News and views
Disbelief. The US jobs report made for a dramatic NY session, the much better than expected headline number producing a rally in risk, followed by a rumour the number was +200,000 in error (publicly denied by officials), which saw risk sharply sold. The higher unemployment rate contributed to the uncertainty, such that the first hour of US equities trading produced a 1.9% range in the S&P500, closing a modest 0.3% lower. Banks underperformed, down 2.1%. Commodities were modestly lower, the standout underperformer Baltic shipping, which fell 6.9% catching up to previously weaker iron and copper. The payrolls report frightened US treasuries to a 3.90% high, closing up 12bp to 3.83%. Among the Fedspeak, Lockhart spoke of tightening soon, while Yellen spoke of preparing for further shocks.
The US dollar index gained 1.7% during the NY session. EUR meandered around the 1.4250 level until the US jobs report, initially spiking to 1.4265 on the positive outcome, before plunging to 1.3935 on the disbelief. GBP ranged between 1.5940 and 1.6240, PM Brown’s refusal to resign and the cabinet reshuffle ignored by the market. JPY weakened substantially from under 97 to 98.90.
AUD spiked to 0.8125 on the jobs data, falling to 0.7920 on the later analysis; it currently threatens a break below the rising trendline at 0.7920.
NZD’s spike took it to 0.6420 (solid resistance at 0.6400), before falling back to 0.6255 for the remainder of the NY session. AUD/NZD did nothing, confined to 1.2650 +/- 40 pips.
US non-farm payrolls fell 435k in May, better than market forecasts, and revisions to previous months were positive for the first time in many a moon. The improvement was even more marked for private payrolls, as government hiring fell from 72k in April (which was mostly temporary workers for the 2010 Census) to -6k in May. The details of the survey weren’t quite as impressive: hours worked fell a steep 0.7% and average weekly earnings were down slightly. The separate household jobs survey recorded a 437k drop, but that followed a surprise 120k gain in April; looking through the monthly volatility suggests a trend improvement since January. The unemployment rate rose from 8.9% to 9.4%, the highest rate since 1983. So while the pace of layoffs is slowing, the bottom line is that the US economy is still some way from recovery.
UK producer prices rose 0.4% for both inputs and outputs in May. Input prices, which are heavily influenced by oil prices, are -9.4% on a year ago, a far cry from the peak rate of +30% last year. Core output prices fell from 2.5%yr to 1.2%yr.
Canadian employment fell 42k in May, reversing a 36k gain in April that mainly reflected a spike in reported self-employment. As in the US, the rate of job losses has slowed since January, but the unemployment rate of 8.4% was the highest in 11 years and is likely to continue higher.
Outlook
We look back to the key day reversal in AUD/USD on 3 June as the marker for a turn in sentiment towards risk currencies. NZD also seems to have formed a top around then, such that our 1 month outlook has a negative NZD bias again. We look for 0.6130, and then 0.6000, before an eventual move into the mid- 0.50’s. Today should be quiet, lacking any data, and with Australia on holiday, but minor support at 0.6225 could be tested.
