Fundamental Analysis 2017.08.07 – USD Job Report Surpasses Expectations

Market recap
The US Job Report was the darling of Friday’s market – blowing through the 180,000 forecast – reaching 209,000 with the average hourly earnings following suit, although it stayed at 2.5%, due to the month to month averaging it actually met the 0.3% gain markets awaited. Of course all this positive data didn’t go unnoticed, and bolstered USD. This boost was also helped my Gary Cohn, National Economic Council Director which went on record promising a second Homeland Investment Act that intends to repatriate profits by encouraging companies to bring their activities stateside – both services and manufacturing.

The last Homeland Investment Act enacted 2004 gave companies repatriating the incentive of a 2006 tax holiday. This resulted in €300bn to be repatriated in 2005. This obvious had a positive effect on USD in turn pushing the DXY index up by 12.8%. The estimated dollar amount held abroad is $2tn, so the possibility of this coming to fruition will definitely boost the dollar.

EUR/USD fell abruptly due to the dollar-positive news, which created the speculation whether the currency pairs has hit a price ceiling.

Proving the strength of the USD, the news also pushed precious metal prices – gold and silver - down.
CAD also slipped due to data, but not US data. The Canadian trade deficit seems to a widening gap – currently at -3.6bn CAD, well above the -1.25bn compared to the previous -1.36bn. Oil also climbed, probably due to a meeting involving non-OPEC member-countries and OPEC, taking place on the 7th and 8th of August in Abu Dhabi. The meeting will investigate why some countries have not held up the oil production cut agreement or have done so at a lower capacity.

Today’s market
The majority of market movements will most likely happen during the pre-market sessions, as most of today’s indicators will be released well before markets open.
The German PMI is expected to go up slightly from last month to this, but this will likely pull down the YoY down. This is possibly a mini-bubble’s burst after the abrupt peak the last two months, even if the current MoM is undershooting the average.

In context though, German PMI is at an admirable 58.1 – so it has the ability to lose a little without it having significant impact. And considering this surpasses an overall long term average with no signs of significant slowing, with a speculated ramp-up in the next three months – markets should respond with resounding apathy.
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The Halifax house price index (UK)is expected to recover slightly on a MoM basis, after the abrupt drop it experienced the previous month. Even so the YoY rate of increase is assumed to continue its downwards vector, down to +2.1 from +8.4% YoY the month before the Brexit referendum. Companies, specifically financial institutions, are planning to move staff to various EU countries after Brexit – in the magnitude of 17,000 financial industry positions initially with some plans mentioning figures up to 40,000 post-Brexit. Estimates show that 64% of UK residents own their home, thus a inordinate amount of household wealth is allocated to housing making a slowdown in house price increase having a negative effect on wealth in general.








This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as Investment Advice.

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