US payroll may spur rate hike

Fundamental outlook

US payroll rose in confidence, sparking expectations of another rate hike by the end of September. President Donald Trump shocked the world with the intention to add another US$267 billion worth of tariffs on Chinese goods and this caused Apple’s stock to plummet. The European Union (EU) chief negotiator added new hope to the Brexit deal.

The US ISM manufacturing index rose 61.3 in August, the highest recorded in more than seven years. ISM services index rose in September to 58.3, higher than consensus’ forecast and the previous month’s 55.7 reading.

The weekly claims for American jobless benefits dropped to a near 49-year low at 203,000 for the week ended September 1.

Before the weekend, non-farm payroll rose 201,000 in August, beating forecast. Jobless rate was at 3.9 per cent. Average hourly earnings on a yearly comparison grew 2.9 per cent, the strongest since 2009, lifting the probability of rate hike by the end of this month.

President Trump hinted that he might take on Japan as his next target to reduce trade imbalance. He added that he could slap another US$267 billion of import tariffs on Chinese goods in addition to the latest US$200 billion imposed.

After Trump’s comments, Apple’s stock fell on Friday and traders fear the rising trade conflict that could deter global trading ties. However, former Governor of People’s Bank of China (PBoC) Zhou Xiaochuan commented that the total US$500 billion trade tariffs would be insignificant to China and the Beijing leaders would retaliate soon.

German factory orders slid 0.9 per cent in July, improving from June’s data but still fell short from forecast. The eurozone GDP grew 0.4 per cent in the second quarter (2Q).

Markit reported that the British manufacturing index expanded 52.8 in August, the lowest since July 2016 and it was probably affected by threats of the Brexit. Before the weekend, Brexit chief negotiator Michel Barnier from EU mentioned other deals can be discussed to rout around Brexit challenges. Meanwhile, the sterling staged an increase.

British construction PMI grew at 52.9 in August, lower than expectations and declining from the previous month’s 55.8. Markit reported that the UK services index was at 54.3 in August, exceeding forecast.

Technical forecast

US dollar/Japanese yen traded sideways last week and settled near to 111 level on Friday. The market is still searching a headway while staying supported above the 110 region. This week, we reckoned the trend would thread from 110 to 112 but breaking beyond could lead to a new directional trend.

Euro/US dollar has been trading in a tight range last week. The range was within the1.15 to 1.1730 region. It is prone to breaking through either side this week. In our opinion, there is higher probability of a decline since the dollar is prone to rising in the coming week. Risk control is advised if the trend moves against your favour.

British pound/US dollar traded sideways but remained supported by some recovery demand on Friday.

This week, we forecast the trend is still uncertain and might continue to whipsaw from 1.28 to 1.305 until we see clearer fundamental news. The Brexit deal remains a focus and a lead catalyst to the pound’s direction in addition to the dollar’s demand in line with an expected rate hike.

 

Disclaimer: This article is written for general information only. No liability by the writer, publisher or any third party involved in the distribution of this work. Dar Wong is a registered fund manager in Singapore with 29 years of global trading experiences. You may reach him at [email protected]

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