The shock of back-to-back negative US GDP prints last week has increased the focus on upcoming US macro data to assess the strength of the US economy into the second half of 2022. In particular, the release of more resilient ISM surveys and especially a rebound in the services index brought a sense of relief to tame the concerns. Ultimately a more important test could loom today with the publication of the US jobs report for July. The US economy’s ability to keep creating large numbers of jobs through H122 has indeed been used repeatedly to counter the argument that the US is already in recession. Nevertheless, it may only require one big NFP miss pointing to stalling job creation to revive such concerns. Market participants will also pay a close attention to the latest average earnings data and whether US wage growth continues to slow down gradually, which alongside an expected reversal in US headline inflation dynamics backs the view that the Fed’s peak hawkishness has been reached. All in all, the USD is likely to take its cue from the reaction of US rates and whether today’s labor report eventually spurs a significant re-pricing of Fed rate hike expectations.
Statistics Canada is due to release its latest jobs report at the same time as the US, as the economists surveyed by Bloomberg look for a partial reversal of June’s jobs losses. It may not prevent the Canadian unemployment rate to tick am tad higher from its record lows, although all eyes are likely to be on earnings data. Unlike in the US, wages growth has surprisingly kept accelerating, and further upside looks on the cards over the summer. The key point would be whether any further acceleration is to massively exceed the near 6% pace Canadian firms expect for the 12 months ahead according to the latest BoC business outlook survey. If so, this could raise the prospects that the BoC will have to deliver another unusually large rate hike in September, while so far the BoC’s tightening cycle is still seen as largely in tune with the Fed’s. The CAD may still require a substantial gap to open up to eventually get a competitive edge over the USD.
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