The focus today will be on the UK as the European day starts with the country’s employment data. The report is not likely to move the needle either way however as both the claimant count rate and the unemployment rate are expected to remain the same (the former for the third consecutive month, the latter for the fifth consecutive month). The jobless claims rate, analogous to the US weekly jobless claims, is expected to be slightly higher but nothing dramatic. In short, the data are likely show the UK employment situation is steady. That’s actually not a bad outcome, given that survey measures of hiring intentions have been fairly weak and of course the economic picture has been uncertain since the Brexit referendum. If the data come in as expected, the currency is likely to be steady too.
US industrial production is forecast to rise a bit after two relatively weak months. This would be consistent with the increase in the average workweek and the rise in the ISM manufacturing index. The rise in the rig count also suggests that oil & gas production is increasing. Signs that US output is picking up and capacity utilization is increasing should add to the optimism about economic growth and future inflation that yesterday’s better-than-expected retail sales and Empire State manufacturing index engendered and be USD-positive.
The relatively small rise in US oil inventories that’s expected could be positive for oil, but I’d assume the price will be affected more by any further comments about the possibility of reaching an agreement at the Nov. 30th OPEC meeting.
Finally, the Australian unemployment rate is expected to rise even as the number of people in employment rises as well. That’s because the participation rate is expected to rise too. In that case, the rise in employment should be more important than the rise in the unemployment rate and the number could even be positive for AUD, although I wonder if market participants reacting quickly to a figure flashing up on the screen will be so analytical.
The US dollar remained in demand on Thursday following yesterday’s dramatic move that saw the greenback more than reverse its losses from the brief election sell-off. Equities also continued to benefit from the recovery in risk appetite but the sell-off in government bonds extended into today’s European session.
Risk sentiment has been improving since US President elect Donald Trump’s acceptance speech on Wednesday where he promised to boost growth and increase spending on infrastructure. The prospect of a fiscal stimulus in the US has led to a surge in government bond yields and measures of US inflation expectations to edge up.
The yield on 10-year US treasuries rose above 2% for the first time since March and hit the highest since January. Other sovereign bond yields such as those for Germany and Japan also headed higher, while demand for other safe havens such as gold fell. The precious metal is down about 5% from its post-election spike and last stood at $1266 an ounce.
The dollar meanwhile was eyeing the 107 level against the yen as it extended its gains to 106.94 yen in late European session. The greenback has been boosted by expectations that a Trump presidency would be positive for economic growth and inflation. A looming Fed rate hike, most likely in December, is also spurring the US currency. The odds of the Fed increasing rates in December, as implied by Fed Fund futures, briefly tumbled after the panic selling that followed the emergence of Trump as the winner of the US election, but they’ve since rebounded as the market volatility has eased.
In other currencies, the euro slid to two-week lows as it broke below 1.09 dollars to stand at 1.0865 in late European session. The pound had a better session as traders speculated that the UK would be able to get a better trade deal with the US under Trump once it leaves the EU. This helped sterling firm to 1.2477 dollars in late trading.
The risk-on mood did not extend to commodity currencies as the Canadian, Australian and New Zealand dollars sagged. The Canadian dollar, along with the Mexican peso, remained under pressure from the US dollar as investors worry about the possible implications of a Trump win on trading relations between the countries. The greenback climbed to near 8-month highs at around 1.35 versus the loonie in late session, while the Mexican peso was headed back towards yesterday’s all-time low of 20.77 per dollar.
The Australian dollar was 0.6% lower at 0.7590 despite commodities such as iron ore and copper rising sharply. The New Zealand dollar fared even worse, tumbling over 1% to 0.7185 after the Reserve Bank of New Zealand cut interest rates by 25 bps earlier today.
It was a very light day for economic data with the only major release being the weekly jobless claims out of the US. Jobseekers claiming benefits in the US last week rose by 254k, which was below expectations of 260k, pointing to another solid week for the American jobs market.