After what happened on the Japanese market yesterday (down 6.4 per cent) - in fact the Asian region more broadly - I’m pleasantly surprised by Wall Street action last night. Gains were solid with the S&P500 closing 1.5 per cent higher (1636), the Dow was up 180 points (15,176) and the Nasdaq rose 1.3 per cent (3445). Now we know that recent lower tier data has been showing an upbeat picture of the US economy etc, but markets have ignored that following the excitement of the strong US payroll figures. I guess it’s a bit hard to ignore first-tier indicators though, like US retail sales last night. These showed a stronger-than-expected gain of 0.6 per cent in May (0.4 per cent expected) with sales less auto and gas up 0.3 per cent, following a 0.5 per cent rise in April. Good stuff which suggests US spending remained robust in the second quarter. Adding to that, jobless claims fell again in the week to June 8, only 12,000 to 334,000, but that’s low. Don’t forget jobs growth has been quite strong in the US, and these jobless claims figures point to further robust gains. It’s all good.
Now the other thing to note in recent price action has been the big swings in the forex market. The yen in particular strengthened through much of yesterday’s trading, falling to 94 from 96. Overnight that corrected a bit, rising back to 95, but the strengthening trend is still intact. For Australian dollar, it was up almost 1.5 cents to 0.9645, although euro was only up smalls to 1.3372.
Price action elsewhere wasn’t all that interesting - commodities were mixed with crude up 0.8 per cent to $96.7, though copper was off 0.3 per cent and gold fell about $7. US Treasuries then pushed higher (yields lower) and I think this has to do with a more explicit message from the Fed that ‘Whoa! Even if we taper QE nothing is going to really change. There is also talk that to hammer this home, the Fed may push out its guidance on when it may raise rates. So the US 10-year yield was 3 bps lower to 2.15 per cent, the 5-year is at 1.06 per cent and the 2-year at 0.29 per cent.
Otherwise the Aussie job numbers yesterday were great. Firstly, as small as the increase was, it wasn’t a fall like everyone was forecasting - there was no correction from last month’s strong gain of 45,000. That shows that the gains year-to-date are real and not just volatility. Secondly, the unemployment rate fell to 5.5 per cent - it didn’t go to the 5.7 per cent that economists at Goldman’s, AMP and Macquarie bank were forecasting. Recall though that in 2012, many of these same economists forecast that the unemployment rate would be 6 per cent or over by the end of that year. Indeed Goldman was out and about talking about another recession (I think they’ve talked about a recession in four of the last five years, East coast recession this time). Instead, the unemployment rate actually ended at a low 5.4 per cent. Halfway through 2013 the unemployment rate hasn’t changed much and sits at 5.5 per cent - and jobs growth has accelerated to an above trend rate. This is great, and lays in stark contrast to the fanatically morose and persistently incorrect commentary of those economists.
For the Reserve Bank the numbers should rule out a further rate cut - but it won’t. Labour demand hasn’t slowed, it has increased so far into 2013 and this matters. However, the reality is that the Australian dollar is the target here and the last press release suggested the board was still unhappy with the level of the exchange rate.
For the day ahead, there isn’t much for Australia or for the rest of the region. The SPI suggests we can expect a 1.3 per cent gain on our market today, but otherwise the key data to watch is tonight: This incudes eurozone labour data, the US current account, producer prices, industrial production and the University of Michigan’s consumer confidence survey.
Have a great weekend.
Adam Carr is a leading market economist. See Business Spectator's glossary for definitions of technical terms used in SCOREBOARD articles.
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