Asia Summary and Highlights 8 July

Asia Session

The France election seems to have resulted in a hung parliament as leftist Nouveau Front Populaire won the most seats, Macron's centrist the second and Le Pen's far right Rassemblement National the last. Macron's government has suggested little interest in forming coalition with NFP or RN but would rather seek support from more moderate parties within both sides, which is likely to fail due to major differences. EUR/USD opened lower at 1.08 from 1.0838 previously closed on Friday and is trading 0.06% lower at 1.0831. GBP/USD also gap 18 pips lower but has filled the gap, currently trading 2 pips lower at 1.2812.

The May Japan Labor Cash Earning has come in lower than estimates of 2.1% at 1.9% y/y, earning in April has also been revised to 1.6% from 2%. While it continues to point forwards accelerating wage growth, its progress does not allow the BoJ to step too far in the July meeting with bond purchase cut and rate hike. Small Japanese firms are also finding it more difficult to hike wages as they would not be passing the cost to consumers as efficient as larger firms. USD/JPY is trading 0.12% lower at 160.56. Else, AUD/USD is up 0.06%, NZD/USD up 0.03% and USD/CAD slipped 0.04%.

North American session

June’s non-farm payroll was slightly stronger than expected in the overall gain of 206k, but with significant negative back month revisions of 111k, while private sector payrolls rose by a weaker than expected 136k. With average hourly earnings up a moderate on consensus 0.3% and unemployment up to 4.1% from 4.0% the report is consistent with some loss of labor market momentum.

The USD made brief moves in both directions on the data before slipping later in the session. GBP/USD extended its post-election gains to 1.2815 while EUR/USD was marginally firmer near 1.0840. AUD/USD also made modest gains.  USD/CAD however finished up around 20 pips near 1.3635 with Canada’s employment report weaker than expected, down by 1.4k with unemployment up to 6.4% from 6.2%, though wages were stronger than expected. USD/JPY was little changed near 160.75. 

The Fed released its Monetary Policy Report ahead of Powell’s testimonies to Congress due on Tuesday and Wednesday, which reiterated greater confidence that inflation is moving sustainably towards target is needed before easing.