Financial market research and analysis

Wall Street experiencing its strongest session in well over a month, higher shares in Asia and Europe pointing to an upbeat Friday is normal enough. But given that trade tariffs are due to kick in today, we would have expected to see more anxiety in the markets. Still, there was plenty to distract traders with hawkish Fed minutes and strong US economic data.

US NFP

Today’s non-farm payroll figures come on the same day that Trump is due to begin imposing tariffs on $34 billion of Chinese imports. The usually highly anticipated report comes as trade tensions intensify between the US and Chinese and are about to step up a gear, so the US labour department’s report may not attract as much attention as normal. However, this does not mean that the report will be less likely to cause volatility in the dollar.

Expectations are for 195k new jobs to have been created in June, a solid number after May’s impressive 223k. Given the historically low levels of unemployment, which is expected to remain constant at 3.8% in June, a miss on the headline job creation number is not going to cause too much distress, whilst a surprise to the upside would highlight the strength of the US economy.

As with previous reports, the average wage growth figure is more important here, particularly given that the path of expected hikes was lifted to 4 across the year, up from 3, when the Fed met in June. Furthermore, the fact that the market isn’t convincingly pricing in 4 hikes, means that a bigger than expected increase in wage growth could help shift market sentiment, especially as inflation in the US is already at the 2% target set by the Fed. With averages wage growth expected to increase by 0.3% month on month or 2.8% across the year, a surprise to the upside could see the dollar recoup some of the losses from the previous session. On the other hand, disappointing wages figures could see the dollar extend loses from Thursday into the weekend.

Trade War Unknowns

The dollar may well find that the bigger news today will be from the increasing trade tensions, rather than the non-farm payrolls. With trade tariffs due to start today, investors will be listening carefully for any fresh rhetoric aggravating the situation or indeed any sign of either country, US or China stepping down, which seems incredibly unlikely at this late stage, but with Trump at the helm, you never know! Increased friction and the tariffs beginning could result in a selloff in global indices. Not only will a trade war hit both economies and global trade, but it also creates a level of uncertainty as to how far this will go. The dollar, as it has done in previous trade war fear-dominated sessions, could be expected to move higher, benefiting from its safe-haven appeal.