Weak US payrolls pushed US dollar index down

Market Overview Video Transcript

US dollar index tumbled last week. The US stocks edged lower. The main reason was the unexpectedly weak US labour market data for May released on Friday. They were of such importance that markets shrugged of other economic news of the week. This may the Non-farm Payrolls were the lowest since September 2010 at 38 thousand, far below the previously anticipated 160 thousand. The US unemployment decreased to 4.7%, its low since November 2007. This did not support investors’ optimism as data may show that some Americans stopped searching jobs or lost the “unemployed” status. The Fed funds futures price in only 4% chance for the rate hike on June 15, the data showed on Friday, down from 21% on Thursday. The chances for July rate hike fell to 38% from 60%. US stock market indices slightly reacted on the news with marginal decline. Weaker national currency may support the US exporters. The possible delay in Fed rate hike will mean longer period of low credit rates. In our opinion, the weak corporate earnings data for Q1 2016 weighted on US stock indices. The total earnings of S&P 500 components fell 5% while index is traded with the same Р/Е (price to earnings ratio) of 17.1. This is about 20% above the average Р/Е for the recent 5 years.

The Manufacturing PMI for May came out last Wednesday in China surprisingly higher than expected. Together with other factors and weaker US dollar, the data triggered the surge in almost all commodity futures last week.

This week the significant economic data will come out in US on Thursday and Wednesday when the wholesale inventories for April and consumer sentiment index by Michigan University for June will be released.