Strong jobs numbers dent investor optimism, dollar rallies
USD was higher for the week, with major currencies were mostly on the defensive as the downside pressure on the greenback has eased due to a trade truce between the US and China, while the economic reports was mixed-to-negative.
- Stocks mixed during a volatile and nervous week
- Dollar unchanged against the euro in the weekly charts
- Fed dampens hopes for a half-point interest rate cut
- The U.S. economy grew at a healthy 3.1% rate in the first quarter
- Oil prices marginally lower on bearish industry data from the US
- US and China agree to restart trade talks
Asian markets were mixed for the week. Regional stocks declined on Friday as investors waited for American employment data and details of U.S.-Chinese trade talks. Earlier in the week, markets were supported by the reports that Trump and Xi agreed to resume trade talks in the nearest future, which helped to ease concerns over the state of the global economy. The Shanghai Composite Index lost 0.1% and Tokyo’s Nikkei 225 was flat. Hong Kong’s Hang Seng was also flat and Sydney’s ASX gained 0.6% on Friday.
On the data front, China's services activity eased further in June to reach its lowest level since March. The Caixin China general service PMI fell to 52 last month from 52.7 in May. The measure for business activity expectations rebounded slightly but remained at a relatively low level. The Caixin China Composite PMI data slowed to the weakest since last October, with the index edged down from 51.5 in May to 50.6 in June.
The small decline snapped a six-day winning streak for the S&P 500, though the index still notched a weekly gain. The S&P 500 set three straight all-time highs earlier in the week, extending the market's solid gains in June into July. The S&P is up 19.3% so far this year. On Friday, investor optimism was capped by the government data showing an unexpected burst of hiring last month, which led market participants to question whether the Fed will decide to cut interest rates later this month.
The S&P 500 fell 5.41 points, or 0.2%, to 2,990.41. The Dow dropped 43.88 points, or 0.2%, to 26,922.12. The Nasdaq composite slid 8.44 points, or 0.1%, to 8,161.79. as a result, the S&P 500 pared a weekly advance to 1.7%.
USD was higher for the week, with major currencies were mostly on the defensive as the downside pressure on the greenback has eased due to a trade truce between the US and China, while the economic reports was mixed-to-negative. In particular, ISM manufacturing PMI decreased to 51.7 from 52.1 in May, construction spending unexpectedly fell in May, New York city business outlook fell in June to 10-year low, New York City business outlook fell in June to a 10-year low, trade deficit surged to a five-month high as imports soared, service PMI ISM has grown at slowest pace in almost 2 years, factory orders declined for the second straight month. Meanwhile, payroll growth rebounded sharply in June as the US economy added 224,000 jobs, the best gain since January. The unemployment rate edged up to 3.7% as labor force participation rose. Average hourly earnings number disappointed, rising 0.2% on a monthly basis against expectations for 0.3% growth. Over the past 12 months, wages were up 3.1%, also a bit below market estimates of 3.2%. The average work week was unchanged at 34.4 hours. Strong headline numbers decreased the probability for a July rate cut, prompting traders to cut short USD bets.
As for the Fed, Clarida said Fed will act as appropriate to sustain expansion. In its semi-annual report to Congress, the Fed said that US economic growth continued “at a solid pace” in the first half of the year though it likely weakened in recent months as higher tariffs depressed global trade and business investment weakened. The central bank also noted that the tariffs imposed by the United States and some of its trading partners, combined with the uncertainty around trade policy were likely “material” in the sharp slowdown in global manufacturing growth last year.
EURUSD was lower during the week, with the common currency slipped below the 200- and 100-DMAs and registered nearly three-week lows just above 1.12 after a strong jobs report. Technically, the pair needs to regain the 1.1260 area in order to see a more robust rebound in the short term. This week, the ECB meeting minutes will be in market focus, and any dovish signals could put the euro under additional bearish pressure.
In commodities, oil prices climbed on Friday but suffered weekly loss as worries over weakening demand persist. After a strong jobs report, USD jumped higher aggressively, which capped the upside potential in Brent. The extension of a OPEC+ deal until April 2020 failed to prop up the market as the verdict was priced in already. Meanwhile, according to the reports, OPEC oil production hit a new five-year low in June as a rise in Saudi supply did not offset losses in Iran and Venezuela due to US sanctions and other outages elsewhere.
As for the US data, the Energy Information Administration on Wednesday reported that U.S. crude supplies declined by 1.1 million barrels for the week ended June 28 while markets expected a greater fall of 3.7 million barrels. Data from Baker Hughes revealed that the number of active U.S. rigs drilling for oil fell by 5 to 788 this week. Meanwhile, geopolitics supported the prices late last week. In Particular, Iranian Revolutionary Guard commander threatened on Friday to seize a British ship in retaliation for the capture of an Iranian supertanker in Gibraltar by Royal Marines. On Monday, the futures could rise should the geopolitical tensions persist.