Friday’s US employment data was much better than expected, with the growth in non-farm payrolls exceeding expectations, previous months revised up, and average earnings rising. The gains came despite the fact that the figures were depressed by the unusually cold weather, which kept many more workers from work than usual. That suggests the payroll figures should be even better in March, once the weather improves. A small rise in the unemployment rate was actually a welcome sign of more confidence in the labor market, which is drawing previously sidelined people back in looking for jobs. Nonetheless the surprisingly good data did little to help the dollar. Ten-year Treasury yields jumped on the news but lost much of their gains to end only 5 bps higher (and they’re down 2 bps from that level in early European trading this morning). Implied rates on Fed Funds futures gained nearly 9 bps though as the Wall Street Journal’s Fed reporter said that the Fed might change its forward guidance approach at the next meeting. Stock prices hit a record high in the US but closed off their best levels. Yet this morning the dollar is substantially higher against only CAD, AUD and NZD, currencies that had their own reason to weaken (see below) and indeed is lower against SEK, CHF and EUR. The dollar did gain against most EM currencies though, but whether that was due to the US data or renewed tensions in Ukraine was hard to tell. In any event it seems that it will take more than one better-than-expected figure for the market to change its view on the USD, particularly in the light of weaker data from China. I still believe the weakening trend in AUD and CAD are the most likely plays in the market. The failure of GBP to make a new high for the year vs USD is worrisome, although I am not yet changing my view on the currency. CHF and JPY have diverged; CHF cannot weaken vs USD unless EUR weakens vs USD as well, so investors who are more confident than I am in the outlook and want to play a reduction in risk aversion might go considering buying CHF vs JPY. Copper hit a new low for 2014 on Friday after the default of Shanghai Chaori Solar Energy Science & Technology Co., the first default in China’s onshore bond market. That may signal a change in stance by the authorities that means troubled companies won’t be bailed out in the future. Copper continued falling in Asian trading this morning as disappointing Chinese trade figures for February released over the weekend added to the gloom. Exports fell 18.1% yoy, a marked contrast to the +7.5% gain that the market had expected. Taking January and February together to reduce the impact of the Lunar New Year, exports were down 1.6% yoy. To make matters worse, the Chinese central bank lowered its fixing for the yuan by the most since July 2012. Since a lot of Chinese companies have pledged metals as collateral for loans, it’s likely that a credit crunch there and further defaults are likely to cause more distressed sales of metals and commodities, putting downward pressure on the entire asset class. CAD was the biggest loser among G10 currencies as the market ignored the much better-than-expected trade data for January (a 0.18bn deficit rather than -1.2bn that was expected, largely because imports declined) and focused on the continued weakness in employment. The unemployment rate stayed at 7.0% but that was only because of a drop in the participation rate as there was a net decline in employment, rather than the gain that was expected. USD/JPY was relatively unchanged despite a weaker-than-expected revision to Q4 GDP (+0.7% vs initial estimate of +1.0% and expected +0.9%) and a slightly wider trade deficit than expected in January. During the European day, both the French and the Italian industrial productions are forecast to have risen on a month-on-month basis in January, after falling in December. Norway’s CPI for February is expected to have risen 0.5% mom after remaining unchanged in January. Canada’s housing starts are forecast to have been up to 190k in February from 180k in January. Two Fed speakers are scheduled on Monday. Philadelphia Fed President Charles Plosser speaks on Monetary Policy and Banks and the Rise of Global Protectionism and Chicago Fed President Charlie Evans will deliver a speech at Columbus State University.
Posted on: Mon, 10 Mar 2014 08:02:46 +0000
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