Rebound In Equities, Dollar Strengthens,
Equities Surge On Earnings, The NFP Report Boost The Dollar
Global equities are rebounding from their October lows as strong earnings sweep the globe. The US market is leading with gains greater than 6.5% as the week closes out, and they are well supported. Not only are earnings positive the outlook is brightening as trade tensions between the US and China appear to be thawing. US President Donald Trump and Chinese President Xi Jinping has both issued statements to the effect pre-meeting contact has been positive, and that both are committed to a mutually beneficial improvement in trade relations.
On the earnings front, reports from Exxon and Chevron helped spur buying appetite as the week closed out. Shares of both stocks surged more than 2.5% on better than expected earnings reports even as oil prices hover at long-term lows. The reports are good because both companies report increased production, more efficient operations, and robust CAPEX spending.
Non-Farm Payrolls Blew Past Expectations
On the economic front, the US Non-Farm Payrolls report blew past expectations and reveal increasing pressure in wage inflation. At the headline US payrolls increased by 250,000 and well above the 200,000 that was expected. The previous two months were revised but the -16,000 in September and +16,000 in August canceled each other out. On average, the US has been adding jobs at a robust 218,000 per month over the past year and not expected to stop anytime soon.
The gains were driven by hiring in most segments, led by healthcare, manufacturing, construction, transportation, and warehousing. The LPR, a measure of the work force relative to population size, also increased, rising 0.2% in the last month, but the gains are negligible and flat YOY.
Wage Inflation!
The news that really caught traders attention though was the wage data. The average hourly wage increased by $0.05 over the last month to $27.30 and is up 3.1% YOY. The YOY comparison is important to note because it shows strong wage gains above the FOMCs 2.0% target and the pace of acceleration is increasing. The 3.1% posted for this month is 0.2% higher than the last month and another reason to expect FOMC tightening in the next two meetings.
The EUR/USD shot higher on Thursday on news the ECB and UK had reached an agreement on Brexit for financial services companies. The news sparked a major rally which carried the pair up an entire handle in one day and the upward momentum carried through into Friday. The NFP, however, capped the gains at 1.1455 and sent the pair back to retest support. With an FOMC meeting just a week away this pair is more likely to trade sideways than anything else. The current range is 1.1300 to 1.1500 but I expect price to hover near 1.1400.
