Trump, US jobs and Brexit to guide markets

December 1, 2017 03:52 PM
Fundamentals and geopolitics to share spotlight on US jobs week

The USD was on a rollercoaster in the last week of November as the optimism surrounding the Senate tax reform bill was quickly eclipsed by the news that former National Security Adviser to the White House was prepared to testify that the Trump team directed him to contact Russian operatives. The U.S. dollar is now mixed on a weekly basis against major currencies with an eye on more developments on the political front and the release of employment data in the United States.

The Bank of Canada (BoC) will release its benchmark rate statement on Wednesday, December 6 at 10:00 am EST. The central bank is anticipated to keep rates unchanged at 1.00 % after already hiking twice in 2017. A press conference by Governor Stephen Poloz will take place at 11:15 am EST. Canadian jobs data defied estimates and gained 79,500 jobs in November raising the probability of the next rate hike coming sooner rather than later, but the data will not influence the decision on Wednesday.

The U.S. Bureau of Labor Statistics will release the non farm payrolls (NFP) report on Friday, December 8 at 8:30 am EST. The economy is forecasted to have added 200,000 positions in November. Once again the emphasis will be on average hourly wages for signs on inflationary pressure. While the market has already priced in a rate hike of 25 basis points in the next Fed meeting doubts remain on what the central bank will do in 2018. Weak inflation is the biggest argument the doves within the FOMC have used to debate waiting before raising rates again. Wages are forecasted to have gained 0.3 % in the last month after a flat reading in October.

The euro/U.S. dollar (EUR/USD) currency pair lost 0.31 % in the last five trading days. the single currency is trading at 1.1895 on Friday after geopolitical risk factors have put downward pressure on the dollar. The EUR was on a falling trend at the beginning of the week as the U.S. tax reform in the U.S. Senate was gathering momentum. The revelations that Michael Flynn would testify in the special counsel investigations on Russian collusion in the U.S. presidential elections rocked the dollar and the stock market. The named thrown around in connection to Flynn and the Trump team is Jared Kushner.

The possible reversal of fortune on the Senate bill that is now facing more scrutiny as the crowdsourced efforts asking for more transparency could end up derailing the much awaited tax reforms. The tax reform bill is close to a vote and could pass as long as Republicans maintain a united front.

Trump took to twitter to also deny that Secretary of State Rex Tillerson has not been fired despite having differences, although he did tweet that he (Trump) calls the shots.

The first full week of December will be a quiet one for European releases, with the EU-UK Brexit negotiations taking the top spot. In the U.S. the calendar will be focused on jobs data with the release of the ADP, unemployment claims and the heavyweight indicator, the U.S. non farm payrolls (NFP) to be released on Friday, December 8. Employment data is expected to remain strong and lead the way to the Fed meeting where it is expected they will announce their third interest rate hike of the year on December 13.

The British pound/U.S. dollar (GBP/USD) currency pair gained 0.99 % this week. The Pound is trading at 1.3470 on the back of a softer Brexit optimism. The upwards weekly move has not been one directional. The GBP is weaker on Friday as the European Union went on the record and stated that if Ireland cannot accept the UK’s offer for its border then trade negotiations with the single market will not move to the next stage. The deadline for a border proposal is Monday and faced with the solidarity of the EU, Ireland holds the fate of the UK in its hands. The Irish border became a show stopping issue after the disastrous snap election results forced British Prime Minister Theresa May to partner with the Northern Irish Democratic Unionist Party (DUP). The DUP demand Northern Ireland be treated the same as the rest of Britain, not left behind in half EU, half UK.

The EU’s backing of Ireland in the border issue puts more pressure on May and her government with the worst case scenario being the end of her rule. Cable touched daily lows at around 1.3640 despite strong manufacturing PMI data in November as Brexit negotiations are eclipsing fundamental data.

Gains on Purchasing Manager Indices in construction (Monday, December 4 at 4:30 am EST) and services (Tuesday, December 4 at 4:30 am EST) alongside an expected slowdown in manufacturing production prices in the United Kingdom are on the agenda for the week of December 4 to 8.

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