Shaky US jobs report, Yen on the watchlist and markets eye US ISM services

US payrolls miss

Thursday delivered the June US employment report, which showed payrolls rising by only 57,000 – nearly half the consensus forecast – and came in lower than May’s downwardly revised reading of 172,000. With April revised lower to 148,000 (from 179,000) and May to 129,000 (down from 172,000), this marked a total downward revision of 74,000.

Unemployment also eased to 4.2% from 4.3%. While a drop in the unemployment rate is generally considered a good thing – more people working and spending – the reason for this drop was not an increase in people finding jobs; it was the opposite. In total, 720,000 people left the active labour force, driven by a drop of 507,000 employed workers and 213,000 job-seekers who stopped searching entirely.

This saw the participation rate – which is calculated by dividing the labour force by the population – drop from 61.8% to 61.5%. This means the economy had less momentum than the initial estimates suggested. The USD immediately sold off following the jobs report, and the front-end of the US Treasury yield curve fell, with the week ending with the OIS curve pricing in around 12 bps of Fed tightening.

JPY in focus and Oil retesting possible resistance

Overnight in Asia, Japan's Nikkei gave back some of Friday's gains, with a similar picture seen in South Korea’s KOSPI. While we are in Asia, JPY is down 0.5% against the USD as of writing. This follows a solid move lower in USD/JPY last Thursday, with the pair shedding nearly 1%. Of note, Goldman Sachs recently lowered its yen forecast for the year to ¥165, in part due to widening yield differentials between the US and Japan. The Fed minutes released on Wednesday could be interesting, particularly around new Fed Chairman Kevin Warsh.

In the US, cash markets closed mixed on Thursday, with the Dow Jones Industrial Average refreshing all-time highs at 52,909 (and touching the upper boundary of a rising wedge), while the Nasdaq 100 lost 1.6% amid pressure on the technology sector. US equity futures are pointing modestly lower this morning, led by a 0.7% decline in the Nasdaq 100 contract.

In the commodities complex, Brent crude has traded in a narrow band since breaching daily support at $72.36, with prices now testing that level as resistance.

US ISM services PMI in focus

The only tier-1 event on the docket today is the June ISM services PMI at 2 pm GMT, with the median estimate indicating the services sector cooled to 54.0 from a hefty jump in the May print at 54.5 (the estimate range is currently sitting between 52.0 and 55.0). You will recall that the June ISM manufacturing PMI equivalent was released last week and showed signs of moderating – the headline came in softer at 53.3 (from 54.0), with new orders and production slowing to 56.0 (from 56.8) and to 52.2 (from 54.3), respectively.

For me, my focus will be on the sub-indexes for prices and employment. A strong print today would likely complicate the case for Fed rate cuts following Thursday’s disappointing jobs report, potentially giving the USD some legs to run higher. On the other hand, a weaker release could see investors price out some of the Fed tightening by year-end, and will likely weigh on the USD.