Stock markets have been steady overnight as traders await a flurry of potential developments, particularly for the US and Canada. US index futures and the FTSE are flat, the Dax and Nikkei are down 0.3%.
Crude oil has been slammed downward again overnight, with WTI falling 3.0%, continuing the sell-off that started yesterday after a brokerage report indicated US drilling activity may need to fall by 150 rigs to bring the market back into balance. It's unclear if the report was written before or after yesterday's bog DOE drawdown. Regardless, today's Baker Hughes rig counts could attract attention from traders and may impact the market more than usual. Recent chatter about potentially putting in production caps for Libya and Nigeria could provide some support if anything comes of it.
Currency markets have been steady for the most part. Gold and JPY have been underperforming, suggesting that political risk concerns may be easing for now. Sterling has also been sliding today on a surprise decline in UK industrial production.
There are several events today which could move the markets, starting with employment reports for the US and Canada and potential developments from the G20 summit. The huge discrepancy between last month’s strong ADP and weak non-farm payrolls has been partly resolved through yesterday’s ADP disappointment and downward revision to last month’s number. The question now is whether we could see a rebound and/or an upward revision in the non-farm payrolls number.
To me, between soft retail sales, housing starts and durable goods orders, it’s hard to see how we could get a strong employment report even though the employment component of ISM PMI rose to 57.2 from 53.5. The street is expecting payrolls to bounce back toward 185K. I’m thinking 150K plus a 20K upward revision to last month.
In addition to the headline number, manufacturing payrolls may also attract significant attention with President Trump set to talk trade at the G20 summit in Germany. The president is expected to come under fire over his protectionist stance on trade but a low job number may support his case. What to do about North Korea and the US walking away from the Paris climate deal may also be points of contention. President Trump is also expected to hold side meetings with Russian President Putin and others, which could attract attention.
Wage data may also be scrutinized by traders looking for direction on inflation. Fed members think that recent low inflation numbers are transitory so wages may give a better handle on underlying inflation pressures. This number could kick off another round of interest rate speculation in USD although I still think the Fed is going to hold off on making any more moves until the battles over the budget and debt ceiling are resolved.
CAD may also be active today. Friday’s Canadian employment and Ivey PMI are the last major data points before next week’s Bank of Canada meeting. Considering the effort made lately by Bank of Canada's Governor Poloz and his deputies to lay the groundwork for a July rate hike, it would likely take a major disappointment to knock the bank off course now.
Last month’s Canada jobs report was extremely strong and I would not be surprised to see a retrenchment, particularly on the full-time side which had spiked 77K last month. Another positive number could boost the loonie as it would add to the case for a rate increase. The street is looking for a 10K increase but for most of this year the street has been overly pessimistic about Canada, so believe a figure more like 25K is plausible.
Significant announcements released overnight:
UK Halifax house prices 2.6% vs street 3.1%
UK industrial production (0.2%) vs street 0.4%
UK manufacturing production (0.2%) vs street 1.0%
UK trade balance (£3.0B) vs street (£2.5B)
Germany industrial production 5.0% vs street 4.0%
Norway industrial production 0.5% vs previous 0.7%
Upcoming significant economic announcements include:
8:30 am EDT US non-farm payrolls street 179K vs previous 138K
8:30 am EDT US private payrolls street 170K
8:30 am EDT US manufacturing payrolls street 5K
8:30 am EDT US unemployment rate street 4.3%
8:30 am EDT US average hourly earnings street 2.6% vs previous 2 5%
8:30 am EDT Canada employment change street 10K vs previous 54K
8:30 am EDT Canada full-time jobs previous 77K
8:30 am EDT Canada part-time jobs previous (22K)
8:30 am EDT Canada unemployment rate street 6.6%
10:00 am EDT Canada Ivey PMI street 58.0 vs previous 53.8
10:30 am EDT US natural gas street 66 BCF
11:00 am EDT FOMC July monetary policy report to Congress
1:00 pm EDT US Baker Hughes drill rig count previous 940
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