US non-farm payrolls rise 115k in Apr

Market wrap

A disappointing US payrolls report hurt sentiment, pushing equities, risky currencies, commodities and interest rates lower. Only 115,000 jobs were added in April versus 160,000 expected. There were, however, positive back revisions and the unemployment rate fell from 8.2% to 8.1%, initially causing some confusion in markets before judgement was passed it was a weak outcome. Also reported was lower Eurozone manufacturing activity, adding to the negative market tone. The S&P500 closed down 1.6% and the CRB commodities index fell 1.4%. US 10yr treasury yields closed 5bp lower at 1.88%, earlier making a 3 Feb low at 1.87%. Australian 3yr bond yields fell 6bp. A few hours ago, results from European elections were announced. France has a new (socialist) president, and Greece’s two main parties (Pasok and New Democracy) combined are projected to have only a one seat majority.

The US dollar index (DXY) rose overall, but was sold immediately after the US payrolls result. EUR rose for an hour after payrolls from 1.3120 to 1.3180 but then fell to 1.3080, close to a technically critical head-and-shoulders neckline at 1.3050. A break implied a multicent fall. Safe-haven yen outperformed, USD/JPY falling from 80.30 to 79.30 after the payrolls smoke had cleared. AUD declined throughout the London and NY sessions, accelerating after the payrolls report, from 1.0265 to 1.0170 – a four month low. It opens this morning at 1.0156. NZD fell from 0.8010 to 0.7938 and opens this morning at 0.7945. AUD/NZD reversed lower from 1.2845 to 1.2795.

Economic wrap

US non-farm payrolls rise 115k in Apr. Payrolls growth slowed to even weaker than our low end 130k forecast. Revisions were to the upside worth 53k but they just emphasised even more the downturn in jobs growth since mid Q1. Just looking at the private sector, in Q4 job gain averaged 184k per month, accelerating to 232k in Q1, whereas private jobs rose just 130k in Apr (and 166k in Mar, when the slowdown apparently began). The separate household survey showed a 169k drop in jobs after a 31k fall in Mar which followed 8 straight gains which also confirms recent jobs market loss of momentum. Some of the industry detail such as the third straight albeit small fall in construction jobs (–6k since Feb) after a 45k gain in Nov-Dec and sluggish leisure jobs growth (12k in Apr after 40k-60k per month through Q1) also supports the notion that weather boosted the data through the winter. That effect is now unwinding as the seasonal factors adjust the data down because the usual April hirings took place earlier. Temp hiring averaged 44k per month in Jan Feb but only 6k in Mar-Apr. Other weakness is structural, such as the ongoing looses in government jobs, down 15k in Apr. One bright spot was a 29k rise in retail jobs reversing much of a 36k drop in Feb-Mar which may reflect retailers responding to stronger retail sales growth late in Q1. However flat earnings growth and slow 0.1% hours worked growth will constrain household income and spending unless consumers continue to dig into savings. The jobless rate fell from 8.2% to 8.1% because 349k people left the labour force count, including 173k who were previously jobseekers. All up, a weak report even though the jobless rate fell and revisions were to the upside.

Euroland retail sales rise 0.3% in Mar, though as with the Jan rise this merely reversed the pervious month’s drop. Even so, that leaves sales about fl at whereas they were falling persistently from July to Dec last year so best described as stabilisation at a weak level, and still down –0.2% yr.

Euroland PMI services revised down from 47.9 to 46.9 in Apr, an unusually large revision which pulled the composite PMI down from 47.4 to 46.7, the second weakest reading since the recession apart from October (46.5) last year when the banking system was freezing up and the ECB was yet to cut rates and announce the LTROs.

UK house prices down 2.4% in Apr after rising 2.2% in Mar on the Halifax index, which is when the stamp duty holiday for lower priced homes ended. Annual price deflation was little changed at –0.5% yr.

Market outlook

AUD and NZD Outlooks: French election result is arguably a mild negative for risky assets, while the Greek result requires confirmation, adding to uncertainty. There is Australian data today including retail sales, building approvals and business confidence.

AUD/USD 1 day: The break below 1.0227 (11 Apr low) was important for the bearish case and targets 1.0146 next. Any bounce today should be contained by 1.0250.

AUD/USD 1 month: Lower to 1.0100.

NZD/USD 1 day: The break of the nine-week old channel last week supports a bearish case for the weeks ahead but a bounce today could run as far as 0.8100 (sloping channel bottom).

NZD/USD 1 month: Lower to 0.7800. NZ 2yr swap yield: Opening 3bp lower at 2.55%.