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Paragon Commentary

Futures File: Jobs, Euro & USDA

Mar 11, 2019

New Jobs Slow to Trickle

Markets were flummoxed Friday morning by a U.S. Labor Department report showing that only 20,000 new nonfarm jobs were created during February. Analysts had been expecting a figure closer to the recent average job growth of 186,000 new hires each month.

This dismal figure was accompanied by better data that showed falling unemployment and much higher wages than expected, which suggests that companies may be running into problems finding good employees. This phenomenon of fewer available workers and higher wages can lead to inflation, which could prompt the U.S. Federal Reserve to raise interest rates further.

U.S. stock index futures reacted negatively to the news, pushing near one-month lows amidst the worst one-week selloff of 2019.

Other investments fared better, as U.S. government bond futures held steady, and gold found eager buyers due to inflation concerns, jumping to $1300 per ounce.

 

European Woes Worsen, Boost U.S. Dollar

The eurocurrency fell near a two-year low this week, trading under $1.12 on Thursday. The euro dropped after European Central Bank President Mario Draghi announced that the European economy was growing anemically, prompting him to promise more fiscal stimulus.

The ECB will be making more low-cost loans to banks, which makes borrowing costs lower for Europeans. These moves also discourage investments in the euro currency itself, pushing traders toward the U.S. dollar, which is gaining in value.

For U.S. consumers, these currency moves mean that European-produced goods or a European trip will be cheaper, although a stronger U.S. dollar hurts American exporters whose goods will now feel more expensive to foreign buyers.

 

Crop Report Shows Big Supplies

The U.S. Department of Agriculture released its monthly outlook on Friday morning, showing more bad news for American farmers. The USDA raised its projections for U.S. stockpiles of corn and wheat by over 5% to 1.835 billion bushels and 1.055 billion bushels, respectively.

Meanwhile, expectations for soybean supplies were steady at the already overwhelmingly large 900 million bushels.

Alongside these bearish outlooks, futures markets for the three crops fell to new lows, prompting some optimists to cite the adage: “the best cure for low prices is low prices.” Low-price grain can encourage higher consumption and lower future planting, which could ultimately cut into overwhelming supplies and boost markets.

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