News and views
The eagerly awaited US payrolls report was a mild disappointment, once revisions were taken into account. That halted risk markets for only an hour or so in the upbeat environment, the S&P500 up 1.3%. Chinese officials had earlier said it would take years to implement stricter capital requirements for banks, the finance minister talked of strong momentum in the economic recovery, and a monetary policy member claimed China is experiencing a “V” shaped recovery and will be at a normal 8-9% rate by 2010. One message from the weekend’s G20 meeting (outside thee central theme of banking regulation) was that it is far too early to begin unwinding member countries’ stimuli.
The US dollar spiked 0.6% during the hour following the payrolls report, and then proceeded to sink 0.9% to 78.02, where it consolidated until the NY close. EUR initially fell from 1.4280 to 1.4192, followed by a rally to 1.4327. CAD was buoyed by a positive Canadian payrolls report from 1.1000 to 1.0824 versus the USD. USD/JPY was fairly stable above 92.80, except for a ten minute window after payrolls, when it traced a 92.28 to 93.25 range (intervention chatter).
AUD strengthened after the Sydney close, reaching 0.8458 pre-payrolls, falling 60 pips on the report, and then resuming to 0.8536, a new 2009 high. It has opened in Wellington around 0.8510.
NZD performed similarly, except for the ability to make a new high (the chatter suggests an option barrier being protected), topping at 0.6896, the eighth failed attempt to break 0.6900 since mid-August. AUD/NZD consolidated in a higher 1.2360-80 range.
US non-farm payrolls fall 216k in Aug, less steep than the –230k market consensus, although back revisions were not favourable, lopping a further 49k off payrolls in June and July. Whereas August’s fall was the smallest loss of jobs recorded in exactly a year (–175k in August 2008, just prior to the Lehmans collapse, being the previous lowest outcome), the separate household survey found a loss of 392k jobs, the steepest since May, and that, combined with a small rise in the labour force, pushed the jobless rate up to a fresh cycle high of 9.7%, a rate last seen in 1982-83. Other detail in the report was mixed. Hourly earnings growth was revised higher in June and July and rose a further 0.3% in August, providing helpful support to incomes growth, though hours worked fell a moderate 0.3% from an upwardly revised July at +0.1%. Service sector job losses of –80k were the lowest since –57k in August last year, which along with the total payrolls decline suggests that the labour market is getting back to a pre-Lehmans pace of deterioration.
Dallas Fed president Richard Fisher said the US economy is “likely to see a prolonged period of sluggish economic performance and uncomfortably high unemployment... financial headwinds like these take years to abate”.
Canadian jobs delivered the second big upside surprise for the year, jumping 27k in August (recall April’s 36k spurt). Part-time jobs surged 31k but full-time were down 4k, which takes some of the gloss off the report; but private sector jobs were up 49k, their first rise since September last year, which is good news. The jobless rate rose to a new cycle high (and the highest since 1998) of 8.7%. In other news, the not seasonally adjusted Ivey PMI rose 3.9 pts in August, a month when its seasonality is unclear, but we can speculate that auto manufacturing related activity had something to do with that gain.
Outlook
AUD and NZD outlook today: AUD broke above, and held, 0.8480, which argues for higher during the week ahead. NZD hasn’t yet broken above its own key level of 0.6900, but may follow AUD’s lead. Only minor data is due today in Australia, with wholesale trade (a GDP input) in NZ. NY is closed today.
