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Market Comment | Strong US Payroll figures trim dollar’s losses


  • Seasonally lower liquidity in the financial markets was the tone in the first week of August. In this context the ongoing uncertainty about the US political agenda, the heightened geopolitical tensions in the Korean Peninsula and with Russia weighed on the US dollar during most of the week (see). Nonetheless the positive US payroll data supported a sharp bounce off in the US dollar at the end of the week
  • The EUR extended its appreciation, standing close to USD 1.18, supported by positive economic figures and the ongoing weakness in the US dollar. Preliminary euro zone inflation figures remained stable at 1.3% YoY in July, as expected, although core inflation increased by slightly more than expected (+0.1pp to 1.3% YoY) (see). The EZ GDP Q2 was in line with expectations (see), confirming the upward momentum of the EZ economy and giving some grounds for the ECB to announce some changes in its monetary policy stance in the autumn. On the other hand, mixed signals from the Fed’s officials failed to support the US currency – Bullard opposed further Fed interest rate hikes (see), while the Fed’s Mester supported a gradual tightening as she considered inflation weakness as transitory (see). Nonetheless, strong Non-Farm payroll data in July (see), trimmed the weekly losses of the USD. The increase in job creation was larger than expected, while previous data were also revised upwards, with participation rate and wages increasing.
  • Bond markets registered gains, with yields decreasing across the board. There were just a few factors that bolstered bond markets this week, political uncertainty in the US and intensifying geopolitical tension. Dovish signals from the BoE’s monetary policy decision (see) also dragged down sovereign yields, as only two members voted for a rate increase, one fewer than in the previous meeting, and significantly fewer than investors had previously anticipated. However, the European bond market could have also attracted some flows that were reluctant to get into European equity markets – until the US dollar “dead cat” bounces at the end of the week – as the strong EUR weighed on the export sector.
  • Equities increased across the board. The US Dow Jones continued to reach new record highs, while the S&P was broadly flat. Earnings results in the US have been positive, including Apple, which beat expectations, providing some growth to the technology sector. Taking into account the earnings realised, 2Q17 EPS adjusted growth is +5% above estimates (growing 10% YoY). European equities ended the week increasing, helped by the rebound in the US dollar at the end of the week. In contrast, strong depreciation of the British pound – due to market perception of dovish BoE – boosted the UK equities market.
  • Oil prices inched down after the strong rebound of the last week, ahead of next week’s meeting between OPEC and non-OPEC members. The EM currencies showed a mixed performance. The RUB showed the largest depreciation as US sanctions (see) weighed on it.

Update 16 CET 04 August, 2017

Table 1

Source: Bloomberg, Datastream and Haver

* With one day delay


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