Saturday June 6, 2015 - 13:35:52 GMT
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Strong U.S. Employment Report Will Need Confirmation: Week Ahead
John M. Bland
Strong U.S. Jobs Data May U.S. jobs data saw a considerably stronger than expected +280K gain (+225k expected) in monthly employment and a 0.30% increase (+0.320% expected) in average hourly earnings. I don't think this a game-changer for the data-dependent Fed, but it might put an earlier Fed rate hike back in the frame. However, confirmation in future data will be required given the volatility of these data on a month-to-month basis. Unfortunately, other data recently have been mixed. As for the Federal Reserve, their bias is to raise interest rates in order to "normalize" monetary policy. A more hawkish Fed policy would be constructive for the U.S. dollar.
German Bund Market Turmoil The latest week saw extreme volatility in the German 10-yr bund with yields rising from a low of 0.50% at the start of the week to just shy of 1.00% early in the day on Thursday. The catalyst for the move was a comment by ECB President Draghi on Wednesday who said in his post-ECB press Conference that the markets are going to have to "get used to volatility". His message was that the European Central Bank is not going to step in and try to manage long-term bond yields. Draghi knows that this would be a fools errand because official intervention in long-term credit markets has rarely worked. The extreme volatility in bond markets is largely the result of the Quantitative Ease (QE) programs of the central banks which have removed a lot of bonds from the markets and thereby reduced market liquidity. The rising interest rates triggered an unwinding of carry trades which have been financed in the EUR. The unwinding of those trades saw a short-squeeze on EURUSD shorts as fund managers rushed to cover that exposure.
Weekly Calendar The upcoming week is a relatively sparse one for key economic data. -- Monday, June 8, tentatively features China CPI and Trade data. -- Tuesday June 9, will focus on U.K. trade and the U.S, JOLTS Survey. The JOLTS Survey is a favored Fed employment measure. -- Wednesday June 10, features Australian Employment report and U.K. Production data. -- Thursday June 11, will see closely followed U.S. Retail Sales data and very late in the U.S. day, the latest Reserve Bank of New Zealand monetary policy decision. No rate change is expected. -- Friday June 12, sees Eurozone industrial production, U.S. Producer Prices and the preliminary University of Michigan Sentiment Survey. Be sure to refer daily Global-View to see the continuously UPDATED Economic Calendar and the Forex Forum for the complete list of key items (actual data, selected charts, etc.) as they are released.
John M. Bland co-founder www.global-view.com
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