Mixed Dollar Ahead of US Jobs Data and Fed Talk

The US dollar is narrowing mixed as the employment data, and Fed speeches are awaited. Six Fed officials speak today, including Yellen
and Fischer. Regional Presidents Williams, Rosengren Evans and Bullard also speak. It will be the first flurry of
speeches since the FOMC meeting. 

The market’s take away from the FOMC statement
that was little changed
was the characterization of soft Q1 growth as
being driven by transitory factors.
The odds of a June rate hike were marked up, even if not to the level of
near-certainty that of Bloomberg’s calculation. 

The April employment report is expected to recover from the
weather-induced slowed down in March.
  However, the PMI and ISM were
not particularly encouraging, though weekly jobless claims are supportive.
  Of note, Linkedin reported earlier this week that its jobs report showed
April was the strongest month for hiring since June 201, yet it noted narrow
breadth: three sectors — manufacturing; aerospace, automotive and
transport; and software — were responsible while the other 10 industries showed slower job growth.
Anything above 187k non-farm payroll growth, which was last year’s average must
be considered reasonably good given the maturing of the expansion.  

Earnings growth needs to be 0.3% to keep the year-over-year rate at 2.7%,
which while unimpressive historically, is near the cyclical high.
Ideally, the underemployment rate continues its downward course.  It fell
to 8.9% in March from 9.2% in February.  Last April it stood at 9.7%,
which bears out the Fed’s point that there was still cyclical slack in the
labor market; that it was not all structural   

There are two other impulses today.  The first is politics.
Early results of the UK local elections indicate, as expected, a strong showing
for the Tory Party.  They appear to be gaining seats against all the other
parties.  One early takeaway is that
UKIP voters are joining the Tory ranks.    That the Tories are
doing well is hardly surprising.  

This is, after all, why May called
for a snap election, circumventing another Cameron-era move (to fix the
election schedule)
.  Labour, the main opposition party, has not
managed to attract many of the people it claims to be representing.  The
Tory majority in Westminster is expected to swell after the June 8

If May was not bound by Cameron’s
fiscal policy or the fixed election schedule, why was she bound to take the narrow victory of Brexit as a
binding commitment as he did
?   It was
as a non-binding referendum.  It passed by the narrowest
margins.    And what we have seen in other important
referendums, such as in Scotland or the
recent PD primary in Italy, the franchise extended to younger cohorts, though
not in the UK.  Now quite possibly, May finds she is over her head. 
That is what the press reports about Juncker and Merkel’s comments from the
recent summit with May indicate
One might take exception as some of the languages,
but the common thread was that the UK was not realistic about what was involved
and the asymmetry of power once Article 50 was triggered.  

The second round of the French presidential election is this weekend, and
again results should be known before the open of Asia-Pacific markets on
There is little doubt that Macron will win.  However,
the microscopic look at Macron’s policy proposals is distracting the focus.  The French president is not a figurehead, but its main power lies in foreign
policy.  Domestically, Macron is a micron.  He does not have a party
in parliament.  He was part of the pro-business wing of the Socialist
Party (really social democrat in practice).  

If one is confident that Macron is
the next French President, attention must turn to next month’s parliamentary
Yes, Le Pen and the nationalist-populists will be defeated in the fourth consecutive European
election (Finland, Austria, the Netherlands), but the course of French policies will be determined by the configuration of

The second impulse in the market is economic in nature.  The
highlights include monetary policy statement from the Reserve Bank of
Australia, which was optimistic on growth, and disappointing March industrial
output for Spain (-0.4% while median in the Bloomberg survey expected a 0.3%
rise.  It was the second consecutive decline and the third in four

Part of those economic impulses is the weakness in commodities. 
Iron ore prices dropped almost 5% today in China to bring the weekly loss to
12%.    Supply is particularly strong.  Oil prices have steadied
today after sharp (4.8%) yesterday.  The June contract for light sweet
crude oil is off 7.4% for the week with today’s small gain taken into account.
  It is the third consecutive weekly decline.  During which time it
has fallen by more than 15%.  Gold is trying to snap a four-day drop, but it
is unlikely to avoid the third consecutive weekly fall.  Gold broke an uptrend line going back to the middle of
last December.  It is found now near $1241.  

Canada also reports April employment data today.  The Bloomberg
median calls for a 10k increase after 19.4k in March.  It created 18.4k
full-time positions in March and an average of 46.4k over the last three
months, but that is skewed by the outsized
in February.  Given the respective proportions, this would
be as if the US created over a million jobs one month.  

Lastly, we note some chunky option expires today.  In the euro,
which has eased from approaching $1.10 sees
2.5 bln euros struck at $1.10, and
another 666 mln struck at $1.0980 rolling
off today.  Between $1.0950 and $1.0965, another 2.2 bln euros
expire.    In the yen, the
JPY112 strike has $706 maturing, and the
JPY1125.50 has $700 mln rolling off.  A strike at CAD1.3730 for $330 mln
will be cut today. 


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