10
Jun
10
Jun

US-Mexico Agreement, NFP Lower, China Announces High Trade Surplus

Markets were on the move on Friday after the release of job market data from the US. After already disappointing figures in the ADP employment report that was released on Wednesday, where only 27 thousand additional jobs were reported, the nonfarm payrolls (NFP) were also highly disappointing in terms of job growth. Only 75 thousand new jobs were reported in that statistic for May. Compared to the expectations of 185 thousand and the previous month’s 224 thousands markets strongly reacted to these numbers. While the market move with a weaker dollar, higher stock prices and also lower US Treasury yields following this data might seem counter-intuitive, analysts explained that markets were waiting to see what economic figures the US Federal Reserve will have at its disposal to decide whether to actually act and lower interest rates. Some could believe that these disappointing NFP figures, as well as lower than expected average hourly earnings at 0.2% (expected 0.3%) could help the Federal Reserve to finally decide on that issue.

In currency markets the Mexican peso (MXN) opened significantly stronger on Monday morning, after Mexico and the United States reached an agreement on immigration, giving the US President Trump a win in domestic politics. Before the agreement, US President Trump threatened to impose tariffs on all Mexican exports, should Mexico not take measures to curb illegal immigration to the US. The USD/MXN pair traded after the agreement more that two percent lower around the levels seen before the tariff threat at the end of May.

For Monday industrial production figures from April from Italy and the United Kingdom are expected. Also, from the UK data on the trade balance and the manufacturing output will be released. Later in the North American trading session Canada publishes its housing starts statistics for May. Various markets remain closed on Monday due to holidays, with impact on trading hours of among others Australian, German and Swiss trading venues.

EUR/USD

The weakness of the dollar, following disappointing job market data from the NPF and the reinforced market expectations that the Fed would act with rate cuts, pushed the EUR/USD pair to the highest level since the end of March, outweighing the concerns about the sanctions the EU could decide against Italy due to their excessive debt and fiscal deficit not in line with the Maastricht Euro convergence criteria meant to assure the common currency’s stability.

On Monday from the euro-zone the Italian industrial production level for April and the Sentix Investor Confidence level for June are expected. From the US also relatively few new major data releases are scheduled for Monday, except for the JOLTs job opening report.

The EUR/USD chart

Hong Kong 50

Asian and especially Chinese stock indices traded higher by Monday morning. The Chinese trade balance surplus was surprisingly high in May at $41.65 billion, significantly above the expected $28.5 bn. However, analysts cautioned that the increase in exports by 1.1% and the fall of imports by 8.5% could also be due to actions taken by exporters before the US increased tariffs on $200 billion worth of products by May 10.

More economic data is expected in the following days with inflation figures released on Tuesday. On Thursday monthly data on industrial production, unemployment and retail sales in China could also impact the markets.

The Hong Kong 50 chart

WTI Oil

Oil prices were up on Friday ending the losing streak for the energy market and closing the week higher after two weeks of steep declines in the cost of a barrel of crude oil. News that OPEC was close to reaching an agreement to extend the agreement to cut oil production levels beyond June at the upcoming meeting later this month could have helped the positive price sentiment. While the key player Saudi Arabia was always seen as pushing for strong production cuts to attain price levels of at least $70 for a barrel of Brent crude oil, Russia was seen as a significant uncertainty, with Russian officials adding speculations whether Russia would continue to support the pact. Recent reports indicate that the Russian Energy Minister signalled to have agreed on coordinated action in the market together with the Saudis.

Meanwhile the US Baker Hughes Oil Rig Count fell by 11 to just 789. This is yet another low since February 2018.

On Tuesday the American Petroleum Institute (API) will publish its weekly crude oil stockpiles numbers, followed by the Energy Information Administration (EIA), which will release its weekly numbers on crude oil, distillate and gasoline inventories on Wednesday.

The WTI Oil chart

US 500

Major US stock indices continued to recover on Friday, despite the disappointing job market data at hand, clearly recovering from all the losses of the previous week and the S&P 500 (US 500) even managing to close at a 4-weeks high. The recovery was most notably seen in the previously battered tech sector (US Technology ETF +1.96%), as well as chip stocks (US Semiconductors ETF +1.41%). Relatively few sectors showed losses on Friday, with banks (US Banks ETF -0.52%) and utilities (US Utilities ETF -0.73%) stocks trading lower as the 10 Year US Treasury Note yield also reached the lowest level since September 2017.

Stocks of Beyond Meat (+40.23%) surged higher following quarterly earnings that were better than expected, while the company still reports losses at $0.14 per share. Investors were happy to see lower than expected losses and also a revenue increase by 215% compared to the previous year and expectations of further growth to $210 million revenue this year. The company’s current stock valuation is now more than five times higher than its IPO price of just $25 per share.

The announcement that Raytheon and Untied Technologies would merge to form a new giant in the aerospace and defence sector pushed both company’s stock price significantly higher in European markets by Monday morning ahead to pre-market trading in the US.

Key data from the US is expected later this week with the CPI on Wednesday, import and export prices on Thursday and retail sales and industrial production data on Friday.

The US 500 chart

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