Australian dollar booms on American job shocker

As said, employment reports are not easy to trade. The US on Friday night was a case in point as the report missed huge, putting a rocket under the AUD. DXY plunged and is facing a serious test of recent lows:

The Australian dollar jumped against USD but is still trending down versus EUR:

Base metals went mad:

Big miners followed:

Em stocks popped:

Junk is cruising:

The US curve steepend as short end yields sank:

Growth rebounded but pretty meekly while broader stocks loved it:

US jobs were a seriously wipeout. 900k expected turned into this:

 

Total nonfarm payroll employment rose by 266,000 in April, and the unemployment rate was little changed at 6.1 percent, the U.S. Bureau of Labor Statistics reported today. Notable job gains in leisure and hospitality, other services, and local government education were partially offset by employment declines in temporary help services and in couriers and messengers.

…The change in total nonfarm payroll employment for February was revised up by 68,000, from +468,000 to +536,000, and the change for March was revised down by 146,000, from +916,000 to +770,000. With these revisions, employment in February and March combined is 78,000 lower than previously reported.

Wider indexes of growth are red hot so this was a genuine shock to the market. The first possible explanation is that it is a rogue report. It should be at least partly discounted.

The second explanation is that demand for jobs is very hot but supply is not. That is, participation has collapsed.

Which brings us to explanation three. Labour market mismatch. There are still heaps of unemployed but perhaps employers are struggling to find suitable candidates.

There is sure to be some truth in these two. The pandemic may have pushed many to retire. It lasted long enough to atrophy skills.

At the margin, there is also and argument that stimulus cheques and overheated markets such as crypto have drawn workers into speculation over employment.

It’s too early to draw firm conclusions but if it is the case that the US is suffering from labour supply shortages then stagflation becomes a real possibility as wage inflation is driven higher while supply-side expansion is choked off.

Anyway, for now, the US labor market recovery has some sticky questions to answer and while that is the case the Fed will be going nowhere, lending commodities and the Australian dollar a strong updraft.