Cable back to $1.40 as dollar stays soft after jobs report

European markets are off to a slow start with early gains largely erased within the first half hour of trade. The FTSE 100 holds higher than 7100 with miners leading the gains as commodities continue their monster rally on tightening supply and soaring demand. Rio Tinto and BHP are both up more than 3% in early trade, whilst Fresnillo, Antofagasta and Glencore all up around 2%. Commodity prices continue to surge as copper hit a fresh record high, whilst oil prices rose as a ransomware attack shut the Colonial pipeline, which supplies half the fuel for the US east coast. Iron ore in China surged 10% to a record high, whilst steel rose 6% to limit up. There could be a lot of speculative buying and trading pushing commodities higher but for now there does still seem to be a lot of momentum behind the trade and reasons to think fundamentals will continue to support.

A weaker-than-expected jobs report in the US caused some waves (NFP miss: does it mean anything?, 07.05/21) but Wall Street rose to record highs as investors wagered slower growth in the labour market would only see the Fed keep policy easier for longer. In short it will allow the Fed to keep its foot to the floor but the wage component indicates trouble as inflation could outstrip employment growth. The more you pay people not to work, the less you incentivize the employment growth you seek. US futures indicate Wall Street will open a fraction higher later today.

Sterling jumped to its strongest since late February as the dust settled over the spate of UK elections on Thursday and a weaker dollar resulted from the nonfarm payrolls miss. Boris Johnson’s position looks secure, Labour is in disarray and Nicola Sturgeon has regained control of the Scottish parliament. Near-term worries about a second referendum on Scottish independence appear to have retreated somewhat. The SNP are biding their time not pressing ahead immediately on a referendum (even most pro-indy voters don’t think it’s the most pressing matter). And as argued last week, the current Conservative government will not sanction a referendum. It’s likely to end up in court and see a major constitutional battle before there is even a vote. For now, sterling traders can afford to ignore the noise and focus on the near-term economic trends. With the break of 1.40 at last bulls can consider the Feb 24th peak at 1.4250.

On this front, the jobs report on Friday has dollar vulnerable even as the bond market recovered from the initial kneejerk. Whilst we should not be reading too much into a single jobs report, if the market is taking it at face value, then it means easier Fed policy for longer. We’re looking at the ECB and BoE tightening before the Fed, despite the monster economic recovery in the US and injection of enormous fiscal stimulus. The prospects of a hawkish Jackson Hole taper move by Powell have clearly diminished. Minneapolis Fed president (and arch dove, we should note) Neel Kashkari said the labour market remains in a ‘deep hole’ with somewhere between 8 and 10 million jobs still lost since the pandemic started. ECB speakers (Kazaks and Lane) have made it clear policymakers will look the asset purchase programme again in June and this could involve scaling back the programme if the economic situation is better.

A couple of items for the ‘you can’t make it up’ category: Bill Hwang, whose Archegos Capital family fund recently spectacularly blew up, provided seed funding to Ark Invest, the fund’s founder Cathie Wood revealed in an interview. Meanwhile Dogecoin – beloved canine ‘joke’ crypto – tumbled by a third after Elon Musk’s appear on Saturday Night Live, a comedy programme in the US. The technoking of Tesla and self-proclaimed Dogefather called the coin a ‘hustle’.

Oil rose with the cyberattack on the Colonial pipeline sparking the US government to enact emergency legislation to enable fuel products to be transported by road. This won’t be enough to match the pipeline though and we could start to see some serious backing up in refined products. With any clear details or timetable for reopening we could see pressure build in some of the refined products. Heating oil gapped up to its highest in more than a year, currently up more than $2 at $203, having opened more than $5 higher for a new post-pandemic high.

Shares in Greggs rose 8% as it raised its profit guidance for the year after it saw a strong recovery in sales at the start of the year. The company said it believes that “profits are likely to be materially higher than its previous expectation and could be around 2019 levels in the absence of further restrictions”. Sales picked up noticeably in the weeks since the reopening of non-essential shops on April 12th, whilst the company has also been buoyed by delivery sales. But with 40%+ gains YTD and the stock trading at a record high, good news may be well and truly baked into this one.