The strength of employment in the United States has taken since last Friday hostage to the Federal Reserve (Fed) which, with 256,000 jobs created in the last month, is cautiously observing the path to which it should direct interest rates.
Although an unemployment rate that is reducing – to 4.1% – is positive for the economy, in the case of the largest power on the planet it is news that punishes markets pending the Fed and a dollar that appreciates by 9.64% from the lows at the end of September to the heat of the foreseeable delay in US monetary easing. The market is already pricing in just one rate cut this year, instead of the two previously forecast.
And this has been reflected in the main indices of the North American stock market. The S&P 500 has fallen 1.72% so far this year, while the Nasdaq 100 has dropped 2.27% and the Dow Jones has done the same around 1.34%, with data at half session of the day this Monday on Wall Street.
However, investors’ eyes remain on the United States CPI report this coming Wednesday, where it is estimated that the monthly underlying index will fall from the annualized levels of between 3% and 4%, at which it has remained. during the last four months, at between 2% and 2.5%, more favorable for the Federal Reserve.
“The key for the currency market will be the moment when the sale of Treasury bonds becomes a negative factor for the dollar, instead of positive, as has already happened in the United Kingdom,” say the Ebury analysts.
Meanwhile, the euro continues in free fall driven downwards, in addition to employment on the other side of the Atlantic, by the increase in the yields of North American Treasury bonds.
After touching lows from more than two years ago at $1,018the single currency has also seen its behavior in recent hours conditioned by several officials from the European Central Bank (ECB) who advocate continuing to lower interest rates in the eurozone given the macro weakness of the Old Continent and, especially, of large economies with Germany and France at the helm.
Thanks to this weakness of the euro, conditioned by the evolution of the dollar and US equities, the European investor observes that profitability of its investments in local currency is being less affected than in the case of those whose portfolio is made up of dollars.
Specifically, an investor who replicates the behavior of the S&P 500 and depending on the returns of the index in euros it could be gaining 0.4%, according to data from Bloombergcompared to the dollar investor who loses 1%.
Likewise, if it were played at Dow Jonesthe rebound would be 0.1% in euros, while the fall would be 1.42% if it were done in dollars.
Nothing indicates that this situation is going to change. This Monday the chief economist of the community supervisor, the Irish Philip Lanewarned during his presence at a forum that the ECB is evaluating “more flexibility measures” to accelerate European growth and cut service inflation, which, today, stands at 4%.
A position that has been joined by the Finnish Oli Rehn who believes that the direction of the ECB “is clear” regarding the future. For the Scandinavian, the way is to continue reducing monetary pressure so that by “mid-summer” the restrictive territory has been “abandoned.”
However, a quorum has not yet been reached in Frankfurt am Main. The governor of the National Bank of Croatia, Boris Vujcicconsiders it necessary to wait and see where the twenty eurozone economies evolve before taking the next step. “In circumstances where uncertainties remain high, it is better to move graduallyand that is what we are doing,” said the Croatian.
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