Highlights of the Week of May 29, 2017

Dear PGM Capital blog readers,

In this weekend blog edition, we want to discuss some of the most important events that happened in the global capital markets, the world economy and the world of money in the week of May 29, 2017:

  • USA Employment report of June 02, 2017.
  • Euro jumps to Eight Month High against the US-Dollar

THE USA EMPLOYMENT REPORT OF JUNE 02 2017:

On Friday, June 02, the USA Bureau of Labor Statistics reported that in the month of May, the total non farm payroll employment increased  138,000, compared with an average monthly gain of 181,000 over the prior 12 months.

Highlights:

  • Employment in health care rose by 24,000 and Mining added 7,000 jobs in May.
  • Employment in professional and business services continued to trend up (+38,000).
  • Employment in food services and drinking places also continued to trend up in May (+30,000) and has grown by 267,000 over the past 12 months.
  • Employment in other major industries, including construction, manufacturing, wholesale trade, retail trade, transportation and warehousing, information, financial activities, and government, showed little change over the month.

The U.S. dollar fell on Friday, hitting seven-month lows against numerous rivals after the closely watch May jobs report came in much weaker than expected, raising concerns about economic growth and the pace of the Federal Reserve’s plans to normalize interest rates.

EURO JUMPED TO 8-MONTH HIGH AGAINST THE USD:

The Euro has inched higher in the Friday session against the USD to close at an EUR/USD exchange rate of 1,1274 as can be seen from below 5-day chart.

The eurozone’s largest economy, a strong and reliable German economy has been instrumental in the eurozone’s impressive improvement in the first quarter of 2017, based on this, the Euro has been climbing steadily against the USD YTD and is currently trading at an eight-month high against the greenback as can be seen from below YTD chart.

PGM CAPITAL ANALYSIS & COMMENTS:

USA Jobs Report:

We are worried about the decline in overall participation in the labor force, which has trudged along below 63 percent during the recovery, compared with more than 66 percent before the recession.

In the month of May, more people were dropping out of the labor force than returning, for which the labor force participation rate declined by 0.2 percentage point to 62.7 percent, as can be seen from below chart of the FED of St. Louis.

Raising EURO:

EUR/USD is biased towards making further gains in the week ahead due to the material risk that the US Dollar will weaken following the testimony from former chief of the FBI James Comey on Thursday, June 1st.

The Euro has seen a the massive rise in investors giving up their bearish positions in the future’s market.

The main event for the Euro is the ECB rate meeting.

The ECB will probably want to keep the Euro down so they are unlikely to gush about the recent recovery, and frustratingly low inflation makes it highly unlikely they will talk about a timeline for dismantling QE.

Based on the above we maintain our bullish outlook on the Euro, and are advising our client with USD or currencies pegged to the USD to use the overvalued USD to buy Euro based securities.

Last but not least, before taking any investment decision, always take your investment horizon and risk tolerance into consideration and keep in mind that the market can remain irrational longer than you can remain solvent and that sharp corrections might happen in the short term.

Yours sincerely,

Eric Panneflek

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