FOREX: CAD Outdoes USD on Twin Jobs Market Weakness
Sep-05 15:56
- Both the US and Canada printed weaker-than-expected jobs reports Friday, sending both the USD and CAD lower against all others in G10. The US reported job gains of just 22k across August, resulting in both a higher unemployment rate as well as slower average hourly earnings. Compounding the bad news, the two-month net revision came in negative, pointing to persistent economic weakness into Q3.
- Resultantly, Fed rate cut pricing into year-end firmed aggressively. Markets added close to half a 25bps rate cut by for the December 2025 meeting, making 3x25bps rate cuts more likely than not. The USD fell sharply in tandem, putting the USD Index to new September lows and within range of first support into the late July lows of 97.109 and the bear trigger into the July 1st print at 96.377.
- We noted earlier Friday that the deterioration of the USD net position had stalled over Summer (potentially triggered by fragile European, UK politics), but today's payrolls number may provide the impetus for fresh shorts - a lacking driver since the post-tariffs downleg.
- CAD/JPY broke to new September lows and is now testing the 200-dma of 106.12 on the poor Canadian jobs numbers. The net change in employment dropped 65k, led by part-time employment and making for a new post-COVID high unemployment rate. Markets saw little reprieve in Carney detailing an extension of loan programmes for companies hit by US tariffs.
- Focus for the coming week shifts to the LDP meeting in Japan, at which party members will determine whether to trigger an early leadership election against PM Ishiba, which may introduce further political uncertainty. USD/JPY traded through the 50-dma into the Friday close, as the JPY benefited from a return lower for US stock markets.
- A busy week for US data next week, as both CPI and PPI prints are set to further inform the Fed's views on policy. CPI is expected to re-accelerate to 2.9% from 2.7% - complicating the policy mix as the central bank come under further scrutiny from the White House. Treasury Secretary Bessent called for an independent review into the Bank, which he sees as having lost public trust and credibility.
- The ECB rate decision is also due, at which markets expect little change on headline policy. EUR/GBP remains inside a nascent short-term uptrend, with 0.8713 representing the first upside trigger.
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SWITZERLAND: Fed. Councillors End Meeting w/US' Rubio, No Word On Tariffs Yet
Aug-06 15:50
President of the Swiss Confederation Karin Keller-Sutter said that she had a "good meeting" with US Secretary of State Marco Rubio in Washington, D.C., adding it was a "friendly conversation." Keller-Sutter, who as president this year sits as the 'first among equals' as chair of the seven-member Federal Council that makes up Switzerland's collective head of gov't and state, did not answer questions from reporters on whether Switzerland could offer more to the US to avoid 39% 'reciprocal' tariffs. Keller-Sutter, who serves as Minister of Finance, was accompanied by fellow federal councillor Guy Parmelin, who serves as Economy Minister and vice president of the Confederation.
- Posting on X, Keller-Sutter said, “We discussed bilateral cooperation between Switzerland and the US, the tariff situation, and international issues,”.
- The meeting with Rubio was seen as something of a snub for the Swiss, given that the State Dep't does not hold any powers in terms of negotiating bilateral trade deals. It is Treasury Sec Scott Bessent, Commerce Sec Howard Lutnick, and USTR Jamieson Greer who have led the way on trade talks ahead of the imposition of reciprocal tariffs on 7 Aug.
- It is unclear if the Swiss federal councillors will get to meet with President Donald Trump. While the president of the Confederation is entitled to represent the entire Federal Council on foreign visits, it is unclear if the US will acquiesce.
FED: US TSY 17W BILL AUCTION: HIGH 4.105%(ALLOT 83.04%)
Aug-06 15:32
- US TSY 17W BILL AUCTION: HIGH 4.105%(ALLOT 83.04%)
- US TSY 17W BILL AUCTION: DEALERS TAKE 26.35% OF COMPETITIVES
- US TSY 17W BILL AUCTION: DIRECTS TAKE 5.67% OF COMPETITIVES
- US TSY 17W BILL AUCTION: INDIRECTS TAKE 67.98% OF COMPETITIVES
- US TSY 17W BILL AUCTION: BID/CVR 3.31
US OUTLOOK/OPINION: Still Some Way For Full Tariff Impact To Show On Prices
Aug-06 15:31
Looking ahead to next week’s US CPI (Tue) and PPI (Thu) releases, latest monthly tariff revenue for July suggests we’re still some way off seeing the full impact from tariffs on prices.
- The effective tariff rate currently stands at 18.3% according to Yale Budget Lab calculations (pre-substitution, i.e. keeping trade shares constant), up from 15.5-16% through June and 16.6% in July.
- In contrast, the $30bn of Treasury deposits from customs and certain excise duties in July was worth 11.0% of goods imports in 2024 (likely reflecting June average tariff rates suggesting further increases still to come). That’s up from 10.3% in June, 8.7% in May, 6.3% in April and 3.0% in Dec 2024 prior to the second Trump administration to give a sense of baseline.
- (Note that this 11.0% rate would be 10.3% if using a 12mth sum up to latest data for June owing to the sharp rise in imports in 1Q25. This dynamic approach with recent data can be misleading).
- Alternatively, these tariff revenues in July were worth ~1.7% of overall personal consumption expenditure, an increase of 1.3pp under the Trump administration.
- Of course, this doesn’t give insight into burden sharing across importers, businesses and consumers.
- On the former, June US import prices showed a partial correction stronger for those from China after what had looked like some taking of a tariff hit in April and May (implied by lower than usual import prices), but import prices more generally haven’t shown much concession. That’s in contrast to NEC Director Hassett saying on Aug 4 that data shows tariffs are being borne by foreign producers, although admittedly the extent to which they’re being borne is vague in that headline.
