Constructive US Jobs, but Where Do the Euro Bulls make a Stand?

The US created 209k jobs in July and jobs growth in June was revised higher (+9k) to 231k.  The unemployment rate ticked down to 4.3%, matching the cyclical low set in May.  This is all the more impressive because the participation rate also ticked up (62.9% from 62.8%).  The underemployment rate was unchanged at 8.6%.  

Average hourly earnings rose the 0.3% the market had expected, but due to rounding, this kept the year-over-year rate at 2.5%.   It is the fourth consecutive month that is has remained at 2.5%.  Earnings growth average 2.6% last year.  Despite the jobs growth, the fall in the unemployment and underemployment rates, wage pressure is modest at best.  Jobs growth was particularly strong in leisure and hospitality sectors (62k).  Hiring reached five-month highs in manufacturing, education and health services.  

Canada also reported July employment figures.  The unemployment rate fell to 6.3% from 6.5%, but this was not as impressive as it looks as the participation rate slipped to 65.7% from 65.9%.  Still, full-time employment was robust.  Canada added 35.1k full-time positions, which is just above the average from H1 (32.2k).  

Canada and the US reported June trade figures.  Canada's merchandise deficit swelled to C$3.6 bln, nearly three times larger than the median forecast in the Bloomberg survey.  The May deficit was revised to C$1.36 bln from $1.09 bln.  Exports fell 4.3%, the largest since February 2016.  Imports rose 0.3%.  

The US trade deficit narrowed to $43.6 bln, which is the smallest short fall since late last year.  Exports rose 1.2%, boosted by capital equipment, oil, and soy.  Imports slipped 0.2%.  Of note, consumer goods imports fell for the second consecutive month.   Given the small fall of the merchandise deficit in real terms, it supports a small upward revision in Q2 GDP.  

The US dollar jumped on the headlines, and we recognize that technically the dollar's sell-off is getting stretched after a four-week slide against the euro and yen.  The Canadian dollar is on the verge of snapping a five-week advance.  The Australian and New Zealand dollars are poised to end a three-week advance.  The euro's ascent has been relentless, and many short, and medium term participants appear to be still inclined to buy dips.     The odds of a September Fed hike remain remote at best. 

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