Despite a stronger-than-expected payrolls report, US stocks ended mixed around zero Friday night. European stocks were belted. Events on the Crimean peninsula are obviously still a key concern and large rallies -- pro-Ukrainian and pro-Russian -- are being held, with accusations of violence from both sides. The Russians for their part are said to have taken a Ukrainian border post and detained Ukrainian troops. The Ukrainian government, meanwhile, increasingly has no control over its own country which in some areas is descending into chaos. Specifically, demonstrators in an eastern city stormed public buildings and allegedly forced its governor to resign.
Now as it stands, Crimea is set to hold a referendum on secession this Sunday. The Ukrainian government and Western powers are saying that such a referendum would be illegal -- because people shouldn’t be able to choose their administrators, I guess. Odd, I would have thought a referendum would be exactly what the US and Europe would want -- democracy and all that. Certainly beats the age old alternative of war.
Anyway, those payrolls figures! A solid 175,000 jobs were created in February; 150,000 were expected, and this is up from 129,000 in January. A great outcome, although the unemployment rate did edge up a tad -- to 6.7 per cent from 6.6 per cent. Participation was flat at 63 per cent. If you add to that another surge in US consumer credit growth, signs are that distortions from cold weather won’t last that long.
Global equities were generally weaker, especially in Europe given the Crimean crisis. The Dax was down 2 per cent, the Cac fell 1.1 per cent and the FTSE100 was down 1.1 per cent. Balancing European tribal disputes with strong economic data, US markets outperformed -- the S&P500 was 0.1 per cent higher at 1878, the Dow had put on 30 points to be at 16,452, but the Nasdaq was off 0.4 per cent (4336).
Rates sold off on those stronger employment numbers, traders here not particularly fazed by events in Europe. The US 10-year yield rose about 6 bps to 2.79 per cent. The 5-year yield is then at 1.63 per cent and the two-year at 0.37 per cent. Aussie futures sold off -- the tens lost 0.5 ticks and sit at 95.875, and the threes were two ticks lower to 96.98.
Commodities were mixed -- crude was higher given tensions in Europe, with WTI lifting 1.1 per cent to $102.7. Brent however was only 0.3 per cent higher for the session at $109. Otherwise gold dropped $13.6 to $1338 and silver slumped 3 per cent -- strong jobs less QE. Copper was then down 4 per cent on renewed concerns over China (discussed below).
Forex saw the Australian dollar about 50 pips weaker at 0.9036; the euro is flat at 1.3858, as is the British pound at 1.6733. The yen is at 102.95.
Elsewhere, German industrial production rose 0.8 per cent in January to be 5 per cent higher annually. Chinese trade data looked fairly atrocious and has some worried, yet again, about a slump in Chinese growth. Exports dropped 18 per cent over the year, although imports were up 10 per cent. These numbers have been distorted however given the timing of the lunar new year holiday and also rampant over-invoicing last year.
In markets this week, the SPI suggests our stocks will come off a little today -- 0.3 per cent. It may be worse depending on whether investors panic over the Chinese trade statistics. In terms of the news and data flow for Australia, the key data includes business confidence indicators from NAB (Tuesday), while Westpac’s new home loans and consumer confidence figures are due Wednesday. Employment figures are then due out on Thursday, with a Bloomberg survey showing the consensus is for a 15,000 lift in jobs. The unemployment rate is expected to be unchanged at 6 per cent.
Globally, it’s worth watching out for Chinese lending data today with industrial production and retail sales due Thursday. US data is comparatively light, the key stuff is due out later in the week -- retail sales on Thursday.
Have a great day…
Adam Carr is a leading market economist.
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