DXY is firming:
AUD held on but it was a wild ride:
CNY pressure is building:
Oil firmed:
Dirt fell:
Miners too:
EM dead:
Junk spreads have stalled:
As yields rebound:
Stocks stopped:
US data was mixed with a weak Services ISM but stronger jobs. Goldman:
Nonfarm payrolls rose 216k in December, 41k above consensus expectations and driven by continued strength in healthcare and government as well as a likely boost from mild winter weather.
However, payroll growth was revised down by 71k in prior months.
The household survey was weak, with large declines in household survey employment and labor force participation.
And while the unemployment rate was unchanged at 3.7%, the underemployment rate rose 0.1pp to 7.1%.
Average hourly earnings rose 0.44% month-over-month and the year-over-year rate surprisingly increased to 4.1%, in part reflecting upward revisions.
Our preliminary Q4 wage tracker stands at +4.5% on a year-over-year basis (vs.+4.4% in Q3) and at +4.3% on a quarterly annualized basis (vs. +4.3% in Q3).
We continue to expect three consecutive 25bp cuts in the Fed funds rate in March, May,and June on the back of lower core inflation, followed by quarterly cuts to a terminal rate of 3.25-3.5%.
A steady slowdown, then, still consistent with a softish landing and accelerating real wage growth (unlike for poor Aussies).
The snapback in yields does not have a lot of support here, which is perhaps why AUD did not fall.
I am not sure that the correction in risk assets is over yet, but the jobs report in and of itself doesn’t portend worse.
What is potentially worse is the ongoing shipping pressures that threaten the new supply chain price shock.
There are also weird parallels with the start of 2023 as strong data suddenly dispensed with recession fears as risk assets blasted higher.
However, we are much further down the disinflation track now so we’ll need to see a hard data pivot to really push yields higher.
I still see this as a correction in the AUD trend higher, which is supported by the ongoing pivot in CFTC contracts.
The market is still net short but the bears are being hunted:
