Below trend growth to continue
The US employment report virtually matched expectations (NFP +211k, unemployment steady at 5%) and effectively confirms a Fed lift-off in two weeks’ time is a done deal.
The US employment report virtually matched expectations (NFP +211k, unemployment steady at 5%) and effectively confirms a Fed lift-off in two weeks’ time is a done deal. The report also revealed +35k of upward revisions to September and October while as expected average hourly earnings fell back to 2.3% from 2.5. The Dow gained 2.12%, the S&P climbed 2.05% and NASDAQ was up +2.08%. In contrast, Eurozone stocks continued to suffer from ECB disappointment and a stronger euro, the Eurostoxx 50 -0.38% and the Dax -0.34%.
In FX, the US dollar was stronger across the board though the DXY failed to recoup more than about a quarter of Thursday’s heavy EUR-led losses, adding just 0.64% to 98.25. The broader BBDXY gained 0.41% and the ADXY lost 0.15%.
In G10 currencies, EUR/USD fared worse (-0.54% to 1.0881) while NZD bucked the stronger dollar trend to gain 0.87% to 0.6744, aided by left hand side flow in AUD/NZD (the latter -0.87% to 1.0880). AUD was little changed over the 24 hours through to the NY close, -0.03% to 0.7339. USD/JPY gained 0.41% to pull back onto a 123 handle (Y123.11) and supported by the positive response of risk assets to the payrolls report. GBP/USD lost 0.21% to 1.5112 while CAD was surprisingly resilient (-0.05%) in the face of latest oil market signals and a fairly horrible employment report (see below). NOK -0.34%, CHF -0.31% and SEK +0.01%.
In bonds, US yields actually ended lower across the curve in a renewed bull flattening after Thursday’s post ECB and dollar-driven leap higher. 2s lost 1.2bps to 0.9388%, 5s were -2.8bps to 1.7055%, 10s -4.4bps to 2.2693% (having been as high as 2.3545% immediately after payrolls) and the 30-year -4.5bps to 3.0095%.
In commodities, WTI crude slumped back below $40 (-$1.11 to $39.97) after OPEC, rather than revealing any plans for production cut backs, instead lifted its output ceiling from 30m barrels to 31.5 mn. The message to OPEC members is ‘pump to your heart’s content’ (and pray we’ll eventually win back market share as higher cost producers go to the wall). Brent lost $0.61 to $43.23. Hard commodities continued to key positively off Thursday’s dollar drop, LMEX +1.59%, though iron ore lost another $0.72 to a fresh cycle low of $40.03. Gold jumped $24 to $1086.
Last week’s data for the w/e Dec 1 shows overall speculative long dollar positioning vs. G10 currencies slipped very slightly, to 391k from 399k (the latter matching the early 2015 high). This was mostly on a paring of the AUD net short (-46.6k from -57.1k) and GBP (-28.3kfrom -32.3k). EUR shorts actually extended into the ECB (-182.8k from -175.5k) so helping explain the violence of Thursday’s squeeze higher. JPY shorts were trimmed, -74.9k from -77.3k; NZD longs extended to 4.8k from 4.0k; CAD little changed (-39.0k from -38.6k) and CHF -24.8k from -22.2k.In rates, net speculative shorts in 5s blew out to 265.6k from 138.9k. 2s went from -53.8k to -70.6k while in 10s a net short of -48.1k flipped to a net long of 5.5k.
Looking at other data releases, the October US trade deficit came in worse than expected at $43.9bn (-$40.5bn expected) with commentators suggesting net exports currently look set to trim at least ½ % off Q4 GDP growth. Canada delivered a shocking November employment report and softer trade figures. Employment fell by 35.7k (consensus -10.0k),the unemployment rate ticked up to 7.1% from 7.0% (7.0% expected) and the trade deficit widened to C$2,7bn from a revised 2.3bn in September. Earlier in Europe, German factory orders (Oct) exceeded expectations rising 1.8% m/m (1.2%E, -0.7%P revised up from -1.7%).
CoreLogic RPData’s weekend auction clearance printed the lowest reading for 2015 at 59.2% compared to 60.1% over the previous week. Melbourne preliminary results show a 63% success rate down from 65.9% last week. In Sydney the preliminary clearance rate fell for the tenth consecutive week to 55.6% from 56.2% previously. Last week, nationwide auction volumes fell to 3209 from 3729.
Friday was also a busy day for Central Bank speakers. Of note, New Philadelphia Fed president Patrick Harker (non-voter) showed his colours saying “raising rates this year will, in my view, serve to reduce monetary policy uncertainty and keep the economy on track for sustained growth with price stability”. ECB President Draghi, in NYC noted “we are ready at any time to recalibrate our array of tools” and defended Thursday’s decision by saying the EC’s QE recalibration was ‘exactly the right one’ and that the ECB will reach its inflation goal ‘without delay.
We have another busy week of data releases. In Offshore markets, focus is likely to shift towards China with November trade figures on Tuesday, CPI/PPI Wednesday, retail sales, industrial production, fixed asset investment all Saturday. Japan releases revised GDP and current account figures on Tuesday. Over the weekend, Akira Amari, the country’s economy minister, predicted Japan’s recession will soon be exposed as an illusion with this week’s data revisions turning from contractionary to growth. In the US we get JOLTS job openings and NFIB small business Tuesday while retail sales and consumer sentiment are out Friday.
As for central banks, we have two BOJ speakers on Monday including Governor Kuroda. ECB’s Lautenschlaeger and Nowotny speak Wednesday, Bundesbank’s Weidmann speaks Thursday. Thursday also brings RBNZ, SNB and BOE rate announcements.
In Australia, the two highlights for the week are the NAB Business Survey Tuesday and Employment on Thursday. There is also the possibility of a regular December Interview Governor Stevens has had with the AFR weekend edition in recent years.
ANZ job ads kick start the week in Australia while in Europe we get German Industrial production (Oct) followed by Consumer credit (Oct) in the US. Fed Bullard is also scheduled to speak
On global stock markets, the S&P 500 was +2.05%. Bond markets saw US 10-years -4.43bp to 2.27%. On commodity markets, Brent crude oil -1.92% to $43, gold+2.1% to $1,085, iron ore -1.8% to $40.03. AUD is at 0.734 and the range was 0.7279 to 0.7385
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