NFP Surprise

Friday’s Non-Farm Payrolls dished out a huge surprise, rolling out a gigantic miss to the downside as the US economy added only 235,000 jobs. Despite a sizeable upward revision of 133,000 to the previous month, nothing was going to offset the shock of the miss in the headline data. Household employment performed strongly, helping to push the employment rate down to 5.20%, but retail jobs fell. At the same time, government construction rose only slightly, with business services and transport saving the headline number.

The sweep of the Delta variant across the US has clearly impacted travel and leisure demand and has possibly seen many Americans hold off returning to the workforce. It contrasts with various jobs vacant surveys, which clearly show employers screaming to hire and average hourly earnings, also released Friday, rose by a higher than expected 0.60% MoM.

Here are the key market moving factors for the week:

 The US

• The Dollar Index gave back August’s gains with a dip below 92.00 in response to the disappointing employment report. The late July/early August lows were set around 91.80. The year’s high was recorded on August 20, a little below 93.75.
• Although the downside momentum ahead of the weekend was not sustained, the 10th decline in 11 sessions may be more indicative. The MACD is at levels not seen since the second half of June, and the Slow Stochastic is back to May levels in oversold territory.
• The two-week drop overshot the (38.2%) retracement objective of the rally since late May around 92.15, corresponding to the lower Bollinger® Band. The next retracement target (50%) is by 91.65.

The UK

• Sterling has not enjoyed the persistence of the euro’s rally, but seven gains in the past ten sessions lifted it to three-week highs near $1.3875.
• Ahead of the weekend, sterling settled above the down trendline drawn off the early June, late July, and early August high that came in around $1.3835. It closed above the 200-day moving average and the five-day moving average cross above the 20-day.
• The momentum indicators are trending higher and are not over-extended. The upper Bollinger Band will begin the new week near $1.3915.

EUROPE

• After the US jobs report, the euro popped to almost $1.1910, matching the July 30 high to the tick, which itself was the highest since late June. The $1.1900 area also corresponds to the (38.2%) retracement of the euro’s decline since that late May high near $1.2265. The euro has advanced 10 of the past 11 sessions. It closed above the upper Bollinger Band (~$1.1875) for the past two sessions. The next retracement (50%) is by $1.1965, and the 200-day moving average is around the psychologically important $1.20-level.

AUSTRALIA

• Australia must diversify its economy to rely less on China, its largest trading partner, Treasurer Josh Frydenberg said on Monday, as he warned businesses to brace for new tensions with Beijing.
• Australia’s relations with China soured after it banned Huawei from its 5G broadband network in 2018 and cooled further after Canberra called for an independent investigation into the origins of COVID-19, first reported in China last year.
• Beijing responded by imposing tariffs on Australian commodities, including barley, wine and grapes.
• “It is no secret that China has recently sought to target Australia’s economy,” Frydenberg said in a speech in Canberra.

JAPAN

• The US 10-year yield rose four basis points after the US jobs report, but in an unusual, though of course, not unprecedented way, it offered the dollar little support against the yen. The greenback returned to but held the week’s low set on Tuesday slightly below JPY109.60. Still, it took out and closed below last month’s uptrend line (JPY109.70).
• Although Japanese equities rallied on news that Prime Minister Suga would step down, the foreign exchange market was blase.
• The yen’s strength was a reflection, it seemed, of the broad decline of the dollar. The MACD has flatlined for weeks, and the Slow Stochastic is gently rising. Initial support is near JPY109.40 and then JPY109, which the dollar has not closed below in nearly four months.

CHINA

• The yuan has risen for six consecutive sessions against the dollar. The greenback has been sold through the bottom end of the CNY6.45-CNY6.50 area that has confined it for the most part since mid-June. Still, the dollar finished back within it. Against the offshore yuan (CNH), the dollar settled well below the old floor (around CNH6.4350).
• The economic news has not been helpful. Both the “official” and Caixin composite PMIs fell below the 50 boom/bust level. The Chinese premium over the US on10-year rates fell to nearly 150 bp ahead of the weekend, the lowest weekly close since the end of May. China’s apparent “cultural revolution” continues to widen.
• The Golden Dragon China Index of Chinese companies that have public shares in the US rallied for the second consecutive week for the first time since May. The index has risen by about 16% over the past two weeks after losing about 32% in an eight-week head-long plunge. We suspect that Beijing’s tolerance of a strengthening yuan is limited.
• The economy is soft and CPI, as we will learn next week, remains tame. Also, while banks seem to have greater difficulty on Mondays projecting the PBOC dollar fix, it will be carefully watched in the coming days for a sign of official discomfort.

Market Overview:

 Gold

• Gold was down on Monday morning in Asia, but remained below a two-and-a-half-month high. A disappointing U.S. jobs report indicated that the U.S. Federal Reserve could delay its asset tapering timeline, giving the yellow metal a boost.
• Gold futures were down 0.30% to $1,828.25 by 12:15 AM ET (4:15 AM GMT), after hitting $1,833.80, its highest level since Jun. 16, during the previous session.

Oil

• Oil prices fell about $1 on Monday, extending losses after the world’s top exporter Saudi Arabia slashed crude contract prices for Asia over the weekend, reflecting well-supplied global markets and concerns over the outlook for demand.
• Brent crude futures for November fell 98 cents, or 1.4%, to $71.63 a barrel by 0613 GMT while U.S. West Texas Intermediate crude for October was at $68.34 a barrel, down 95 cents, or 1.4%.

Below are the major market moving events for the week:

The Week Ahead

All times listed are EDT

Monday

Labor Day holiday in the United States, Canada. Markets are closed.

4:30: UK – Construction PMI: likely to fall to 56.9 from 58.7 previously.

 Tuesday

00:30: Australia – RBA Interest Rate Decision: rates are expected to remain steady at 0.10%.

5:00: Germany – ZEW Economic Sentiment: seen to plunge to 30.0 from 40.4.

19:50: Japan – GDP: anticipated to rise to 0.4% from 0.3% monthly, to 1.6% from 1.3% YoY.

 Wednesday

10:00: US – JOLTs Job Openings: expected to drop to 9.281M from 10.073M.

10:00: Canada – BoC Interest Rate Decision: predicted to remain unchanged at 0.25%.

10:00: Canada – Ivey PMI: came in at 56.4 in July.

 Thursday

7:45: Eurozone – ECB Monetary Policy Statement, Interest Rate Decision

8:30: US – Initial Jobless Claims: forecast to print at 335K, down from 340K previously.

 Friday

2:00: UK – GDP: expected to dip to 0.50%.

2:00: UK – Manufacturing Production: probably edged down to 0.1% from 0.2%.

6:30: Russia – Interest Rate Decision: estimated to rise to 6.75% from 6.50%.

8:30: US – PPI: expected to decline to 0.6% from 1.0%.

8:30: Canada – Employment Change: predicted to plunge to 75.0K from 94.0K

Based on the above factors and the events lined up for the week, the analyst at RvR Ventures suggests you to Trade responsibly; invest only as much as you can lose. All the profits and losses due to the above data are your own personal responsibility. Kindly practice money management & risk mitigation while trading.

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