Tuesday, June 2, 2015
Stocks are indicated to start today’s session modestly in the red, likely a reaction to fresh headlines about Greece. But the market’s primary preoccupation lately has been the Fed and it has been trying to handicap the central bank’s next move through incoming economic data.
Monday’s factory sector ISM survey gave us a good start to May data following a somewhat mixed showing in April. The ISM recovery is particularly encouraging as it follows widespread soft manufacturing sector readings lately.
The other key report this week – the May jobs report coming out on Friday – isn’t that much in doubt as the labor market rebound in Q2 has already been confirmed by strong numbers in April as well as by weekly initial Jobless Claims readings. This reconfirms the consensus narrative about the economy that the Q1 slowdown was mostly caused by temporary factors. What this means is that the hoped-for rebound in the current period is on track.
This conclusion has obvious Fed implications that we have been discussing at length in this space in recent days. And that Fed implication has bearing on the dollar’s exchange value, which had started to give ground towards the end of Q1, but has resumed the earlier uptrend all over again.
The dollar hit a 12-year high against the Japanese Yen in the overnight Asian trading session today, and has been gaining ground relative to the Euro in recent days as well. Given how big a factor currency movements were in the Q1 earnings season, the recent strengthening trend in the U.S. dollar effectively guarantees that we will be seeing a do-over in the Q2 earnings season as well.
Sheraz Mian
Director of Research
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