News and views
US payrolls report boosts risk appetite. US equities surged on relief only 54,000 people lost jobs in August, compared to expectations of 105,000. The S&P500, which had ranged quietly until the report, closed 1.3% higher. Commodities closed 0.6% higher, oil down 0.6% on a weaker US services-ISM report, but copper up 0.1%, and silver (+1.2%) making a post-March 2008 high. US 10yr treasury yields rose 7bp to 2.70%, having reached 2.76% immediately after the payroll data. President Obama spoke later on unemployment and the economy, fuelling rumours of new stimulus.
The US dollar index reacted to the better than expected payroll data, falling from around 82.50 to 82.00 during the US session. EUR rose from the Sydney closing level of 1.2820 to 1.2900. USD/JPY spiked 80 pips on the data (the yen being the preferred safe haven of the pair), but closed little changed overall around 84.20. AUD was just under 0.9100 before the data and surged to 0.9179, the session high. It opens in NZ this morning weaker at 0.9146. NZD’s session high was 0.7220, but it opens weaker this morning at 0.7185. AUD/NZD consolidated in a wide range between 1.2680 and 1.2740. It opens this morning little changed, despite NZ’s earthquake on Saturday expected to be its most costly natural disaster.
US private jobs growth slows but does not stall. Private payrolls grew 67k in August, down from 107k in July (revised up from 71k).
Total payrolls fell 54k, with most of the 120k public sector job losses due to temporary Census workers finishing up (the BLS says there are just 82k Census workers still on the payroll). The separate (and more volatile) household survey found 290k jobs growth, the first gain for three months, but despite this the jobless rate crept up to 9.6%.
Industry data showed construction jobs up 19k, factory jobs down 27k (mostly auto sector), retail down 5k but temp jobs up 17k. Hours worked and hourly earnings both rose 0.3%, helpful for personal income growth. Overall, nowhere near as weak a jobs report as we expected, but still indicative of slowing economic activity.
US ISM non-manufacturing slows from 54.3 to 51.5 in August. This more than reversed July’s surprise rise, and adds weight to the view that the US economy lost considerable momentum in Q3, notwithstanding the unexpected August jump in the factory ISM.
Euroland retail sales up 0.1% in July. With June revised up from 0.0% to 0.2% there does appear to be some modest retail momentum building. Annual sales volume growth is now up 1.1% yr, after several years of decline. Adding to the positive story, the services PMI for August was revised up from 55.6 to 55.9. It is increasingly clear that Euroland GDP growth will remain positive in Q3, even after Q2’s surprisingly strong growth burst (mainly in Germany although parts of Europe also benefited).
UK services PMI slows from 53.1 to 51.3 in August. This represents a significant deceleration in the pace of services expansion, and could be a function of aggressive government spending cuts or simply a pullback after the rapid expansion in GDP in Q2. Q3 GDP growth is likely to remain positive, but will be modest compared to Q2’s 1.2% growth.
Outlook
AUD/USD and NZD/USD outlook next 24 hours: AUD major resistance remains 0.9220, the August high. NZD should similarly be capped by 0.7220, with any knee-jerk response to the earthquake being downwards.
