Today is jobs day in the US with the release of the Nonfarm Payroll report for August. The US labour market has recently defied market expectations with many participants anticipating a cooling off in the US economy and thus a dramatic unwinding in the unemployment rate. The US dollar held its head above the water yesterday with the help of the ADP employment report, which is a precursor to the NFP release but has a more muted market impact. The ADP report highlighted the US economy added 195,000 jobs in August, higher than the 148,000 expected, despite the minor uptick in initial jobless claims in the last week of the month. Elsewhere, the ISM non-manufacturing index showed a minor beat coming in at 56.4 from the prior 53.7. The figure looks good but in normal times it would have been much higher as the impact from the growth in core retail sales has failed to filter through effectively for the third month in a row, presumably due to the heightened uncertainty of trade policy and its impact on sentiment surrounding consumer goods. The greenback has started today’s session in a tight range against the G10 currencies as fears of a manufacturing recession following the ISM manufacturing survey earlier in the week resinate. The NFP release could add to this should the US labour market begin to cool down and wage growth drop from the elevated >3% level it has been reporting since September 2018. This would highlight the potential filtration of the industrial slowdown into the consumer sector, increasing fears of a more sequential slowdown in the US economy. Similar sentiment has been echoed in the daily financial papers this morning as billionaire hedge fund founder Ray Dalio claims the probability of a recession in the US is around 25%.
Following Thursday morning’s dramatic headlines from Parliament, the House of Lords will be busy today as they attempt to force the Benn bill through and back to the House of Commons by 17:00 BST. The Lord’s say they don’t expect the government to attempt to remove the Kinnock amendment which was added “by accident” and would allow MPs another vote on Theresa May’s withdrawal agreement. If all goes to plan, the bill will be back in the Commons by Monday ready for the seal of approval. That is sufficient for Labour to join the Conservative party in calling a snap election at the beginning of next week before Parliament is prorogued for the five weeks prior to the Queen’s speech on October 14th. That being said, nothing is as easy as that in the Brexit sphere. Corbyn will hold another conference call with leaders of the opposition, notably the Liberal Democrats and SNP, today to nail down a stance on when to call the election. It is in Labour’s interest to hold out until the October deadline passes, which would force Johnson to strike an extension with the EU subject to the Benn bill, as a faction of the parties support will undoubtedly branch to the Brexit party. For now, the timing of the election is critical and on BBC’s Question Time show last night, Shadow Foreign Secretary Emily Thornberry said Labour would not back the renewed motion for a snap election under the Fixed Term Parliament Act on Monday. GBPUSD hit a 5-week high yesterday as currency markets jeered the resignation of Jo Johnson, brother of PM Boris, from the Conservative party over disagreements on Brexit. The FT reports that the pound has continually inched higher every time the government suffers another blow. The calendar is fairly quiet for sterling today, as does the political schedule, but Brexit headline will keep sterling traders busy nonetheless.
This morning’s massive miss for German Industrial Production has done nothing to dent the euro, and the single currency remains comfortably higher than the week’s lows against the dollar and sterling. German Industrial Production fell by 0.6% in July, according to data released this morning, significantly disappointing the median forecast submitted to Bloomberg which was for a 0.6% contraction. Industrial Production is now down 4.2% year on year, all but confirming the German economy is in a recession. This morning’s other major release will be a revision to quarterly European Gross Domestic Product growth figures, which will be released at 10:00 BST alongside quarterly Employment change figures.
The loonie floated in limbo yesterday as the market’s risk sentiment chopped and changed. Bank of Canada Deputy Governor Lawrence Schembri hit the wires from Halifax yesterday with the central bank’s economic progress report. Schembri reiterated the BoC’s laissez-faire attitude from their rate statement on Wednesday as he replied, when pressed about the bank’s “neutral stance”, that the best way to describe the stance is that current policy provides sufficient stimulus to offset trade headwinds and is consistent with inflation reaching the 2% target over the two-year horizon. Today, the loonie faces unemployment data along with its US counterpart at 13:30 BST where investors will keep a close eye on whether the Canadian labour market can add jobs after two-months of employment contraction. The reversal will be welcome after the July report highlighted the first consecutive back-to-back negative job growth since 2014.