News and views
Risk was generally bought around the US payrolls report, the 651k jobs lost matching the market’s expectation, but gloomy news afterwards reversed the gains. The Fed’s Dudley said the de-leveraging process is far from complete, and the economy’s momentum is to the downside. Fitch placed Ireland on negative watch, and S&P cut ratings for Lloyds TSB, Scottish Widows, and British Airways (now below investment grade). Late NY, a WSJ article said the UK Government could take its Lloyds stake to 75% (another step towards nationalisation). The S&P500 closed unchanged, oil +4%, and copper +2%. US treasuries weakened across the curve, up 6bp. US 3mth Libor continued its stealthy rise, +1bp to 1.29%, now materially above the 14 January 1.08% low.
The NZD, at around 0.5020, is unchanged from the close of Friday’s domestic session, masking a NY rally to 0.5090 after the payrolls report. The QV house price report released during the weekend was largely neutral.
AUD, at 0.6410, is only slightly lower than its Friday domestic close of around 0.6420. The AUD/NZD cross lost half a cent to 1.2750, although payrolls saw it as low as 1.2685.
EUR took off from 1.26 at the European open, to reach 1.2755, but the gloomy news noted above saw it fall back a cent. GBP’s 1.4180 to 1.4305 rally around the payrolls came to an abrupt end late Europe, plunging to 1.4040. The spectre of gilt purchases by the BOE saw 10yr bonds down 30bp. USD/JPY is unchanged at 98.20, notwithstanding a dip to 96.60 around midday Europe.
US non-farm payrolls jobs fell 651k in February, and revisions found an extra 161k job losses over the previous two months. The US has now shed 4.3 million jobs this recession, 2.4m of those in the past four months – numbers that are unprecedented since WW2. The revision to December made that the worst point of the recession so far, and indeed the worst month since 1949. The monthly number of job losses has at least stopped accelerating over January and February. The separate household survey found 351k job losses, partially correcting for January’s exaggerated 1.2 million. A jump in the labour force participation rate helped to propel unemployment from 7.6% to 8.1%, the highest since 1983. The industry breakdown showed that professional and business services has become the greatest source of payrolls job losses, as the recession continues to broaden well beyond construction and manufacturing. Hourly earnings growth slowed to 0.2% which indicates that it is not just lower-paid workers losing their jobs; for earnings to slow like that, higher paid workers must also be packing their bags. Hours worked fell a further 0.7%, their sixth straight decline and an early sign that Q1 GDP could slump just as steeply as Q4.
UK producer price inflation fell to 3.1% (3.7% core). Producer prices were falling sharply on a monthly basis over the past five months of 2008, as oil price declines were passed on and recession imparted downward pressure on prices. But over the first two months of 2009, producer prices have risen by 0.1% per month.
Outlook
This corrective rally, which almost touched 0.51 on Friday night, probably has another leg to it, to around 0.52, before the longer-term downtrend continues. A sell-off today below 0.4970, though, would invalidate that scenario, and point to 0.49. Our suggested range, then, is 0.4970 to 0.51, with a breach either way giving clues to the early week action.
