surrounding the Delta variant in the UK as the number of infections continued to increase, but hospitalisation rates held at low levels. Sterling edged lower on Monday as GBP/USD traded below 1.4150 with EUR/GBP just above the 0.8600.

Swiss franc

The Swiss currency was able to secure net gains on Friday with global inflation and monetary policy developments remaining important. The weaker than expected US employment data reinforced expectations that global central banks would maintain a very loose monetary policy over the medium term which would limit potential selling on the Swiss currency. EUR/CHF retreated to below 1.0950 while USD/CHF dipped below the 0.9000 level.

The franc resisted selling pressure on Monday with USD/CHF held fractionally below the 0.9000 level as markets continued to monitor global inflation developments.

AUD/USD + USD/CAD

After narrow ranges into Friday’s open, the Australian dollar posted strong gains following the US employment report. With a weaker US currency and gains in equities, AUD/USD bounced strongly to highs around 0.7740 from around 0.7660.

Australian data remained firm and there was a more positive outlook on the economy from ratings agency S&P.

The Australian dollar was unable to make headway with AUD/USD little changed around 0.7740 in early Europe.

The Canadian dollar also posted gains following the US jobs data, although the advance was more measured.

Canadian jobs data was weaker than expected with a May 68,000 decline in employment compared with expectations of a 20,000 decline while unemployment edged higher to 8.2% from 8.1%.

There was also some underlying pressure for a correction and USD/CAD settled around 1.2080 with the pair edging higher to 1.2090 on Monday as narrow ranges prevailed.

NOK+ SEK

The Norwegian krone posted net gains following the US jobs data with expectations that a lack of additional pressure for Federal Reserve tightening would highlight the hawkish stance from the Norges Bank.

Oil prices held firm and EUR/NOK retreated to near 10.10 with little change on Monday as weaker than expected manufacturing data had little impact and USD/NOK settled just above 10.30.

The Swedish krona also posted net gains with EUR/SEK retreating to near 10.06 before a slight correction with USD/SEK around 8.28 amid caution ahead of Thursday’s US and Swedish inflation data.

Equities

Euro-zone equities posted significant gains after the US jobs data in response to a gain on Wall Street and underlying optimism over a regional recovery also provided net support.

The German DAX index advanced 0.4%, although the Eurostoxx 50 index gains were held at 0.25% as the Spanish bourse declined.

Major UK stocks posted gains on Friday amid global support from US data. There were, however, further concerns over the travel sector which undermined support amid reservations over the Delta variant. Overall, the FTSE 100 index posted a marginal advance.

Wall Street indices were boosted by expectations that the US employment report would give the Federal Reserve scope to maintain a very loose monetary policy over the next few months. There were strong gains in the tech sector and the S&P 500 index gained 0.9% to near record highs.

Futures edged lower on Monday with Asian equities slightly more defensive, although there was a lack of clear direction.

Japan’s Nikkei 225 index gained 0.23% despite a fragile US dollar while the Australian ASX index declined 0.2% as commodities struggled to hold gains.

China’s Shanghai index traded marginally higher in late trading with Hong Kong’s Hang Seng index 0.4% lower.

Commodities

Oil prices maintained a strong tone on Friday with support from low US interest rates and a weaker dollar while expectations of strong US demand also underpinned confidence.

Baker Hughes data recorded no change in US drilling rigs, maintaining expectations that US output would continue to be capped in the short term.

WTI touched the $70.0 p/b level for the first time since October 2018, but was unable to sustain the advance.

WTI retreated to around $69.15 p/b on Monday amid slightly more cautious risk conditions and pressure for a correction while Brent retreated from 25-month highs at $72.00 p/b to around $71.30.

Precious metals posted sharp gains following the US jobs data as a weaker US dollar, lower US yields and gains in equities triggered fresh demand for metals.

Gold strengthened to highs just above $1,895 per ounce before correcting slightly while silver strengthened to around $27.80 per ounce.

Metals edged lower on Monday with a lack of follow-though dollar selling with gold around $1,885 per ounce and silver retreating to near $27.50 per ounce.

Cryptocurrencies

Although there was choppy trading surrounding cryptocurrencies on Friday, bitcoin posted net gains as a weaker dollar provided an element of support.

Bitcoin peaked close to $38,000 before losing ground on Saturday with consolidation below $36,000 ahead of Monday’s Asian open.

Sentiment was undermined by a cautious note on institutional engagement by Goldman Sachs, while volatile trading continued amid further concerns that China would clampdown on cryptocurrency trading.

Bitcoin edged higher to near $36,500 on Monday, although buyers remained more cautious.

Ether posted net losses over the weekend and traded below $2,700 at Monday’s Asian open before a net advance to near $2,800.

Calendar

Major events for the day ahead: (times in BST)

09.30: Euro-zone Sentix investor confidence index