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Daily Market Digest: NZ Jobs, UK Construction, ADP Payrolls

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There was more pain for the GBP as construction PMI fell to a 3-year low following yesterday’s weak manufacturing PMI. In the US, ADP payrolls report showed 156k jobs against expectations of 195k.

Today’s Economic events

  • UK BRC Shop price index y/y -1.70% vs. -1.70% previously
  • Australia AIG services index 49.7 vs. 49.5
  • New Zealand ANZ commodity prices m/m -0.80% vs. -1.30% previously
  • French trade balance -4.4 billion vs. -4.2 billion
  • Spain services PMI 55.1 vs. 55.1
  • Italy services PMI 52.1 vs. 51.3
  • France final services PMI 50.6 vs. 50.8
  • German final services PMI 54.5 vs. 50.5
  • Eurozone final services PMI 53.1 vs. 53.3
  • UK construction PMI 52.0 vs. 54.1
  • US ADP private payrolls 156k vs. 195k

Coming up

  • Canada trade balance
  • US trade balance
  • The US preliminary nonfarm productivity
  • US final services PMI
  • US ISM non-manufacturing PMI
  • The US factory orders
  • Crude Oil inventories

New Zealand unemployment rate rises in Q1, 2016

The unemployment rate in New Zealand posted a sharp rebound, rising from an upward revised 5.40% in the fourth quarter of 2015 to 5.70% in the first quarter of 2016. However, despite the rise in unemployment, the underlying data is being as strong growth in New Zealand’s labor markets. Employment gained 1.20% in the quarter with total hours paid rising 0.50%. The pickup in the unemployment rate did not come due to soft job growth but rather an increase in the participation rate, which jumped to 69% in the March quarter, up from 68.40% in the previous quarter. Overall, New Zealand’s unemployment data released yesterday shows that the labor markets started off on a firm footing in 2016, despite lingering concerns on the impact of the downturn in dairy prices on the New Zealand’s economy.

Nick Tuffley from ASB Bank in Auckland said: “The first-quarter employment data appear strong, but suggest that spare capacity in the labor market is not yet a thing of the past.

Despite the upbeat employment numbers, analysts still expect to see two more rate cuts from the RBNZ this year.

UK construction sector slows to a 3-year low

Data released by Markit/CIPS earlier today showed that the UK’s construction sector slowed to a 3-year low in April. Construction PMI in April fell to 52, from March’s 54.2 and missed analyst expectations of 54.1. The slump in the construction sector follows yesterday’s manufacturing PMI, which showed a contraction for the first time in nearly three years, underlining the heightened uncertainty on the upcoming UK referendum vote on the EU membership and softer outlook on growth. The construction PMI reading is consistent with other data such as construction output which fell 0.90% in the first quarter. Markit’s Tim Moore commented that “Softer growth forecasts for the UK economy alongside uncertainty ahead of the EU referendum appear to have provided reasons for clients to delay major spending decisions until the fog has lifted.”

The British pound which surged to a 4-month high yesterday at $1.4571 closed bearish yesterday and with the downbeat data continues to remain weak with Brexit concerns coming to the forefront. GBPUSD posted strong gains over the past weeks as the markets scaled back on the short positions on easing risks surrounding Brexit uncertainty.

ADP payrolls disappoint in April. 156k vs. 195k

Hiring in the US private sector was at a slower than expected pace, rising only 156k against expectations of 195k, according to data from payrolls firm ADP. The increase of 156k in April comes following March’s revised numbers of 194k down from initial estimates of 200k. The softer than expected job growth has lowered sentiment on the Friday’s Non-farm payrolls report released by the BLS. However, the ADP payrolls report is not an accurate gauge of the US labor markets. But that being the said the weak pace of job growth in April is likely to weigh on investor sentiment, in particular against the US dollar was only showing signs of a reversal yesterday after the US dollar index fell to a 14-month low to 93.

Institutional call of the day – RBC – Long EUR/GBP for 0.798*

RBC recommends long positions in EURGBP in its “Trade of the week” with a target of 0.798 and stops at 0.7780, initiating the trade 0.7845. RBC notes that “recent opinion polls suggested that the June 23 referendum on EU membership is too close to call which could know GBP which has gained partly on the perception of ebbing Brexit risks.” RBC adds that the upcoming UK survey-based data could reveal uncertainty on the vote outcome. Furthermore, EURGBP is neutral to the general US direction.

EURGBP is trading at 0.7924 currently.

* Institutional Call of the day is not a recommendation or an endorsement by to buy or sell

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