If markets fall on uncertainty, then it’s fairly bullish that global stocks haven’t seen too much stress on the back of the US payrolls report. We, like most people, had hoped for a strong jobs number, not just because it means more people are obviously being employed, but also because it would have solidified expectations even further for Ben Bernanke to announce the Fed were cutting the pace of its bond buying program.
With 169,000 jobs being created in August, it takes the six month average to 160,000. While if the Fed takes a look at the actual trend, the Q3 average gain at 136,500 is 25% below Q2 and 34% below Q1. Recall influential Fed president Charles Evans said some time ago that he wanted to see payrolls average 200,000 before he would consider the job market to have met the substantial improvement test. The question they have to ask themselves is whether the payrolls report was sufficiently weak enough to change the majority’s stance for a September tapering exercise. The fact the US ten-year treasury is at 2.94% and the two-year is at 0.45% suggests the market still feels this Fed meeting is likely to herald an announcement, although if it does occur it will be a token amount and again offset with dovish forward-guidance on future rate hikes. This doesn’t change our longer-term USD bias, but has certainly taken some of the heat out of the recent move and you could even make an argument that with the ten-year now at 2.94%, as opposed to 3%+ (had we had a payrolls print closer to the whisper number at 200,000), the Fed could be more inclined to be aggressive.
Traders through Asia haven’t really shown any concern at all on the jobs number, despite a lacklustre US tape. It’s interesting that had we have seen a slightly below consensus print three months ago (with revisions to prior months); we could have seen a strong rally in the US, given it would alter the market’s perception that the Fed could be buying bonds for longer.
Weekend news has largely been positive and this is reflected in a 3.3% gain in the China CSI 300 and 2.5% gain in the Nikkei. The ASX 200 has underperformed (closing up 0.7%), however it generally doesn’t have the same sort of percentage moves relative to these markets on an up day anyway. On the forex side, traders have focused most of their attention again on the AUD/USD , crosses and USD/JPY.
AUD/USD found sellers in morning trade, hitting a low of 0.9167 and coincidentally testing the neckline of the inverted head and shoulders pattern. The fact it rebounded could be very telling and, despite a weak ANZ jobs print (down 2% and now down seventeen of the last eighteen weeks), traders took solace from moves in China and bid the pair back to the 92 handle. Technically this pair could squeeze to 0.9400 and given there are 71,500 of short contracts held by futures traders (as of last Tuesday) this could become reality. China’s trade balance widened to $28.6 billion and while iron ore and copper imports both fell over 5%, the actual level of imports from Australia continued to gain and is now up 5.6% year-to-date. August CPI and PPI also came out as expected, although it’s been sometime since inflation was a major concern for China. The weekend election in Australia hasn’t really been a major market issue and traders are focusing on other issues.
(Daily chart of the AUD/USD)
