Most of the capital markets action here at the start of the week fall into one of two buckets. The first bucket is consolidation. Through the European morning, the most actively traded currency pair, the euro-dollar–is confined to less than 20-ticks. The dollar-yen has been confined to a quarter of a yen.
The MSCI Asia-Pacific equity index rose less than a dime. The Dow Jones Stoxx 600 in Europe is similarly little changed.
The US employment data was disappointing. The short-term market had been leaning the wrong way. The recent data had fanned hopes that the labor market was accelerating, but today’s data suggest the pace of improvement has not changed.
It is the sixth month that net new job creation was in excess of 200k, but private payrolls snapped that streak. The 198k increase in the private sector jobs was the lowest since January.
The Bureau of Labor Statistics (BLS) reported 209,000 jobs were added in July, far below expectations and a steep drop from the prior month, which saw 298,000 total nonfarm jobs were added in the United States. In July, the unemployment rate rose to 6.2% from 6.1%.
Professional and business services—so-called white collar office jobs—saw the largest growth, with 47,000 new jobs in July. Manufacturing came in second (28,000 added jobs), followed closely by retail (27,000) and construction (22,000).
The International Monetary Fund (referred to commonly as the IMF) has recently disclosed information that suggests Britain may have the fastest growing economy out of any sizeable developed country. Upgrading its forecast for UK growth for the fourth time in a row, the latest prediction of 3.2% this year and 2.7% in 2015 would effectively define Britain as the fastest growing advanced economy in the world this year.
Unsurprisingly, the BRICS countries sixth annual summit in Brazil once again polarised public opinion. When the proposal for a BRICS development bank and currency swap arrangement was put forward in March 2012, the reaction was already divided. Some believed — including ‘rival’ international financial institutions (IFIs) such as the World Bank and the International Monetary Fund (IMF) — that there is room for such an institution to help meet developing countries’ massive investment needs.
The US dollar is extending its gains in response to the strong US GDP figures. There are four elements of the report to note. First, the economy expanded by 4.0% in Q2, well above consensus expectations. Second, Q1 was revised to show a 2.1% contraction rather than 2.9%. Third, personal consumption improved to 2.5% from a revised 1.2% pace in Q1 (originally 1.0%). Fourth, and arguably even more significant that the growth itself is the core PCE deflator. It rose to 2.0% from 1.2%.
The experience that Chinese leaders gain in domestic politics has a big impact on how they view and handle international issues. Many China watchers and political analysts often overlook these domestic roots of Chinese foreign policy, particularly in China’s push to reform the international financial system.
This is an eventful week, but the economic calendar starts slowly. The FOMC meeting, first look at Q1 US GDP and the US jobs report, are the highlights. The capital markets are also off to a slow start. The US dollar is narrowly mixed. Against most of the major currencies, the greenback has been confined to about a 15 tick range.
With its economy flat lining and being held up by oil and gas exports, Russia desperately needs to increase the scale of those exports. On the face of it the massive $400 billion deal Russia signed with China on 21 May, for a 30 year gas supply contract, looks just the ticket to deliver that increase over the long haul. However, the deal has a number of non-trivial obstacles to overcome, chief of which are disagreements between China and Russia over pricing and the difficulty Russia may find in funding the required pipeline.
There have been five important developments today, but price action has been mostly limited. Confirmation that the Reserve Bank of New Zealand is pausing after hiking rates for the fourth consecutive time has sent the New Zealand dollar sharply lower. The disappointing UK retail sales report has spurred an extension of the profit-taking seen in sterling in recent days. Sterling made a marginal new low for the month as it tested the $1.70 level. Despite other developments, the other major currencies are little changed.
