USD pulls back after huge NFP miss; CAD mixed after solid jobs data

Summary:

• USD pulls back after huge NPF miss (20k vs 180k exp)

• Fed now face a possibly difficult choice

• CAD fails to gain despite solid Canadian jobs data

• Don’t blame trade data for Chinese stocks’ slump

The worst Non-Farm Payrolls (NFP) figure since September 2017 saw a knee-jerk reaction lower in the US dollar, but an upwards revision to the already stellar previous release and a stronger than forecast reading on wages could actually be seen as overall positive for the greenback. Turning to the data itself, the February NFP came in at +20k against consensus forecasts of +180k, in what on first glance seems to be a massive miss. The stark nature of this drop is even more readily apparent when you consider the prior reading was +311k. Having said that, the prior reading was revised marginally higher from 304k beforehand and it should be pointed out that today’s drop comes on the back of two very strong readings (December showed 222k jobs added). This data point is inherently volatile and if we look at a 3-month moving average a reading of 184k still suggests a strong labour market. The US dollar has pulled back since the release but the gains seen in EURUSD have been measured so far, with the NFP report not as negative for the buck as it first seems.   

What is more of a concern is rising wages – 3.4% growth is something that may worry the Fed and have the central bank at least consider one more hike. This would take place despite global slowdown that – together with less accommodative US policy – will have an effect in some kind of US slowdown as well. Consequences for the dollar are mixed but stocks unsurprisingly tanked on such report.

At the same time as the more widely viewed US jobs report, the latest look at the labour market in Canada revealed a pleasing strength with an all round solid release. The net change in employment for February came in at +55.9k vs +1.2k expected and follows on from a reading of 66.8k last time out. The unemployment rate remained unchanged at 5.8% as was expected. Despite the strong data the CAD has failed to make much headway, trading fairly mixed on the whole today.

The Chinese stock market has plunged 4% (the most since October) weighing on other Asian indices as well following a bearish recommendation send by a local brokerage house. Namely, Citic Securities advised its clients to sell the shares of the People’s Insurance Company of China saying that they are significantly overvalued and could decline more than 50% over the next year. Note that the stocks had surged by the maximum allowed by the exchange in previous five straight days. Taking into account that the downgrade was really substantial one may suspect that it must have been authorized by the regulators. Thus, there is a possibility that those regulators and the government itself have become concerned about the pace of the recent increases in the local stock market thereby they approved such the downgrade. From investors’ point of view this could act as a reality check suggesting that the steep bull market we have seen over the recent weeks may be exaggerated. Technically a reversal came in the vicinity of the strong resistance at around 11800 points and the price has already touched its previous important level placed at 11200 points.