Disappointing jobs data weighs on dollar, stocks gain
Stock markets in Europe and the US are largely higher thanks to the well-received manufacturing reports from the eurozone and the US. Also fuelling the upward move is the disappointing US ADP employment report, the update showed that 374,000 jobs were added last month, which was a major shock seeing as economists were expecting 640,000. Considering that Jerome Powell, the head of the Fed, didn’t outline a timeframe for starting the tapering process last week, traders took that as a sign the central banker is not in a rush to rein in the bond buying scheme anytime soon. With regards to today’s underwhelming ADP reading, the mantra in equity markets is that bad news for the economy is good news for stocks, in that the central bank is more likely to maintain its ultra-loose policy while the labour market recoveries at a slower pace than anticipated. The previous ADP report was 326,000, so today’s update was an improvement on last month’s, therefore the jobs market is still improving.
The US ISM manufacturing report was reasonably positive as the reading for July was 59.9, up from 59.5 in June. The finer details of the report were mixed as new orders increased from 64.9 to 66.7, the employment component cooled to 49 from 52.9, and the prices paid metric was 79.4, down from 85.7. Overall, it bodes well for the rebound that new orders increased, and it is no bad thing that prices paid have edged lower, as that should help temper inflation fears.
Overnight, the Caixin survey of Chinese manufacturing fell to 49.2, the lowest mark since April 2020. China’s economic rebound from the lockdown was one of the strongest in the world, and some people are wondering if other economies are also on track to go down a gear in terms of their rebound. In light of the Chinese data, it is easier to understand why Jay Powell issued a measured outlook for the US last week.
For much of the session, the US dollar was flat, but it was dragged lower by the ADP announcement. The greenback took a knock because it now seems less likely the Fed will taper its bond buying scheme this year due to the the jobs data. Even though the US dollar index fell, it didn’t take out yesterday’s low, which could be a sign that dealers are not majorly bearish on the currency. EUR/USD was also given a helping hand by the decline in the eurozone’s unemployment rate to 7.6%, its lowest mark in 14 months.
OPEC+ announced they intend to stick to their existing plan, which entails lifting output over the next 12 months in order to undo the production cuts that were introduced last year as a reaction to the lockdowns. WTI and Brent crude are down 1.3% and 1.2% respectively. The oil contracts are off the lows of the day as the EIA report showed that US oil stockpiles fell by 7.1 million barrels, a much bigger drop than expected.