A busy data schedule for the US later this week will either test or confirm Friday’s news


MAJOR HEADLINES – PREVIOUS SESSION

  • US Jul. Non-farm Payrolls out at -247k vs. -325k expected and revised -443k prior

  • US Jul. Unemployment Rate out at 9.4% vs. 9.6% expected and 9.5% prior

  • US Jul. Avg. Hourly Earnings out at +0.2% m/m vs. +0.1% expected and flat prior

  • US Jul. Avg. Weekly Hours out at 33.1 vs. 33.0 expected and 33.0 prior

  • CA Jul. Ivey PMI out at 51.8 vs. 54.0 expected and 58.2 prior

  • US Jun. Consumer Credit out at -$10.3b vs. -$5.0b expected and revised -$5.4b prior

  • NZ Jul. QV House Prices out at -5.0% vs. -7.1% prior

  • JP Jun. C/a Balance out at Y1152.5 bln vs. Y655.0 bln expected and Y1301.8 bln prior

  • JP Jun Machine Orders out at +9.7% m/m vs. +2.6% expected and -3.0% prior

  • JP Q2 Housing Loans out at +0.4% y/y vs. +3.5% prior

  • AU Jun. Home Loans out at +1.1% vs. +1.8% expected and +2.2% prior

  • AU Jun. Investment Lending out at -1.8% vs. revised +1.8% prior


THEMES TO WATCH – UPCOMING SESSION

(All times GMT)

  • JP Machine Tool Orders (0600)

  • Denmark Trade Data (0730)

  • Denmark CPI (0730)

  • Norway (0800)

  • Norway PPI (0800)

  • EU Sentix Investor Confidence (0830)

Market Comments:

The US non-farm payrolls were the major focus for financial markets on Friday and did not fail to live up to expectations in terms of surprises and impact. Coming in at -247k, the non-farm payrolls numbers was well below market forecasts of -325k (though some had gone even as low as -150k) but more of a surprise was the fall in the unemployment rate to 9.4% from 9.5%. The headline numbers made good reading, recording the smallest contraction since the Lehman collapse in April 2008, with equity and bond markets reacting in a prescribed fashion – Equities higher, bonds lower and US yields pushing up.

The reaction in currency markets was a tad more manic. While the JPY fell into the abyss, USD currency pairs were extremely volatile. Early USD weakness was quickly reversed and we were in USD buying mode with stops triggered with abandon. On the day the USD finished some 1.5% higher against the index.

Undoubtedly the better US data will re-ignite thoughts about recovery, “green shoots” and happy days.
However, officials appear to be still adopting a more cautious (sensible) attitude towards recovery. We have yet to hear of any political advantage/comments being taken from the better data and comments from US presidential advisor Laura Tyson at the weekend were peppered with “may” while consensus is now for a slow recovery. She added that there was no reason for a second stimulus package now and it was too early to say whether the change in the jobs situation was the start of a trend. Declining house values and an overhang of unsold homes still pose threats to a recovery.

Similar comments came from Australian Treasurer Wayne Swan at the weekend, reiterating that Australia’s recovery from the global economic slump would be a “slow process” and the jobless rate is expected to rise further. The pace of recovery is expected to be modest.

At the start of a new week, the question likely to be on everyone’s lips is whether Friday’s events were the signal of a new regime of a firmer dollar on better data, or whether it was a case of a market too heavily positioned in one particular direction. We have a slew of US data releases this week which may put this theory to the test, with US retail sales, industrial production, CPI and trade data all on tap. In addition we have the FOMC rate decision thrown in for good measure mid-week, which could be more exciting than of late as US yields turn higher. Market consensus is for no change though there may be further tinkering with its asset buying program. Will the tone of the post-meeting statement turn more positive after one set of data? The BOE quarterly inflation report on Wednesday will likely be the highlight for the UK. The UK Telegraph reports that the Bank could warn that the UK is at risk of sliding into deflation, hence its decision to expand QE measures at the last MPC meeting.

China’s economic data for July will be released in one lump tomorrow and hopes are that the recent trend of more-robust numbers will be continued. On this note, Chinese Premier Wen was quoted at the weekend as saying that China would maintain its current macro-economic policy stance aimed at bolstering domestic spending. He also commented that the effect of China’s stimulus measures would weaken over time and noted that the economy was still under pressure from declining global demand for exports.

The Asian session was quiet with Singapore centre away on holiday. Japanese exporters were seen taking advantage of USDJPY’s upturn and there was general profit-taking in most USD currency pairs from Friday’s closing levels. Data releases from Japan were largely ignored and a barren data slate for the rest of the day could see more of the same theme unfolding until the USD reaches lower levels.