After Blockbuster US NFP, Investors To Focus On BoC and BoE Meetings

The week ending on Friday was shortened by the Independence Day Holiday in the US, but was not short on volatility with key events and released packed in.On Wednesday, the Federal Reserve Bank released its the minutes from its monetary policy meeting in June. The minutes unveiled more details about the economic and financial conditions that influenced the FOMC decision to keep the US benchmark rate unchanged in the June meeting.

According to the minutes, FED officials voted to keep interest rates on hold mainly due to the fact that the Brexit referendum was too close to call at that time. Also among FED concerns was the slowdown in the US labor market. The Non-farm payrolls report for May had reported that only 38,000 new jobs had been created during that month, contributing to the steady monetary policy. On July 8, the NFP report for June was released, reporting the biggest gain in jobs creation in eight months. Due to a sharp increase in hiring in the manufacturing sector, the total number of new people employed in June surged to 287,000, according to the Labor Department.

The strong jobs report, however, may not alone be enough to change the FED’s stance and bring rate hikes back into the picture yet. The unemployment rate advanced to 4.9% in June. Additionally, the average hourly earnings of employees inched up at the slowest pace since the start of second quarter. In comparison with one year earlier, average hourly earnings rose by 2.6%.

In response to the mixed data from the US labor market, the greenback traded indecisively. The dollar index DXY rose to a high of 96.71, and fell back significantly to a low of 95.83 on Friday. It ended the week, at 96.28, up 0.66% for the week.

Jobs Data from Statistics Canada came in with a decline of 700 jobs in June, disappointing analysts’ expectation for 5,500 new jobs to have been created in the period. The weak data raised investor doubts over economic prospects and the possibility of an increasingly dovish tone from the Bank of Canada on current and future monetary policy.

Meanwhile, the UK economy has not seen any clear recovery according to data released early in the past week. On 4th of July, Markit reported that construction PMI fell back into contraction in June, led by a sharp drop in residential real estate activity and a decline in commercial real estate activity for the first time in over three years. The construction PMI for June registered at 46.0, far below the 51.2 reading in May. On the 5th of July, PMI data for the services sector came in at 52.3, staying close to the 38-month low recorded in April.

Benchmark rates remained unchanged at the Reserve Bank of Australia meeting on Tuesday at 1.75%, continuing the trend of the past two months. On the question of any potential changes at its July meeting, RBA Governor Gleen Stevens commented that the central bank should await further signals from the global markets before deciding on suitable measures for its domestic economy. Besides, Australia is facing political uncertainty as final results of the general election, which took place on July 2nd, are yet to be known.

For the week ending on July 08, oil prices marked the biggest weekly drop since the beginning of 2016 on the back of a stronger greenback and rising jitters on oversupply, along with seasonally weak consumption of oil. US crude oil inventories, which had edged down 4.1 million barrels at their previous count, only slid 2.1 million barrels in the week ending on July 02. Whereas, the US oil rig count, as reported by Baker Hughes, rose by 10 this week as drillers continued to add rigs for a fifth consecutive week. Production from the US suppliers is expected to surge soon. The global benchmark, West Texas Immediate, plunged to $45.12/barrel, dropping more than 4 dollars per barrel, from the week before.

In the coming week, there will be important monetary meetings at the Bank of Canada and Bank of England, which take place on July 13th and 14th , respectively. Currently, the markets are turning all their focus to the statements from these central banks. While the BOC is forecast to keep the benchmark rates on hold at 0.5%, the BOE is expected to lower the British Benchmark Rate to 0.25% after maintaining it at 0.5% for over seven years. The expectation for a rate cut in the UK, is supported by the perceptions of future economic hardship resulting from the negative effects of Brexit.

On Tuesday, the world’s second largest economy, China, will publish its trade balance for June, with a market estimate of 320 billion yuan surplus, down slightly from the reading for May at 325 billion.

On Wednesday, key data from the Australian labor market in Australia will be released. The rate of unemployment is anticipated to inch up to 5.8%, while the number of people employed during the past month is expected to come in at 10,100.

Rounding up the next week, on Friday, the US is scheduled to report the consumer price index and retail sales for June. Economists forecast that the CPI will extend its 0.2% increase from the preceding month. Meanwhile, retail sales may report a slower pace of growth at 0.1%, compared to the previous reading of 0.5%

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