News and views
The eagerly awaited US payrolls report was a mixed affair which the markets took to be slightly positive overall. US equities firmed slightly on the data, before making a fresh 2010 low and then rebounding near the close on strong US consumer credit numbers as well as speculation the EU would bail out Greece. The S&P500 closed 0.3% higher. The weekend’s G7 meeting in Canada was a less formal affair than usual but made no comment on fx, Eurogroup chairman Juncker saying they stuck with October’s comments (too much fx volatility can hurt the economy and China’s currency flexibility is welcome). Greece was discussed, as were financial regulation and stimulus exit strategies. US dollar strength saw the commodities index CRB 1.9% lower, with oil (-2.7%), copper (-0.8%) and silver (-0.6%) all making new 2010 lows. US treasuries shed 4bp across the curve on safe haven buying.
The US dollar extended its mid-January rally, reaching levels last seen in July. EUR broke below its 1.3650-1.3750 congestion area to a 1.3586 low, but rebounded to that area on the strong equities finish. Portugal’s passing of a law which has negative fiscal implications weighed on EUR early in the session. USD/JPY consolidated above 89.00.
The stronger US dollar wasn’t entirely harmful to the AUD, which closed slightly higher at 0.8684 after a dip in NY to 0.8578, and opens this morning at 0.8705.
NZD also fared relatively well after making a fresh year low at 0.6808, closing at 0.6895. AUD/NZD initially dipped to 1.2540 before consolidating just above 1.2600.
US payrolls jobs fell 20k in Jan, not far off Westpac’s –40k forecast, but weaker than the consensus for a 15k gain. Annual benchmarking revisions (including new seasonal factors) deepened the extent of job losses in much of 2009 although November was revised up by 60k. Even so, the 3 month average job loss in Nov- Jan was –35k, compared to an average of –220k over the previous three months (Aug-Oct). Those numbers suggest that the job market was close to stabilising at the turn of the year, but not yet in job creation mode. The unemployment rate fell from 10.0% to 9.7% in Jan.
US consumer credit fell $1.7bn in December, the smallest drop in almost a year. But that follows a record $21.8bn decline in November, so the overall picture remains very weak. Recent changes to credit card legislation may encourage increased use in coming months.
German industrial production fell 2.6% in Dec, the second steep fall in three months – more evidence that the Euroland economy lost growth momentum in Q4 (GDP data for Q4 due 12/2).
UK producer prices rose sharply at the input stage in Jan, up 2.0%, reflecting the weaker pound and higher oil prices, but output price gains were more subdued, up 0.3% for the core PPI, pulling the annual pace of gain back from 2.6% yr to 2.5% yr.
Solid Canadian jobs report. The 43k jump in Jan jobs was better than expected but back revisions made recent history less buoyant. The three month average gain of 29k in Nov-Jan compares to 17k in Aug-Oct and –31k in May-Jul so the trend in Canadian jobs is clearly improving, also evidenced by the downswing in the jobless rate from 8.7% in August to 8.3% at the start of 2010.
Outlook
AUD/USD and NZD/USD outlook today: AUD should again hold above 0.8600 support, given its resilience on Friday night. NZD should hold above 0.6800 unless today’s house price report delvers a negative surprise.
