The US economy added a better-than-expected 222,000 new jobs in June and the unemployment rate held at 4.4%. Analysts had been expecting Non-Farm Payrolls growth of 179,000 and the unemployment rate to be 4.3%. Wage growth, however, remained muted, with average hourly earnings rising 2.5% on an annualized basis, essentially unchanged from the previous month.
The jump in payrolls followed a disappointing May that saw an increase of just 152,000. However, even that number was revised up from an initially reported 138,000, and April was revised upward as well, from 174,000 to 207,000.
The market reaction to the jobs number saw the US dollar index decline, and stock markets rise, however the initial move was quickly reversed, as US stocks gave back gains and the US dollar moved back to opening levels, and remained largely unchanged for the day.
US economic activity in the manufacturing sector expanded in June, with furniture at the forefront of the gain, as the overall manufacturing economy grew for the 97th consecutive month, according to the Institute for Supply Management Manufacturing Business.
The June Purchasing Manager’s Index registered 57.8%, an increase on the May reading of 54.9%. ISM’s New Orders Index registered 63.5%, again an increase of 4% from the May reading of 59.5%. The Production Index registered 62.4%, up 5.3% from the previous month. The Employment Index registered 57.2%, a gain of 3.7% points on the May reading.
European Central Bank policymakers are open to reducing monetary stimulus but are likely to move slowly out of fear of causing market turmoil, minutes of their last meeting showed on Thursday. With inflation in the Eurozone slowly rebounding, the ECB is preparing to dial back its stimulus policy of ultra-low rates and massive bond purchases, but doing so without upsetting investors is proving a challenge after years of easy money.
German Bund yields and the euro currency rose sharply after the release of the ECB minutes. The German 10-year Bund approached eighteen month highs, whilst the euro moved above the 1.1400 level against the US dollar, after earlier moving to a weekly low of 1.1313.
The Reserve Bank of Australia officials left interest rates on hold at the July policy meeting, with RBA members stating they are expecting the economy to gradually improve over the rest of the year. Bank governor Philip Lowe said there had been some positive signs out of the jobs market over recent months although he cautioned wages growth was likely to continue its sluggish run. Lowe suggested the biggest risk was a lift in the value of the Australian dollar which had moved above 0.7680 against the US dollar in recent days. Following the policy statement, the Australian dollar fell to 0.7600 against the U.S dollar.
Rising Japanese bond yields prompted the Bank of Japan to intervene in the bond market this week, as policy makers pushed the 10-year JGB yield back to 0.085 percent. The targeted bond-buying operation weakened the Japanese currency against a basket of currencies. The BoJ aims to control the rising yield curve as part of the current monetary easing policy by promising to buy an unlimited amount of 10-year Japanese bonds.
The British pound fell below the 1.2900 level against the US dollar as data showed UK factories and construction companies’ output unexpectedly declined in May, adding to a spate of recent data that pointed to an economic slowdown. Sterling was on course for weekly declines against all but two of the G-10 members, as manufacturing, industrial and construction output all sunk in May. Data released earlier showed UK house prices grew at their weakest pace in four years.
The Purchasing Managers Index data released this week showed a similar underwhelming trend, raising doubts on the performance of the economy for the second quarter and the ability of the Bank of England to tighten monetary policy amid political and Brexit-related uncertainties.