NFP not to trigger Fed Action

Consensus believes that the tepid NFP print is not so bad that it would trigger some sort of immediate Fed reaction in the form of new stimulus. The reality is that the US unemployment rate is stuck, hiring rates are modest, and the bottom has not fallen out of the jobs market just yet. Despite all this, Obama has got to be concerned. The market should be expecting the Fed to actively discuss reducing the interest on excess reserves at its next meet and maybe follow Denmark's and ECB's lead. If not, there is likely to be “a serious discussion of policy options aimed at dealing with an economy that is no longer making progress toward reducing unemployment.” The Fed has time to take in more data and figure out how much the warm weather is having an effect on the job scene. Until then, it's upward and onward with Operation Twist.

Below are some other highlights of the week:

AMERICAS

• USD: June factory activity contracted unexpectedly with the ISM manufacturing index moving to 49.7 from 53.5 in May. Digging deeper and providing the biggest impact was new-orders plummeting, falling to 47.8 from 60.1. This print does not give a warm fuzzy feeling for the medium term outlook.
• USD: The ADP report showed a welcome gain of +176k in private payrolls last month. Small businesses added +93k of the total, while medium sized businesses contributed +72k and large +11k.
• USD: For the first time in two months, initial claims came in below consensus at +374k, while the prior's weeks claims were revised up +2k to +388k. However, one week does not make a trend. Analysts note that this will be the last ‘clean' reading in a while because of the July 4th holiday and auto plant retooling season. Continuing claims for the week ticked up from +3.302m to +3.306m.
• USD: The ISM non-manufacturing index declined from 53.7 to 52.1 last month. It was the weakest reading in just under three-years and echoes the very weak ISM manufacturing reading.
• USD: NFP gain last month was only a tepid +80K. Digging deeper, revisions to prior months were insignificant, but, hours and earnings were better than expected, pointing to a solid rise in June personal income. Analysts note that the print only reinforces the market belief that the “loss of momentum in employment growth seen over the course of recent months represents more than just a weather-related payback.” Bigger picture, the report is probably not weak enough to trigger QE3 in August, but there is likely to be “a serious discussion of policy options aimed at dealing with an economy that is no longer making progress toward reducing unemployment.”
• CAD: Canada painted a different picture with an employment print (+7.3k) beating marketing expectations. Full-time employment was up +29.3k and part-time down -22k. The UE rate ticked lower to +7.2% from +7.3% as a result of fewer people searching for work. On a y/y basis employment has increased by +1% or +181k jobs.
• CAD: Canadian building permits rebounded unexpectedly in May to its highest level in five years (+7.4% to +$7b's worth).
• CAD: Canadian Ivey PMI contracted in May to a seasonally adjusted basis of 49. The median forecast was for a 55 print. The employment sub-index job category was at 59.3, indicating that employment was on the uptick. Canadian job numbers break down currently support this.

EUROPE Week in FX

ASIA Week in FX