US: May payrolls weakness goes beyond trade frictions – Westpac


According to Richard Franulovich, head of FX strategy at Westpac, rising trade tensions were a widely cited factor behind the startlingly weak US May payrolls, and it’s immediately apparent from the industry breakdown that weakness goes well beyond sectors directly exposed to trade.

Key Quotes

“We count four sectors directly exposed to global trade - durable goods manufacturing, non-durable goods manufacturing, wholesale trade and transportation/warehousing. There will be many more tangentially exposed but these four likely account for the bulk of the direct exposure.”

“Each of these four industries saw weaker jobs growth in May. In aggregate these sectors posted a meagre +10k in jobs growth in May, well down on their six month average of 30k.”

“But other sectors seemingly unrelated to external trade also saw weaker May jobs growth. Health care, construction and state and local govt all slowed markedly in May.”

“There is the possibility that the weakness in these areas is a lagged impact from the volatility in global markets and the hit to confidence that occurred late last year, due in part to elevated trade worries, but its hard to know for sure.”

“The sharp fall in US yields has seen the USD give back a good amount of yield support. The DXY weighted 2yr swap differential for example is at +190bp, a material decline from the +283bp peak reached in early November 2018. But, when viewed from a multi-decade perspective the USD still retains considerable yield appeal.”

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility.

Feed news

Latest Forex News

Editors’ Picks

EUR/USD: trade war optimism skews the risk to the upside

The EUR/USD pair has rallied to 1.1062 on Friday, its highest since September 20, as risk-on prevailed heading into the weekend. Reports on progress in trade talks between the US and China.

EUR/USD News

GBP/USD's rally stalls in the open as weekend headlines highlight Brexit deadlock

GBP/USD is a touch softer in the open on Monday, starting off the week in the consolidation of Friday's upside extension to the highest levels since mid-summer. 

GBP/USD News

USD/JPY consolidating bull rally into 108 handle on US/Sino trade deal optimism

USD/JPY starts out the week flat to Friday's close after markets rallied at the end of the week. Bullish geopolitical undertones in the form of a U/Sino 'phase 1' trade deal help lift USD/JPY onto the 108 handle.

USD/JPY News

Gold slumps below $1,480 as risk appetite continues to dominate the market

The bearish pressure surrounding the XAU/USD pair on Friday intensified in the last hour as markets continue to price a possible trade deal between the United States (US) and China.

Gold News

US China trade deal propels US markets and yields higher and leaves dollar mixed

The US and China reached a limited trade deal on Friday a first step on the path to what both sides said could be a more comprehensive pact later in the year. President Trump said the countries reached a “very substantial phase one deal”.

Read more

Forex MAJORS

Cryptocurrencies

Signatures