April 10, 2017

Markets Today: Rebel Without a Pause

US employment data fell below expectations on Friday, hitting the markets harder than the escalating problems in Syria.

Who’d have guessed that on a day when geopolitical stress was once more to rear its head via the bombing of a Syrian air-base by the United States, and US non-farm payrolls rose by less than 100,000 (98k and with the 38k worth of downward revision), that the dollar and US bond yields would end the day higher and equities virtually unchanged?

That’s the reality of Friday’s markets, with all of the APAC session ‘risk-off’ moves unwound during the offshore sessions.  The US strikes were seen for what they probably are – a one-off warning at this stage to Syria’s President Assad to desist from using chemical weapons in the ongoing civil war, while the sharp fall in the US unemployment rate to yet another new cycle low (4.5%) carried the day as far as the US labour market data was concerned. Hourly earnings at 2.7% down from 2.8% y/y were in line with expectations and not a market moving part of the report.

Following the report, and also taking into account other Us data released since earlier in the week, the Atlanta Fed lowered its Q1 ‘GDPNow’ estimate to just 0.6% from an already meagre 1.2% previously.  However NY Fed President Bill Dudley was on the wires noting that in  recent years Q1 data has come in unusually weak, that and something that looks like 1% might actually be more like 2%. More interesting for markets, Dudley said people had misunderstood his remarks earlier in the week about talking a pause from raising rates when the Fed starting trolls shrink its balance sheet, saying he meant only a ‘little pause’, and that ‘a pause is pretty short already, and I think a little pause is even shorter than that’.  And remember Dudley is regarded as a dove (hence today’s title, from the little known 1987 song from Public Enemy).

Other important news Friday was agreement between the US and China to engage in a 100-day examination of trade issues, which Commerce secretary Wilbur Ross described as a ‘sea change’ in the pace of discussions. Treasury Secretary Steve Mnuchin meanwhile said that the Treasury’s latest report on currencies would be reeled very soon (Reuters suggests this Friday) but which looks unlikely to label anyone a ‘currency manipulator’ at this stage at least.

FX saw the BBDXY index +0.3% on the day and 0.6% higher on the week The worse performing G10 currency was Sterling and following some very poor industrial production and trade figures, the former -0.7% against _+0.2% expected and the visible trade deficit blowing out to £12.5bn in February. GBP/USD fell 0.8% to $1.2371. Next worse was AUD/USD, down 0.6% to close the week at exactly 0.7500. The intra-day low of 0.7494 was a smidge above the March 9 low of 0.7491 but the lowest close since January 16.

In rates 2yr Treasuries gained 4.9bps to 1.289% (+3.3bps on the week) and 10s +4.1bp to 2.383% to be 0.5bps down on the week but, importantly, now back more  comfortably in the 2.30-2.60% range having briefly traded below 2.3% Friday on news of the US air strikes.

In commodities gold added $4.0 to $1,254.30 (up $7 on the week). WTI crude gained 50 cents to $52.24 (+$1.64 on the week) and Brent 40 cents to $55.24  Iron ore dropped a cool $5.5 to $75.45, catching up with Friday’s sharp fall in the Dalian futures market.  Coking coal held at $260 and steaming coal lost $1.45 to $88.20.

CoreLogic’s weekend market update reported yet another very strong week of auction clearances, a preliminary 77.6% nationwide, up from 75.9% last weekend and on the highest auction volume year to date of 3,424 in what is the weekend before aster.  Melbourne cleared a preliminary clearance rate of 81.0% up from a final 79.6% last week while Sydney cleared a preliminary 81.5% up from 78.0

Coming Up

While Syria-related geopolitical tensions remain high, nothing has occurred as yet over the weekend to suggest these will be the main early-week market driver. The US-China agreement to a 100-day assessment of trade issues following the Trump-Xi meetings goes someway to – for now – diffusing fears of a near term outbreak of protectionist actions from the US, while the Treasury report on currencies likely at the end of the week looks as though it won’t name anyone a currency manipulator. A Reuters report suggest ‘misalignment’ may soon become the preferred currency buzz-word, but which may not – yet feature in the Treasury report.

Having now hit 0.7500, we rather expect consolidation of last week’s losses than an extension, with exporters in particular likely to be in evidence below the figure. March labour market data on Thursday is likely to be the main domestic swing factor this week. NAB’s latest business survey in on Tuesday and monthly consumer confidence on Wednesday. Today sees housing finance approval and where the investor lending component will be in for close scrutiny, albeit it pre-dates APRA’s latest tightening of macro-prudential guidance.

Internationally, Fed chair Yellen speaks tonight. Retail sales and CPI are the key US data releases. China has CPI (Wed) and trade (Thu).


On global stock markets, the S&P 500 was -0.08%. Bond markets saw US 10-years +4.14bp to 2.38%. In commodities, Brent crude oil +0.64% to $55.24, gold+0.3% to $1,254, iron ore -6.8% to $75.45, steam coal -1.6% to $88.20, met.coal +0.0% to $260.00. AUD ended NY at 0.7500 and the range since 5pm Sydney time on Friday was 0.7494 to 0.7544.

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