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Labor Market Data Confirm Goldilocks is in the House

Matt Eidinger May 23, 2019

The US Department of Labor (DOL) this morning confirmed the Federal Reserve’s evaluation of the economy: we appear to be in a Goldilocks zone where productivity as well as economic growth are strong and inflation shortfalls remain temporary and “transitory.”

DOL’s weekly unemployment insurance report indicated seasonally adjusted initial jobless claims fell to 211,000 during the week ending May 18th – roughly 3,000 lower than markets were expecting.

The less volatile four-week moving average fell to 220,250 – also lower than last week.

California was the only state with an increase of more than 1,000, while New York state reported more than 15,000 fewer new filings for unemployment insurance than during the previous week.

The advance reading on continuing jobless claims came at 1,676,000 for the week ending May 11th, rising 16,000 from the prior week’s revised level of 1,660,000.

In Canada, Statistics Canada released its monthly wholesale trade report for the month of March. The data indicated wholesale sales rose 1.4% – beating market expectations that were set at a 0.8% rise. Excluding the volatile motor vehicle sub-sector – which was the only sector witnessing a decline – the increase in monthly wholesale trade was a whopping 2.2%.

Indeed, after rising nearly 10% in February, the figures for the large, but volatile, motor vehicle industry reversed course and fell 2%.

Dollar-loonie volatility returned briefly yesterday after stronger than expected core Canadian retail sales prompted the Canadian dollar to gain more than a half cent against the greenback before retreating to previous levels and then falling overnight as markets digested the FOMC minutes.

This morning, the USD/CAD spot rate did not react to the DOL or Statistics Canada data and remains at the same levels that the FOMC minutes propped it up to overnight.

However, despite the “Goldilocks” tone struck by the Fed yesterday, overnight indexed swap rates at the Chicago Mercantile Exchange still indicate a nearly 75% probability the fed funds target rate will be at least a quarter point lower by the end of the year.

Bottom Line: Positive labor market data for the USA hit the wire this morning – indicating the labor market does indeed remain healthy and the Federal Reserve’s cautious approach to monetary policy is justified. Likewise, Statistics Canada reported strong wholesale sales data, which indicated rises across most sub-sectors. Taken together, the effect is the status quo for the USD/CAD spot rate remaining fairly steady.

Matthew Eidinger
Fintech Specialist, Dealing Operations
Meidinger@cambridgefx.com

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