Markets have overreacted to last Friday’s weak US non-farm payrolls report, with the weakness due largely to a number of one-off factors that will be unwound in the months ahead.
That’s the sanguine view offered by Joseph Capurso, senior currency strategist at the Commonwealth Bank, who, unlike many commentators, isn’t overly concerned that the dire headline jobs number will herald a sharp slowdown for the US economy, or worse, in the the months ahead.
“Part of the weakness in non-farm payrolls reflects a large strike in the telecommunications industry that has since ended and soft Q1 GDP growth. In addition, the bulk of the weakness in May payrolls reflects statistical volatility that will be unwound in later reports,” says Capurso.
“A literal reading of the payrolls report suggest the US economy is close to recession. No other US economic data corroborate the conclusion that the US economy is close to recession,” he adds.
Capurso expects that US Federal Reserve chair, Janet Yellen, will cast doubt on the weakness seen in the May jobs report when she addresses the World Affairs Council of Philadelphia later in Monday’s session.
“We expect FOMC chair Yellen to be cautious about the US economy, question the weakness in the May payrolls report and maintain that the FOMC will continue its gradual tightening cycle,” says Capurso.
He suggests that a “less dovish” speech from Yellen will help the US dollar to recover some of its recent losses.
The speech is scheduled to begin at 2.30am AEST, Tuesday.