A much stronger-than-expected US jobs report once again puts the Fed into an awkward position.
The FOMC has been consistently surprised by the strength of the market and results like this highlight to the world that US monetary policy is not appropriately calibrated; their rhetoric is at odds with the facts.
A big result was expected, some 218,000, but the actual number blitzed even that with jobs rising 288,000 in April. Upward revisions to the previous two months also added on another 36,000. What this means is that more than 200,000 jobs have been created in each of the last three months (average of 238,000) with 2.4 million jobs created over the last year. Moreover, the unemployment rate dropped from 6.7 per cent to 6.3, while the number of unemployed fell by three-quarters of a million.
Equities failed to get much of a boost though, with equities on both sides of the Atlantic ending the session weaker.
The issue here is the Ukraine. The failure of the US, Europe and Russia to reach pragmatic solution has meant that the country has effectively slipped into civil war. The interim Ukrainian government has absolutely no control, and chaos certainly reigns. Of particular importance, Russia has threatened to cut its gas supplies to the Ukraine if it doesn’t pay its bills. Naturally this leads to concerns about the security of the EU’s energy supplies from Russia, which provides 22 per cent of the EU’s import needs.
So after an initial boost (the S&P500 was up 0.3 per cent at the high), Wall Street ended weaker. The S&P500 was down 0.1 per cent (1881), the Dow lost 46pts (16512), while the Nasdaq was off 0.1 per cent (4123). Over in Europe, the major indices were off 0.5 per cent on the Dax, 0.7 per cent on the CaC, while the FTSE100 rose 0.2 per cent.
Commodities had a decent session for a change, tensions in the Ukraine seeing gold bid up almost $20 to $1302. Crude too got a lift with Brent up 1.1 per cent ($108.6) and WTI up 0.6 per cent ($99.99). Otherwise copper rose 1.7 per cent and silver was 2.8 per cent higher.
Forex markets followed the lead elsewhere and didn’t really know what to do. Euro sold off initially, hitting a low of 1.3813 -- the bid came on and in the end the unit was up about 30bp for the session at 1.3886. Sterling followed the same pattern but is unchanged at 1.6883, while Yen is at 102.1. As for the Australian dollar, it sits at 0.9292 which is 20pips or so higher than at 1630 on Friday.
Rates had a wild rise. At the high the USD 10 year yield was up about 6bp to 2.68 per cent -- those strong jobs figures. From that point, bonds rallied and the yield came tumbling down -- about 10bp on the 10 year to end the session at 2.585 per cent (down 4bp for the session). The 5 year yield ended unchanged at 1.664 per cent (up to 1.74 per cent at the high), while the 2 year is at 0.42 per cent.
Elsewhere, the Chinese non-manufacturing PMI suggests the services sector accelerated in April, the index rising to 54.8 from 54.5. Then there were a few other US data points of note. Factory orders surged 1.1 per cent in March after a 1.5 per cent gain the month prior. Then the ISM survey for New York, fell to 50.6 in April, from 52. Over in Europe, the eurozone unemployment rate was steady at 11.8 per cent.
Markets this week. Naturally, it’s not going to be a great session today for the Australian market, although the SPI doesn’t point to a fall -- just a very small gain. Otherwise, there is a decent run of domestic data.
Today we see building approvals at 11.30am (AEST), while just prior to that we get ANZ’s job ads series and TD Securities inflation gauge. On Tuesday we see the RBA’s decision at 2.30pm (AEST) -- no change expected and the RBA has signalled for some time that rates will be on hold for a while yet. Trade data comes out before that at 11.30am (AEST). On Wednesday we get retail sales at 11.30am (AEST), while Thursday sees the employment data. The consensus forecast is for about 8000 jobs while the unemployment rate is forecast to rise to 5.9 per cent. Finally, on Friday we get the RBA’s statement on monetary policy.
Globally, the key data to look out for includes the US non-manufacturing index on Monday night. Chinese trade data is due Thursday at 12pm (AEST), while inflation data is out Friday. The ECB also meet this week Thursday (no change expected). That’s the bulk of it; there are some minor indicators out although I’ll highlight them on the day.
Have a good day.