Macro Morning: US jobs bash Australian dollar

morning1211

The taper is coming if the non farm payrolls that were released on Friday night and the revisions that went with them are anything to go by. The rise of 195,000 and the extra jobs added to already released data means that the “average” for the past six months is now above 200,000 which is an unequivocally good sign. There were jobs in finance, in manufacturing there were few but it seems overall with a bigger employment force these job gains kept the unemployment rate at 7.6% which is, at least on the way to being good.

Crucially for the markets it is just one data point closer to Septaper a fact not lost on traders in the euro and pound, both of which got a little smashed into week’s end as the clear distinction between BoE and ECB policy and what the Fed is planning on doing was bought into stark contrast.

The USD is likely to be on a tear in the next few months as this clear dichotomy between itself and its European counterparts becomes clear and as the US interest rate picture changes in favour of USD strength. Which of course means my target for 1.48 for sterling has now been achieved as you can see below and while the close is a little above the range bottom if the 1.4800 level gives way then my target becomes a move into the 1.42 low area.

gbp, gbpusd, pound, pound (gbp) price quote

The euro found support as well on Friday night and as you can see in the chart below but it too remains under pressure from the USD and looks set for a substantial further fall toward 1.20/21 over time.

eur, eurusd, euro, euro (eur) price quote weekly

It also looks like the legs of the Aussie’s chair are a getting kicked out from underneath it again with a big fall on Friday night to a close of 0.9060 on Saturday morning. Remembering that the USD is one of the key 5 drivers of the Aussie if it is going to strengthen then the AUDUSD is going to come under pressure – ceteris paribus. 

aud, audusd, australian dollar, australian dollar price quote, audusd 1 weekly

0.8916 remains my short term target with big resistance at 0.9320 and then 94 cents. Under 0.8916 then it is 0.85 and then eventually 0.8229.

Looking briefly at USDJPY it is getting a lift back toward 101.70 and above that 103.

The strength of non-farm payrolls on Friday night was enough to get stocks to concentrate on the recovery rather than the taper and the Dow closed up 147 points or 0.98%, the Nasdaq was 1.03% with the S&P 500 up the same amount for a rise of 17 points.

s&p 500, spx, s&p 500 chart, daily

As you can see in the chart above of the S&P 500 the rally at the moment is still consistent with an overall 2 month downtrend and we are likely to get a chance to see it the trend line resistance is going to hold or not in the next week based on the momentum build Friday. A break of 1640 would be very bullish for stocks and a rejection just returns focus to support at 1590.

In Europe the rally of Thursday was unwound Friday to a large extent Friday as the strength of US non-farm payrolls seem to have spooked the market. The fact that the US in the end closed higher probably bodes well for a rally tonight but it is interesting to see the difference on either side of the Atlantic. At the close the FTSE was 0.71% lower, the DAX tanked 2.36%, the CAC fell 1.45% and the Milanese and Madridian stock markets were around 1.7% lower.

Gold lower, crude higher

Commodities were a story of US dollars and Middle Eastern tensions as gold came under attack once again closing at $1222 oz down almost 2.5% but crude rallied by 2% as tensions in the Middle East and the huge draw in the US this week saw it close at $103.63 Bbl. This is not a good sign for the US economy if this rise is sustained.

Perhaps this is something that Dr Copper has recognised because it was off 2.96% at $3.08 lb.

Data

Today sees ANZ job ads which I thought were out last Friday but it is German trade and production data Monday night I will be watching closely and which I expect to knock the Euro for six. Draghi is also speaking.

Twitter: Greg McKenna

Comments

  1. It doesn’t matter whether the USA actually added 195k jobs or not…..it only matters “why they are telling you that” ! Ask yourself : Is it easier, cheaper and more effective to print numbers or print money (or not!)? Those who believe ‘the numbers’ that any Government, including ours, produces must surely question that belief in the face of all the other distortions that Governments/Central Banks have created over the last 5 years. ! 195k means one thing and one thing only …..interest rates, everywhere, are going up….

    • They are not really printing money Janet. The numbers are real and they are solid.

      A stronger USD is a great way to reduce our dollar.

      Sorry to be contrary but interest rates will be low for a long time, both here and in the USA although a mild rise is to be expected.

      • I’m glad you see this as mild, Peter! “The US 10 year is close to a doubling of yields in under twelve months and the 30 year is approaching a rise of 50%” ( from the other story on here by H&H)…and let’s not forget that this has been a 12 months where rates at the beginning of the period, and for several months thereafter, were tipped to fall….Where I am, rates are going to go up. I’m delighted about that!

      • But I am, Peter! Can’t you tell…I borrowed at just the right time. Anyone who wants the full value of their collateral should be doing likewise. After all 80% borrowed LVR on a $1m house today,is far more loot than even 90% when the property drops to $500k…..

      • Lol Janet – there are only a few areas where house prices have fallen substantially. Are you seriously still waiting for a crash?

      • Of course! It’s the expected that turns into the unexpected that makes the most money for those that are still in, after all……Take the A$ for instance. How many times did Greg call for a serious fall, before it finally happened? It’s hard for those who miss the initial drop to get in after its started. You already know that I see interest rates as the catalyst. But it could just be one of many other elements – financial, economic or political..I’m not too fussy…

      • That Minsky moment is a little harder to achieve after 5 years of people saving and paying down mortgages at generational low interest rates.

        The AUD is the shock absorber, it’s not the shock although it will induce some inflation in imported goods such as fuel.

        I admire your faith.

      • No it’s a jump, but it may also settle down as the markets come to grips with the taper. Markets tend to over react, as you know.

      • Oh…and those ‘few areas where prices fell substantially’. Did the people who bought there see or expect that? I doubt it!

      • SweeperMEMBER

        “Sorry to be contrary but interest rates will be low for a long time”

        How do you know that? Not saying you are wrong, but many, many moving parts determine interest rates and only a brave crystal ball gazer could give this kind of assurance.

        It’s pretty well accepted that the global saving glut led to *structurally* lower real interest rates from about 2000 to 2007. Since then they have been low for cyclical reasons. But what happens when China really does become a consumer led economy? And what happens if this is coupled with a secular uptrend in investment demand in high income countries? Well, in all likelihood real interest rates would be heading back to the 7%-8% range last seen in the 1980’s. And housing would probably commence an epic 25 year bear market. Sounds ridiculous, but no more so than saying interest rates will be low for a long time.

      • Janet! Welcome back (?) I have been most curious about your interest rate play. Though I have never been able to put my finger on what exactly that play is? Could you explain this a bit more for this simpleton!?

        “After all 80% borrowed LVR on a $1m house today,is far more loot than even 90% when the property drops to $500k”

        I get that you are borrowing now both while credit is “cheap” but most importantly “available” – but then I don’t know how you are deploying that credit.

      • sweeper – that’s a fair question re interest rates.
        My view is that at the moment if creditors demanded substantially higher rates they would not get their money back. Creditors hate taking haircuts.
        They know that, central banks know that, so rates wil be kept as low as possible to allow the world to rebalance.
        It’s probably a thin argument, but I don’t see a better way through the next decade. Debtors will be nursed as much as possible because they are vunerable and they are many.
        If you have an alternative view then I would like to hear it.

      • @Sweeper – your memory is very short! Australia had interest rates (o/n cash rate) in the 7.X% range only a few years ago in 2007/early 2008! Mortgage rates at that time were 9.x%.

        Did property fall into a 25 year bear market since then?

      • SweeperMEMBER

        Gonderb,

        I’m talking about real interest rates. In early 2008 inflation expectations in Australia were running at about 3.5% or more depending on estimates. Nominal interest rates are irrelevant (except for their influence on credit spreads at low levels). Borrowing at an 1000% nominal interest rate is a great deal if money is expected to depreciate by 1001% over the same period.

        Secondly, looking at Australian interest rates is pointless. Australia gets the real interest rate the world delivers. It doesn’t get a choice. It has some discretion on its inflation rate, but almost none on its real interest rate. Ergo, if something changes in the rest of the world (say a consumption shift in China coupled with a investment led recovery in the West), Australia will be whacked with higher interest rates. And land prices will have to adjust downwards (relative to incomes).

      • SweeperMEMBER

        Peter,

        The alternative view is that today’s creditors (Chinese consumers and US businesses in particular) start spending. And why wouldn’t they? For Chinese consumers, this is the stated aim of the Chinese government, and for US business, now is arguably the best time in the past 30 years to invest in plant (plentiful cash flow, cheap labor, cheap energy)

        If this happens, the real interest rate will want to go up. If CB’s don’t let it go up, as you suggest, we will get inflation. Which will be equally as bad for land prices. Because the longer inflation goes for and the higher it gets, the worse the eventual tightening or higher the real interest rate will need to be lifted, in order to stabilize inflation. As anyone who experienced the late 1970’s early 1980’s will know.

      • sweeper – It will be great if the citizens and corporations of the USA and China start to spend more, we will grow faster than I anticipate.

        Your alternative is much more optimistic than mine.

        Cheers.

    • Janet I am a recruiter here in the US and those numbers are very real. I am seeing it everyday….. believe what you want but from my side its definitely there. People are getting jobs left and right now. Not just in IT either.

    • Congratulations Janet. You’ve been calling this for a while when many others were telling us that there would be low rates for the next 16 generations. Please keep contributing here.

  2. Greg / DFM

    How far do you anticipate the AUD falling. Do you think we are going to see .50 in the future maybe or it settling in .70-.88 range?

    • Everyone will say I am mad but I think AUzd will be at .65 vs. USD by year end.

      TM.

      PS I was right about it being down to .90 by June … Well pretty darn close!

  3. “The numbers are real and they are solid.” says Peter.

    Funny thing is that trends forecaster Gerald Celente disagrees, saying most of the jobs are low quality and hospitality-related.

    Download/listen

    • Is that the same Gerald Celente who lost $300K in gold ETF’s with MF Global. Do people still listen to him?

      How much has he lost on physical gold?

      I would rather go with the word of LBS above as he works in recruiting in the USA.

      • It’s not his fault MF Global went tits-up.

        He’s lost nothing on gold afaik, because he bought most of it under $200/oz.

        Listen to what he says about the data, Peter. Play the ball, not the man. 🙄

      • In the end Peter he only lost 10% of his holdings – get your facts straight.

        And if he bought at the bottom when gold was around $200 per ounce then he is still astoundingly ahead considering the recent correction.

        Gerald Celente as a trends forecaster does have a very good record. He is no more a loony than anyone here in Australia pumping real estate.

      • So Bob you are not concerned that his gold has fallen 37% from peak. I would be if gold was an investment of choice for me.
        It’s not as though it has an income or serves a purpose other than the promise of capital gains.
        (Presuming that he is still holding his gold bullion)

      • I don’t lose sleep over other peoples investments Peter – you are the one who is personally upset that your gold is losing money for you as an investment.

        Buy rather high did you ?

        I have only concern where MY money is invested and on that point I am very happy.

        🙂

      • Oh Bob – I buy gold to lose money, that is my oft stated aim and it’s working a treat.

        But I don’t invest in it.

    • Channeling a certain Swedish playwright a bit there Peter with the “he got this wrong, so EVERYTHING HE SAYS FROM NOW ON must also be wrong” line of attack?

      I expected better from you……even though I also agree I’d rather hear it from someone on the ground like LBS too.

      • yep it was a bit of a cheap shot by me. In my defence I can find 100,000 commentators on the internet who all claim that the official data is a lie, and Celente is just one more of them.

        Although all data can be erroneous in the short term, the data from the USA over the long term has shown itself to be quite accurate, so I treat the sceptics with much scepticism. Their record has been quite poor over a long period.

        LBS didn’t have to confirm the data for me to accept it more readily than the opposing POV, but I do appreciate his candour and his unique position of being on the inside.

      • “I can find 100,000 commentators on the internet who all claim that the official data is a lie, and Celente is just one more of them” says Peter.

        Once again, Peter, you are making an error. Celente is commenting on the actual official statistics and break-downs connected with the new jobs created. He’s not saying the official data is a lie. Clearly you’d rather type quick comments here rather than listen to what he has to say.

    • Yeah, i’m quite concerned by the quality of the US jobs recovery as well; as, I don’t think that the old USA can return to its consumer-driven ways when so few of the jobs are higher-paying.

      I mean, sure, having a job is better than not having a job, but if that is a “recovery”, then they still have a long way to go. At least now they can get loans, eh? 😉

      • The US has always had a large proportion of low paying / minimum wage jobs (on a ridiculously low minimum of course as well).

      • Yep Burb. As pfh remarked the ‘quality of growth’ or ‘quality of jobs’ thus produced is fundamental. The job creation in the US looks spectacularly unbalanced and exactly the sort of growth you get from short term stupid policy.

        In economies such as ours, the US or UK, if the jobs we get are just domestically oriented low paid service industry jobs then we are just getting jobs financed by increasing debt.

        The US as the world reserve currency can get away with this for a while longer it seems. Nevertheless the inexorable march towards loss of that status is apparent. The UK with sterling still has remnants of a Reserve currency with its Banking centre. So again this process can go on for a bit however the signs of stress there are all too readily apparent. Our plan is to cover the problem with natural resource asset sales forever.

        I’m certain that debt can grow forever in all three places. I’m sure the Chinese and the Arabs will keep on taking bits of American paper in exchange for valuable resource forever. I’m sure the Chinese will never rebalance so that they will keepsupplying the US and us with goodies for free forever! Nothing could possibly go wrong in the UK.
        In Aus we will never in all eternity ever run out of assets to flog.

        Why worry mate? Who cares? Let’s party!

  4. DD MOst of those numbers are pretty well debt driven.
    The one thing that may rescue the US economy is the oil and gas story. If the US had to import zero oil and gas then its debt position may look quite different.
    The current process was set in train as a solution before that possibility became apparent.
    If US prosperity does come to fruition on teh back of oill and gas it will be by good luck not good management and will not make Bernanke’s myopic policies correct.

    • darklydrawlMEMBER

      heh… I don’t disagree, but the number do look better and Oil and Gas are playing a large role for sure.

      That said, I think nearly all good economic outcomes for any society comes with a large does of luck.

      You can screw it up easily enough, but no-one can ‘get it right’ without some generous dobs of luck thrown in with good policy. That is my experience at least.

    • dumb_non_economist

      John Maudlin has stated a few times and has linked to a number of commentators that the US recovery is limp and the job recovery is the same.