Canada day on Wednesday and a US holiday today means an extended holiday for most in North America this week, which could potentially cause a quiet afternoon session in markets. Yesterday’s data releases saw a recovery in the trade balance for May from C$-4.27bn to C$-677m, with exports rising by 6.8% MoM and imports falling 3.9%, however, after Canada’s trade with the rest of the world plunged by the most ever in April, it’s expected to take a while before shipments return to more normal levels. The manufacturing PMI also showed positive signs, rising from 40.6 to 47.8 in June but still sits below the 50 threshold needed to be breached to mark growth. Manufacturers reporting a decline in production overwhelmingly attributed it to weaker underlying demand conditions. The new orders sub-component highlighted the slowest fall since the start of the downturn, with manufacturers attributing this to more cautious spending by clients. Overall, the loonie breezed past these data points as it was thrown around by broad USD moves. After spending the morning in the red, the loonie closed out the day marginally lower, following the dollar rally across the board. This morning, the loonie’s marginal gains are extended in what is likely to be a slow day for North American trading.
The dollar spent most of yesterday trading on the back foot as markets geared up for the double whammy of initial jobless claims and the Nonfarm payroll report, both released on a Thursday due to the US enjoying a statutory holiday today ahead of independence day tomorrow. The payroll numbers were good on the surface as 4.8m jobs were added in June, leaving the dollar taking on more water, but the data beneath the surface wasn’t as convincing. Most importantly, the payroll data was collected in the period up until the 12th June, prior to lockdown measure being reimposed in the sun belt states and New York, while the number of part-time workers being permanently laid off rose from 2.2m to 2.8m, potentially highlighting deeper economic scarring. The initial jobless claims and continuing claims remained elevated for the last week of June, however, showing perhaps a better read of the current situation. 1.4m filed for unemployment benefits in the week up to June 27th, while the number of continuing claims actually rose from 19.23m to 19.29m. Initial claims are likely to spike again next week as easing measures are reversed in the southern states, forcing people back onto unemployment support schemes. With equity markets and FX markets focusing on the headline payroll number, however, screens lit up with flashing green numbers. This all changed once the new case count data was released, however. The number of new cases in Florida surged by 10,109 yesterday, reaching a new record high. While this was due to the ramping up in testing, with 68.8k tests carried out that day compared to with less than 46k three days prior, it still set markets into shock. Data coming from other hard-hit states such as Texas, California and Arizona were also elevated, with new cases rising by 6,228, 7,870 and 3,340 respectively. Today, markets are closed or running reduced hours in the US due to the national holiday, but the new case data should still be announced after 15:00 BST. The dollar is trading mixed against the G10 this morning, but that could all change should the Covid data deteriorate further.
The euro traded in the red against most of its G10 peers throughout yesterday’s session as concerns about rising Covid-19 cases in the US seem to outweigh the surge in new job creations in June’s Non-Farm Payrolls report. German lawmakers voted yesterday to accept the explanation the European Central Bank provided for its public sector bond-buying programme, putting an end to the legal standoff with the German Federal Constitutional Court. The news left no impression with the euro as markets had already priced in the story after some reports earlier in the week. This morning, EURUSD is struggling to find a direction after mixed PMI data and French headlines were in focus. Additionally, French Prime Minister Edouard Philippe resigned amid an expected reshuffle this morning, his office stated in an email this morning. Emmanuel Macron is reported to name a new prime minister this morning, but it could take days to appoint all other governmental posts. Macron could ask Philippe to run the new government again, but Philippe’s popularity has risen during the coronavirus crisis and he is therefore seen as a possible contender in the next presidential election in 2022. Macron may, therefore, replace the entire government. Today’s economic calendar is light for the eurozone, but investors will keep an eye on Saturday’s speech by ECB President Christine Lagarde for potential delayed market reactions at next week’s open.
Sterling is trading broadly unchanged since yesterday morning, having unwound a brief trip higher against the dollar by yesterday evening. Next week’s summer statement on the Government’s fiscal plans is coming into focus as the next major event for the pound, with both Boris Johnson and Rishi Sunak making relevant comments this week. The Prime Minister confirmed in an interview with the Evening Standard that job retention schemes would be phased out by October, while the Chancellor yesterday told MPs not to expect large tax cuts. Barring extending job support or large scale tax cuts, targeting stimulus measures are left as the next option for supporting the economy. Limited tax cuts, on VAT for example, are one option, as is support for specific sectors, such as tourism and hospitality. Michel Barnier commented on trade talks between the EU and UK yesterday, saying that he has “listened carefully” to UK demands for “no role” for the European Court of Justice in the UK, and no obligations for the UK to be bound by EU law. The UK has recently rejected the EU’s matching demand to be allowed to impose tariffs in the event of regulatory divergence between the two countries, but there does seem to be at least some room for compromise in this area judging by the constructive tone of recent talks.