There wasn’t much not to like about Friday’s July US payrolls report, the 255k rise in headline payrolls enhanced by 18k worth of upward revision to May and June and meaning that well over half a million more Americans are in work compared to just two months ago. The unemployment rate only held steady at 4.9% because of a surge in the labour force and 0.1% rise in the participation rate, while average hourly earnings rose by 0.3% but held steady at 2.6% in annual terms.

Unlike the perverse reaction to many recent global economic events, we had a predictable response across asset classes to the report, albeit in FX the US dollar witnessed a rather spluttering reaction (knee jerk gains across the board but quickly given back, before a renewed advance later into the New York session).  DXY ended 0.46% higher, the broader BBDXY +0.34% and the ADXY -0.15%.

In individual currencies, USD/CAD was the standout, +1.2% to 1.3073, so CAD giving back its mid-week oil-related outperformance, thanks to another poor Canadian labour force report (employment -31.2k with full time -71.4k) as well as an unexpectedly large trade deficit.  AUD/CAD closed above parity for the first time since early March. AUD/USD ended NY down just 0.1% on the day at 0.7619 so still above pre-RBA rate cut levels. NZD fell more, -0.4% to 0.7144.  EUR/USD -0.4% to 1.1086, USD/JPY +0.6% to Y101.82 and GBP -0.3% to 1.3073.

In stocks the S&P jumped at the open then proceeded to grind out small additional gains with no setbacks along the NY day, ending +0.9% at a new record high of 2182.9.  Earlier the Eurostoxx 50 ended 1.4% higher with Spain the biggest gainer in Europe (+2.4%) and the UK FTSE the smallest (+0.8%).

In bonds, Treasury yields jumped out of the gate and didn’t look back, the biggest rise evident in the 5yr, +10.8bps to 1.1363%. 2s +7.9bps to 0.7221% and 10s +8.8bps to 1.5885. OIS pricing sees odds on a September 25-point Fed rate rise lift to 22% from 18%, and for December to 46% from 37%. 10yr Bunds added 2.0bps to -0.07% and the 10yr gilt +02.8bps to 0.669%.

Commodities saw gold lose $25 to $1336 while oil was little changed, WTI +$0.13 to $41.80 and Brent +$0.02 to $44.27. The LMEX index ended 0.11% higher while iron ore jumped $1.24 to $60.74 – off its recent high of $62.27 (last Tuesday) but still 10.1% up on a month ago.

Other data of note since we went home Friday was latest China’s FX reserves, published Sunday. These fell by $4.1bn in July to $3,201bn. We estimate valuation effects as likely to have boosted the dollar value of reserves by around $12bn last month, and assuming that July’s trade balance is similar to June’s $48bn, then this suggest capital outflows in July were in the order of $64bn+/-.  This is down on nearer $100bn per month for some months last year but still relatively chunky and implying ongoing CNY deprecation pressures being resisted by the PBoC.

CoreLogic RP Data’s weekend auction summary shows the combined capital cities clearance rate recording its highest level of the year, 74.9% up from last weekend’s previous YTD high of 72.0%.  Sydney cleared 80.4% up from 78.0% last weekend and Melbourne 76.1% up from 75.3%. Brisbane also recorded its highest clearance rate of the year at 59.1% (from 48.5% previously).

On Friday night, Donald Trump publicly endorsed House speaker Paul Ryan as well as Senators John McCain and Kelly Ayotte, after a week that has seen his poll standing slip further behind Hillary Clinton. The RealClear Politics website has the latest poll average at 47.3/40.4 in favour of Clinton, while on Sunday, a CBS News poll showed Clinton with a 12-point lead over Mr Trump in Virginia, a key swing state. Trump is reported as seeking to reorient his campaign this week with a new economic plan which includes claims he can double US economic growth by imposing fresh tariffs on China and renegotiating global trade rules.

Coming Up

It’s a pretty big week ahead with something of note every day. China has July trade numbers today (time not specified but typically around midday AEST) and then retail sales, industrial production and fixed asset investment numbers on Friday.  Friday also brings US retail sales and the preliminary University of Michigan consumer sentiment survey.

Locally it’s the latest NAB survey tomorrow and then on Wednesday outgoing RBA governor Glenn Stevens speaks (will he make clear the RBA retains an easing bias?). The RBNZ decision is on Thursday and where something more ‘muscular’ than a 25 point OCR cut looks to be required if the kiwi is to fall out of the announcement.

Overnight

On global stock markets, the S&P 500 was +0.88%. Bond markets saw US 10-years +8.77bp to 1.59%. In commodities, Brent crude oil +2.71% to $44.27, gold-1.5% to $1,336, iron ore -1.5% to $60.74. AUD is at 0.7617 and the range since Friday 5pm Sydney time is 0.7599 to 0.7664.

For full analysis, download report:

•  Markets Today:  8 August 2016 (PDF, 91kb)

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