Market Commentary: Initial jobless claims show employment market still solid

Market Commentary: Initial jobless claims show employment market still solid

Markets:

  • JPY leads, CAD lags
  • Gold up $3 to $1919
  • US 10-year yields down 3.8 bps to 4.25%
  • WTI crude oil down 72-cents to $86.82
  • S&P 500 down 0.3%

This week has witnessed a strong resistance to the notion of a slowing US economy. The recent ISM services data was robust, and today’s initial jobless claims reinforced this trend. Initially, the dollar gained strength, but later, yields decreased as strong demand for bunds emerged, causing a broader demand for Treasuries, which in turn weighed on USD/JPY, offering Japanese officials some relief.

In other regions, the dollar remained resilient as global yields declined due to a growing sense of risk aversion. EUR/USD saw a 32-pip drop, but it found support around 1.0687 during two brief dips below that level. Cable followed a similar pattern, with a brief dip to 1.2446.

Despite Governor Macklem’s efforts, the Canadian dollar didn’t perform well. He delivered a hawkish speech, but the market remains skeptical about the possibility of further interest rate hikes, especially as economic data has shown signs of weakening. Additionally, the recent decline in oil prices marked the end of a nine-day winning streak.

BOC’s Macklem: We are concerned that progress in bringing down inflation has slowed

  • We are prepared to raise rates again but don’t want to raise rates than we have to
  • The longer we wait, the harder it is likely to be to reduce inflation
  • Mon pol might not be restrictive enough to restore price stability
  • Bank is concerned that larger-than-normal price increases for goods and services remain broad based
  • We are not trying to kill economic growth
  • The biggest contribution to the slowing in inflation since the peak last year has been from energy, which accounts for two-thirds of the slowdown
  • Today, about 60% of CPI components are rising above 3% and about 45% are rising above 5%
  • Looking ahead, we want to see less-generalized price increases as well as a decline in the average price increase.
  • The weakness in second-quarter GDP largely reflected a broad-based slowing in consumer spending and a decline in housing activity.
  • We will be watching wage growth closely

With past interest rate increases still working their way through the economy, monetary policy may be sufficiently restrictive to restore price stability. However, the Governing Council is concerned about the persistence of underlying inflation. Inflation is still too high, and there is little downward momentum in underlying inflation.

That’s the definition of holding with a hawkish bias.

US weekly initial jobless claims 216K vs 234K expected

  • Prior was 228K
  • four-week moving average vs 237.5K prior
  • Continuing claims 1.679m vs 1.715m expected
  • Prior continuing claims 1.725m

Coming on the heels of this week’s ISM services index, this is a big pushback on the narrative of a weakening US economy.

Author: Jacky.T

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