US ADP jobs data was weaker than expected which triggered some reservations over Friday’s employment report.

US ADP jobs data was weaker than expected which triggered some reservations over Friday’s employment report.  US bond yields edged lower during the day, although narrow ranges prevailed.

Overall risk appetite held steady with low trading volumes. Wall Street equities secured a fresh record high. Asian equities were mixed with solid underlying support.

The dollar weakened after the jobs data with fresh 3-week lows before a slight recovery. EUR/USD moved to 4-week highs above 1.1850 before fading slightly. Sterling was unable to make headway overall, but GBP/USD posted a net advance. Commodity currencies were underpinned by the weaker US dollar. The Canadian dollar, however, was hampered by the dip in oil prices.

German retail sales declined 5.1% for July with an annual decline of 0.3% after a 6.5% increase the previous month. The Euro-zone PMI manufacturing index was revised marginally lower to 61.4 from the flash reading of 61.5.The were no direct comments on monetary policy from ECB President Lagarde with markets remaining on alert for ECB commentary ahead of next week’s policy meeting. The Euro did find support close to 1.1800 against the US currency.

The ADP jobs report recorded an increase in private-sector payrolls of 374,000 for August, substantially below market expectations of 615,000 while the July increase was revised marginally lower to 326,000. ADP noted that there was still a strong rate of jobs growth in all major sectors, especially in the leisure sector, but there had been a slowdown with the delta variant causing significant uncertainty over the outlook.

Although correlations with the monthly employment report have been very limited, the data had some impact in damaging confidence in Friday’s report and the potential for a lower-than-expected increase in jobs. In this environment, there were sharp dollar losses following the data with EUR/USD again challenging the 1.1850 area.

The US ISM manufacturing index edged higher to 59.5 for August from 59.5 the previous month and above consensus forecasts of 58.6. There was a stronger rate of growth in new orders and production on the month with a strong increase in order backlogs.

There was a reported net decline in employment for the month which also triggered some reservations over labour-market trends. Supply-side issues were still very important during the month, although there was a slight easing of upward pressure on prices.

The dollar looked to recover some ground following the ISM data but was unable to gain significant traction with EUR/USD posting a 4-week high just above 1.1850. The pair drifted lower to around 1.1840 on Thursday as narrow ranges prevailed ahead of Friday’s employment report.

US Treasuries gained after the US ADP data with yields moving lower and the 10-year yield dipped to lows near 1.28% and USD/JPY dipped below the 110.00 level. There were some reservations over demand conditions in the US economy with adverse weather conditions amplifying the impact of the delta variant.

There was a recovery in yields following the ISM data with the dollar recovering some ground and USD/JPY settled around 110.00 into the New York close.

Bank of Japan member Kataoka maintained a dovish stance with comments that the central bank should buy bonds more aggressively to push yields down.

The Chinese yuan edged lower on Thursday, although overall ranges were narrow with market caution prevailing ahead of Friday’s US jobs data. Trading volumes also remained low, especially with the US Labor Day holiday on Monday.

Asian equites were mixed, and USD/JPY continued to settle around 110.00 with EUR/JPY just above the 130.0 level.

Nationwide reported a 2.1% increase in house prices for August after a 0.6% decline the previous month with the annual increase strengthening to 11.0% from 10.5% previously. There was a small upward revision to the August PMI manufacturing index to 60.3 from the flash reading of 60.1.

Sterling struggled to make significant headway, although GBP/EUR slide towards support close to the 1.1630 level while US dollar losses also allowed GBP/USD to re-test the 1.3800 level. There were further concerns that the UK economic recovery would falter over the next few months.

The Bank of England announced that Huw Pill will be the bank’s new chief economist and will also take a seat on the Monetary Policy Committee. Markets will monitor any rhetoric from him closely with a particular focus on potential inflation trends and whether there needs to be a tightening of monetary policy.

Economic Calendar

Expected Previous
09:00 ECB Economic Bulletin
09:30 GBP PMI Construction(DEC, 2020) 55 54.7
10:00 Euro - Zone Retail Sales (M/M)(DEC, 2020) -3.40% -6.10%
10:00 Euro - Zone Retail Sales (Y/Y)(DEC, 2020) 0.80% -2.90%
12:00 BOE MPC Vote Cut(FEB 01, 2020) 0
12:00 BOE MPC Vote Hike(FEB) 0
12:00 BOE MPC Vote Unchanged(FEB) 9 9
12:00 BoE QE Purchase Target(M/M)(FEB) 875B 875B
12:00 BoE Rate Decision(M/M)(FEB) 0.10%
13:30 Nonfarm Productivity (Q/Q) 5.60% 4.60%
15:00 USD Factory Orders(JAN) 1.00%
21:30 AUD AiG Performance of Service Index(DEC, 2020) 52.9

*All rates shown are indicative of interbank rates and should only be used for indication purposes only. It is important to note that foreign exchange rates fluctuate and that rates may vary depending on the amount and the base currency that is purchased or sold. Rates are correct as of 8:00am UK time. CentralFX are not responsible for the rates shown.