Investors Cautious on US Dollar as ADP Payrolls Disappoint

Daily Analysis - 06/08/2015


The monthly ADP numbers for July surprised the markets as the report showed that 185k jobs were added to the economy, missing estimates of 215k.

ADP Private Payrolls Fall More Than Expected

The manufacturing sector added 8k jobs while the service sector added 178k jobs. The slump in the ADP numbers comes after June's private payrolls grew at the fastest pace since December 2014 adding 237k jobs. After the release of the ADP numbers the US Dollar took a hit as the markets turned cautious ahead of the all-important nonfarm payrolls numbers due this Friday. EURUSD trimmed its earlier losses as the currency surged from daily lows near 1.085 to close the day at 1.09. The Federal Reserve has clearly indicated that ‘some’ improvement in the labour markets were necessary before hiking interest rates in September. The markets are therefore tuned into the July and August unemployment reports.


Australia Unemployment Rises to 6.3%

The Australian Bureau of Statistics released the monthly labour market data today which saw mixed numbers. While the Australian economy added 35k new jobs, the unemployment rate jumped to 6.3% from the previous estimates of 6%. The ABS’ method for calculating the jobs report has come under repeated scrutiny as the Bureau itself noted that there could be further revisions to the unemployment rate. Part-time jobs increased more than full time jobs and the current report reiterates the RBA’s recent view that significant slack in the labour markets remains. The RBA had left interest rates unchanged at its recent meeting earlier this week. The Aussie dollar came under selling pressure after the unemployment data was released and is looking to reverse the gains held for the past few days this week.


Crude Oil Prices Fall Despite Dwindling Inventories

Crude Oil futures for September delivery slumped yesterday despite the EIA report showing that US crude oil inventories fell more than the expected by -4.4 million barrels. The fall in inventories was more than the expected -1.3 million barrels. However, the sub-report showed increased stockpiles in Gasoline. Crude oil prices remain under pressure in a fundamentally bearish environment where oversupply has been an issue and further fueled by the fact that Iran's Crude oil would soon hit the market, further increasing supplies amidst a falling to stagnant global demand. Crude Oil briefly tested the highs above $46.55 before falling to $44.85, trading near the yearly lows seen in January this year.


All Eyes on the UK Today

The UK will see a busy day ahead as lot of important market events is due for release. Kicking off today’s economic calendar, the manufacturing production data is due with expectations of a 0.2% increase after manufacturing production fell -0.6% last month. A few hours later, the BoE will release its monetary policy statement. Although the markets expect the Bank to keep interest rates steady at 0.5%, the focus will be on the MPC minutes, which starting from this meeting will be released simultaneously. Of particular interest will be the MPC vote count on interest rates which currently see’s all members remaining unanimous to keep interest rates unchanged. Various MPC members over the past few weeks have turned hawkish and thus a change in the status quo could mean that the UK interest rates could see a hike in the coming quarters. The Bank of England will also be releasing the quarterly inflation report which will be the focus. Inflation in the UK has been subdued as the economy took a hit due to falling Oil prices. The question is whether the BoE will see an uptick in inflation or if it expects the current slack to continue. Expect some volatility to prevail in the GBP cross currencies today.


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