Half a million of jobs – how many in a private sector?

The macroeconomic data this week were decent but not good enough for investors to shrug off European worries. Yet the final judgment on the week comes along with today’s payrolls release. The consensus is a massive +529k, mostly because of the census hiring. The key question is, how many of these jobs are a valuable additions to the private sector employment. Some lesser data (ADP, claims, ISM sub indices) show a situation similar to that from April, when the private sector added an impressive 231k of jobs. This figure, not the headline, will be crucial today.

The payrolls release may be decisive for the major US stock indices. Despite the recent rebound, contracts for the S&P500 failed (so far) to close (the graph illustrates European daily closes, similar to the US cash market closes) above the low from May 7th, still leaving the path to the new lows opened.

EURUSD – premiums on the (continuous) rise

A rebound on the stock markets failed to propel a similar move on the EURUSD. Perhaps better moods on the global markets saved the pair from the new multiyear lows. The question is: for how long? A defense of the 1,2145 level causes a divergence with the oscillators, which could be used as an argument for a rebound. On the other hand, a lack of ability to take advantage of favorable circumstances results in a consolidation within a triangle formation. And this formation usually is just a pause in a longer trend.

A weakness of the euro can be explained by the situation on the debt markets in Europe. While 10Y premiums in Greece stabilized at around 550bp, premiums for many other euro zone countries continue to increase. The premium for Spain increased to 190 bp yesterday (compared to 105 bp on May 10^th, when the bailout was announced), for Portugal to 250 bp (194 bp), for Italy to 163 bp (106 bp), for Ireland to 242 bp (180 bp) and for Belgium to 76 bp (50 bp). A rapid rise in premiums for so many countries has an impact for the whole euro zone. Furthermore, keeping in mind a logic applied by the rating agencies so far, such situation may prompt further cuts in rating, aggravating the situation still and so on.  

Events to watch – payrolls in US and Canada  

The payrolls figures (8.30 ET, 14.30 CET, exp +529k, +178k private) in the US are the key ones not only for today but for the whole week and perhaps the whole June. The similar data in Canada (7.00 ET, 13.00 CET, exp +16,8k) has no such impact but will be important for the USDCAD. Investors on this pair should also pay attention to the Ivey PMI (10.00 ET, 16.00 CET, exp. 60.0 pts.).   

Przemysław Kwiecień Chief Economist

Disclaimer, investment risk warning
X-Trade Brokers Dom Maklerski S.A. does not take responsibility for investment decisions made under the influence of the information published on this website. more