Europe

Talk about saving the best for last in a busy week, the US jobs report saw the lowest pace of hiring since 2010, sending the US dollar and stock markets plunging. Just as US investors were getting used to the idea that we were going to see some form of rate rise in the next two months this jobs numbers has thrown that into serious doubt, and if this slowdown continues raise the question as to whether we’ll see a rate rise at all this year.

A number of 38k was an absolute stinker and even when you add in the 37k jobs for the Verizon strike it’s still an absolute shocker. The April number was also revised lower to 123k, down from 160k and while the unemployment rate dropped to 4.7% that was largely down to a drop in the participation rate from 62.8% to 62.6% as people dropped out of the work force.

While it’s always to be tempting to be cautious when analysing a single months data, and 38k is disappointing, when the month before is also downgraded sharply, questions have to be asked as to whether there is something else at work.

Equity markets which had been trading higher into the numbers fell back sharply as fears rise that one of the main engines of growth in the global economy could be starting to cough and splutter. The US economy grew 0.8% in Q1 and the omens for a pickup in Q2 are beginning to look ominous.

The best performers on the back of a weaker US dollar have remained basic resource stocks, with Fresnillo, Randgold Resources and Anglo American all higher, but despite the weaker US dollar a slowing US economy has to raise the question about the longer term demand picture.

Supermarket stocks have slid sharply today with Morrisons the biggest faller after a “sell” rating from Deutsche Bank yesterday. With the supermarkets about to start reporting their Q1 trading updates in the next few weeks yesterday’s Kantar Worldpanel survey suggested that Aldi and Lidl are still eating into their market share and with price deflation still visible in the latest surveys there appears to be some concern that these numbers might disappoint.

Banks have also slid back as the prospect of a rate rise recedes into the distance.

US

US markets opened sharply lower today after closing at the highest levels this year yesterday. It would appear that all the nagging concerns about job losses in manufacturing are starting to trickle down into the headline numbers, and it certainly makes Fed Chair Janet Yellen’s speech on Monday a much more interesting proposition, after the US economy added the fewest number of jobs since the economy started losing jobs at the end of 2010.

US Services PMI also showed a sharp drop in May coming in at 51.3, down from 52.8 in April, while the May ISM Non-manufacturing survey also disappointed, coming in at 52.9, well below expectations of 55.3.

Companies in focus include Apple after its users experienced problems accessing the company’s services as a series of outages hit its iTunes and App store overnight. The problems appeared to be resolved after 7 hours but nonetheless the problems did generate quite a bit of negative chatter on social media.

On the retail front clothes retailer Gap reported May sales numbers that came in better than expected which prompted a nice rebound in after-hours trade.

FX

The US dollar slid sharply after the release of the May jobs report. There was no sugar coating this jobs report, it was a simply awful number, missing the worst of expectations at 38k. There was no comfort in the wages numbers which came in as expected and while the unemployment rate fell to 4.7% this was due to people leaving the workforce.

If Bank of Japan governor Kuroda was hoping that a Fed rate rise would help weaken the yen against the US dollar he will probably be spitting out his sake in disbelief, ditto ECB President Mario Draghi as the US dollar slumped to a one month low against the yen, and sank against the euro, as the prospect of an imminent Fed rate rise disappeared into the distance.

The commodity currencies were the best performers with the Australian and New Zealand dollar jumping sharply.  

Commodities

Gold jumped sharply after this afternoons US data as the prospect of US rate hikes getting pushed out into the autumn prompted a sharp bout of US dollar weakness.

Crude oil prices slid sharply in the wake of today’s US payrolls report but have recovered some of their poise as the US dollar weakens. The slide in the US jobs numbers does raise a serious question about future US demand given the fact that for all the expectations that the US economy would be picking up steam in Q2, the jobs data gives no indication of that process taking place at this point.

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