Market Briefing: US labour market wobbles
Cross-currents. Some intra-day volatility but on net US equities & yields rose overnight. AUD & NZD tracking near the top of their respective ranges.
Macro signals. US ADP employment unexpectedly declined in June. Non-farm payrolls report out tonight ahead of the US holiday.
Trade news. According to Pres. Trump the US reached a trade deal with Vietnam. The 'pause' on much higher tariffs due to end next week.
Global Trends
Another burst of intra-session volatility across markets overnight as economic, geopolitical, and tariff-related crosscurrents washed through. On net the US equity market pushed higher with the S&P500 (+0.5%) reaching another record. US bond yields rose ~1-4bps, though there were bigger increases in UK rates (UK 10yr +16bps) due to worries about the fiscal backdrop/debt trajectory and doubts about the Chancellor of the Exchequer’s future. In FX, the USD index ticked up with GBP losing ground (-0.7% to ~$1.3650). EUR (now ~$1.1798) is hovering near the top of its cyclical range while USD/JPY (now ~143.65) consolidated. The AUD (now ~$0.6584) was whipped around a bit by market developments but on balance is little changed from where it was yesterday. As is NZD (now ~$0.6087) and USD/SGD (now ~1.2730).
In terms of the US news flow, the ADP employment figures undershot expectations with the 33,000 decline in jobs in June (the first negative print since March 2023) a shock to the system. According to ADP “though layoffs continue to be rare, a hesitancy to hire and a reluctance to replace departing workers led to job losses last month”. Worries about the state of the US economy and labour market dampened sentiment however the mood improved after President Trump posted the US and Vietnam reached a deal that would result in 20% tariffs on imports from Vietnam (down from 46% announced in April) and a higher 40% levy on goods re-routed through the country as the US tackles ‘transhipment’ issues. In exchange Vietnam is said to have dropped duties on US imports.
Sentiment-wise the trade announcements are a positive step, particularly considering the limited number of deals the US has announced and with the end of the 90-day ‘pause’ on higher tariffs set to expire on 9 July. That said, from an economic perspective, two-way trade between the US and Vietnam isn’t large. Vietnam accounts for less than 1% of US exports and ~4% of US imports. We think tariff-related volatility could return over the next week or so given President Trump has stated he won’t extent the deadline to resume higher levies and as talks with some nations such as Japan are proving to be tricky.
Tonight, ahead of the US Independence Day holiday, the focus will be on the monthly non-farm payrolls report (10:30pm AEST). As outlined previously, we think heightened uncertainty and loss of momentum across business surveys and underlying activity suggests the US labour market is losing steam. If realised, we think weaker jobs figures could reinforce expectations looking for US Fed interest rate cuts over the next year and this may exert more downward pressure on the USD.
Global event radar: US Jobs (Tonight), RBA (8th July), RBNZ (9th July), US Tariff 'Pause' Ends (9th July), China GDP (15th July), US CPI (15th July), US Retail Sales (17th July)
Trans-Tasman Zone
A burst of intra-day volatility stemming from contrasting US economic and trade-related news pushed and pulled a little on the AUD and NZD overnight (see above). However, on the net, the antipodean currencies are broadly in line with where they were tracking 24hrs ago. The AUD (now ~$0.6584) is near the top of the range occupied since mid-November and the NZD (now ~$0.6087) is around the upper end of its ~9-month range. The AUD also edged higher on most of the major crosses with gains of ~0.1-0.2% recorded versus the EUR, JPY, NZD, and CNH. There was a slightly bigger lift posted against GBP (+0.7%) due to renewed market worries about the UK’s fiscal trajectory.
Australian retail sales for May were released yesterday and the data disappointed expectations (0.2%mom) with the rebound in spending on clothing offset by weakness in other categories like food retailing. The figures indicate consumer spending remains sluggish, supporting the case for the RBA to deliver more interest rate relief at its upcoming 8 July meeting. The market agrees with a 25bp cut fully factored in. Beyond that another 2 rate cuts are discounted by year-end. We believe cooling inflation points to the RBA lowering interest rates over H2 but we don’t see it being more aggressive than what is now baked in. In our mind, given outcomes versus expectations drive markets, this means the lasting impact on the AUD should be limited.
Moreover, as discussed previously, when it comes to the AUD it should be remembered that local trends tend to play second fiddle to what is happening with the USD. We believe the mix of fading US economic strength, outlook for US Fed rate cuts over late-2025/2026, and reduced investor demand for US financial assets given the volatile policy backdrop and lofty valuations should see the USD weaken further over the medium-term. A soft US jobs report (10:30pm AEST), which is where we think the risks reside, would support this view.
AUD & NZD event radar: US Jobs (Tonight), RBA (8th July), RBNZ (9th July), US Tariff 'Pause' Ends (9th July), China GDP (15th July), US CPI (15th July), AU Jobs (17th July), US Retail Sales (17th July)
AUD levels to watch (support / resistance): 0.6490, 0.6540 / 0.6610, 0.6640
NZD levels to watch (support / resistance): 0.6010, 0.6050 / 0.6130, 0.6180
Market Moves
Peter Dragicevich
Currency Strategist - APAC
Upcoming Events
WEDNESDAY (2nd July) AUD Building Approvals (May) (11:30am) AUD Retail Sales (May) (11:30am) EUR ECB’s Guindos Speaks (6pm) EUR ECB’s Cipollone Speaks (7pm) EUR ECB’s Lane Speaks (8:30pm) GBP BoE’s Taylor Speaks (8:30pm) USD Challenger Job Cuts (June) (9:30pm) USD ADP Employment (June) (10:15pm)
THURSDAY (3rd July) EUR ECB Pres. Lagarde Speaks (12:15am) AUD Trade Balance (May) (11:30am) JPY BoJ’s Takata Speaks (11:30am) CNY Caixin PMI – Services (June) (11:45am) EUR ECB Meeting Minutes (9:30pm) USD Trade Balance (May) (10:30pm) USD Jobs Report (June) (10:30pm) USD Initial Jobless Claims (10:30pm)
FRIDAY (4th July) USD ISM Services (June) (12am) USD Fed’s Bostic Speaks (1am) USD Independence Day Holiday EUR Germany Factory Orders (May) (4pm) EUR ECB's Elderson Speaks (6pm) EUR ECB’s Villeroy Speaks (10:15pm)
SATURDAY (5th July) GBP BoE’s Taylor Speaks (3:30am) USD Fed’s Hammack & Cook Speak (11:15pm)
*Note, all times/dates provided are AEST
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