Market wrap: US dollar higher despite NFP disappointments - Westpac

Analysts at Westpac offered a market wrap.

Key Quotes:

"Global market sentiment: The US dollar, bond yields, and equities all closed Friday higher, despite a disappointing US payrolls report. During the weekend, North Korea fired another missile over Japan.

Interest rates: The behavior of US treasuries around the payrolls data was puzzling. US 10yr yields reacted to the weak data by falling from 2.13% to 2.10%, as one would expect, but within 15 minutes they had full retraced, and soon after were even higher at 2.17%. Fed fund futures yields ended the day slightly firmer, pricing the chance of a December rate hike at around 40%.

Currencies: The US dollar index only briefly dipped following the payrolls report, closing the day 0.2% higher. After a spike to 1.1980, EUR fell to 1.1855. USD/JPY dipped to 109.57 but later spent the most time around 110.25. It opened this morning lower at 109.2, probably a response to the missile tests. AUD rose from 0.7923 to 0.7991 and consolidated those gains, but it’s lower at 0.7940 at the open this morning. NZD traded around 0.7160, apart from a payrolls spike to 0.7207, and is lower this morning at 0.7140. AUD/NZD jumped from 1.1080 to 1.1142 – the highest since April.

Economic Wrap

US non-farm payrolls rose 156k in Aug (vs 180k expected), with 41k in downward revisions. However, nearly all of the disappointment was in the government sector, where we saw a 9k fall after 51k in downward revisions. The August month typically underperforms but is later revised higher. Hours worked fell 0.2%, but hourly earnings rose 0.1% (for a 2.5% yoy rise). The unemployment rate rose from 4.3% to 4.4%, while the participation rate remained at 62.9%. ISM manufacturing rose from 56.3 to 58.8 (56.5 expected). Hurricane Harvey rebuilding is expected to boost the number by early 2018. Consumer confidence (Mich. Un.) was finalized lower at 96.8 (97.5 expected) but is still near a 13-year high."