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Positive US Data Support Trump’s Claim of Robust Economy

Matt Eidinger May 16, 2019

US President Donald Trump ratcheted up his rhetoric in the ongoing trade conflict with China this week, touting the strength of the US economy in contrast with the slight slowdown in Chinese economic activity witnessed over the course of the past year.

According to data from the US Department of Labor (DOL) and the Philadelphia Fed, Trump’s bragging about America’s economic strength appear to be vindicated, at least in part.

Specifically, the DOL reported seasonally adjusted initial jobless claims fell to 212,000 during the week ending May 11th – nearly 10,000 lower than markets were expecting. The less volatile four-week moving average registered 225,000, slightly higher than previous weeks as a result of higher than expected claims over the past four weeks.

The advance reading on continuing jobless claims came at 1,660,000 for the week ending May 4th, falling 28,000 from the prior week’s revised level of 1,688,000.

In the realm of manufacturing, the Federal Reserve Bank of Philadelphia’s measure of factory activity for May increased from +8.5 to +16, also better than what markets were eyeing.

As with the DOL data, strength in the labor market was apparent as well, with a 4% rise in the employment diffusion index and more than a quarter of firms reporting increased hiring and the expectation that this trend would continue.

On the other hand, the new orders index fell nearly five points to 11; nearly 18% of manufacturers indicated decreases in new orders. Additionally, inventories fell into negative territory, registering a reading of -3.1 – the first time this component of the index has been negative in four months.

Some ways north, Statistics Canada released its monthly manufacturing survey for the month of March. According to the report, manufacturing sales increased more than expected to C$58 billion. Oil and coal products rose the most (+8.2%), driven by a sharp rise in capacity utilization by refineries across Canada.

Similarly, transportation equipment also rose (+4.5%) because of higher production rates at motor vehicle assembly plants. In fact, most of the gains during March were driven by rising capacity utilization rates.

For the past month, the USD/CAD spot rate has been stuck in a narrow cent-wide range. Overnight, the CAD gained some strength because of rising oil prices. Nevertheless, immediately after this morning’s dual release, the greenback/loonie was stagnant. Similarly, the Dollar Index (DXY) has been virtually flat for the past two weeks – maintaining its hold on the mid-97 range.

According to the CME Group, overnight index swaps currently indicate markets are on the fence about monetary policy in the USA beyond the month of September. Markets have priced in roughly a 50% probability the Fed will leave interest rates unchanged by this time. In any case, the US central bank’s three-year trend of slowly tightening monetary policy is over.

Bottom Line: The US labor market remains strong – at least according to data from the DOL and the Philadelphia Federal Reserve. Manufacturing activity in both Canada and the USA also remain robust and point to some optimism about future conditions. The net effect of this morning’s releases is a continuation of the stagnant USD/CAD spot rate.

Matthew Eidinger
Fintech Specialist, Dealing Operations

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