US job report disappoints miserably – what’s next Yellen?
The US May Job report came out with mixed signals, but the market focused on the extremely weak NFP figure, coming out only at 38k vs. consensus at around 150k. The US Dollar index tumbled 1.6% on Friday with EURUSD down 1.9% and USDJPY 2.2%. Equities in the US closed in negative, despite the weak NFP figure reduced market bets of a near-term Fed rate increase. Financials and Consumer Cyclicals led the losses. US interest rates fell instantly and have remained lower. In commodity markets, the push lower for the US Dollar helped USD-denominated assets higher. Gold rose more than 25 USD in an instant, but oil came off a tad.
Overnight, Asian stocks gapped lower on back of the weak US close. We did not have any macro news from today and New Zealand is closed on Queen’s Birthday, so ranges were lower than average. In Japan, the Nikkei has struggled to come back, but is down 0.4% in time of writing. Technically the pair is on daily in an indecisive area within the Ichimoku Cloud, but more downside could be indicated at the close below. JPY-pairs reversed slightly from Friday, but the 2016 lows in USDJPY at 105.55 is within sight.
From Europe, Retail PMI came out above 50, signalling expansion in the sector from the previous contractionary figure at 47.9. Also the June Sentix Investor Confidence surprised to the upside with a figure of 9.9 vs. expectations at 7.0. We did not see any reaction in EUR-pairs, as the market is more or less on standby ahead of Yellen addressing the markets at 1830CET. Yellen will speak on monetary and economics, and we could see that, given the weak NFP, will mention a reduced likelihood of a near-term rate increase and most probably will give occasion to only one interest hike this year. If this is the case, then we could see additional weakness in the Greenback and another move lower in US interest rates.
Going forward, China will be in focus this week with the releases of the PBoC FX May reserves, trade data and inflation figures.
From the Central Banks, the RBNZ is expected to cut rates 25bp, whereas the CBs in Australia, Brazil, India, Poland, Korea and Russia are expected to be on hold.
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