Trading with point and figure

US July 2017 Labour report: "Very good, but no cigar in terms of displacing focus on Trump woes"

a) Payrolls / Establishment survey - Another solid beat for Payrolls at +209K, with tiny net +2K revision to prior months, though this was probably not far enough above the Street 'whisper' estimate to impress the markets' sceptics on the Fed policy outlook. In the detail, Govt jobs made a much smaller contribution (+4K), solid gains in Manufacturing +16K with June revised to +12K from +1K, and from Business / Professional Services +49K, though typically lower paid Leisure/Hospitality provided the lion's share of the increase at +62K. The 3-mth average at +195K remains 100K above the Fed's breakeven rate at 80-100K. Labour demand clearly remains very robust.

b) Unemployment Rate / Household Report - As was expected, the headline rate dipped back to its cyclical low at 4.3%, with a strong 345K rise in Employment matching an equally strong rise in the Workforce +349K, with a marginal 4K rise in Unemployment. However the Underemployment Rate was unchanged at 8.6%. As with Payrolls those who want to pick holes in the report are splitting hairs.

c) Average Hourly Earnings / Weekly Hours - Earnings were a smidgeon above expectations at an unchanged 2.5% y/y, but having been at 2.8% in February, and indeed in July 2016, there will be plenty of Fed sceptics arguing that there are still no signs of any sustained uptick in wage pressures. Average Weekly Hours posted a smaller 0.2% m/m rise vs. June's 0.5%, with Manufacturing Hours up just 0.1% m/m (vs. June 0.6%), which implies an at best marginal rise in Industrial Production.

d) Market reaction - There has been a very grudging and modest unwind of short USD positions, which technically breaches a couple of short-term trendlines on both the US Dollar Index and, perhaps more interestingly on Cable. It remains to be seen whether this holds through to the close. S&P500 future and the US 10-yr yield continue to trade in a very tight range. The latter has likely found a short-term floor at 2.22%, given that next week brings the quarterly refunding ($24 Bn 3-yr, $23 Bn 10-yr & $15 Bn 30-yr) for which the Street will want to factor in some form of concession. Fed Fund futures are now discounting a 42% chance of a December rate hike vs. 38% earlier. Aside from the fact of thin summer trading conditions, the report was in simple terms just not strong enough to jar markets' focus on the Trump Russia forago - 'good but no cigar'. Next Friday brings what may be the all important CPI data, where the early consensus looks for a 0.2% m/m rise (i.e. the 'usual') on both headline and core, which would see headline tick back up to 1.8% from 1.6%, but leave core unchanged at 1.7%.

- Charts: GBP vs USD, US Dollar Index, US 10-yr yield & S&P500 future

..........................................................................

Marc Ostwald
Strategist
ADM Investor Services International
 
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