Scoreboard: Upside-down town

Solid jobs data was widely interpreted as weak, cheering investors who hope for a taper delay.

Strong is the new weak. It’s been a trend – the trend really – for this whole expansion phase. I mentioned this as a risk on Monday and as it turns out, the quite solid US jobs gains of 148,000 were indeed described as ‘sluggish’, ‘tepid’, ‘weak’ a ‘jobs stumble’ etc. Sure, the result is weaker than the expectation for 180,000, but it’s still a solid outcome. Moreover, revisions to past months data was a net positive for jobs growth, although a small net positive of 9,000. Still, August’s result was revised up to 193,000 from 169,000 although July’s was revised down to 89,000 from 104,000. That gives a three month average of 148,000 which is a little below the 12 month average gain of 185,000. Lots of numbers there I realise but they are unequivocally robust. The unemployment rate itself fell again, to 7.2 per cent this month which means the unemployment rate has declined by nearly half a percentage point over three months.   

Solid jobs growth doesn’t mean the Federal Reserve won’t delay the taper though. They were always going to do this, regardless of what the numbers showed last night. And they will delay the taper. Price move’s last night were basically a reflection of that fact – it’s the only game in town – and around the time the data was released, the Australian dollar shot up over 0.97 USD to sit at 0.9705 or about 40 pips higher than yesterday at 1630. That’s a USD move though and the dollar index overall was down 0.6 per cent – euro up over a big figure to 1.3780. Yen had a weird session, following global moves after the payrolls, although the recovery was quick and gains were quickly given back – only for Yen to strengthen again. As it is, JPY is at 98.12 from 98.37.   

Elsewhere the US 10 year bond yield dropped about 9 bps to 2.52 per cent – a week ago the yield was 2.67 per cent. Then we saw gold shoot up $25 to $1341, silver was 2 per cent higher and even copper got a boost – 1.2 per cent. A classic quantitative easing forever trade and most people now aren’t looking for a taper until well into 2014 – with risks that gets pushed out, regardless of what the data shows.

There wasn’t really a lot of other news flow. Remaining data was minor although generally positive with US construction spending up 0.6 per cent and the Richmond Fed manufacturing index up to 1 from 0. So equities also found a reasonably decent bid, driven by no taper, solid economic data and decent earnings – with about 20 minutes or so left to trade, the S&P500 is 0.7 per cent higher (1756), the Dow is 95 points higher (15,488) and the Nasdaq is up 0.3 per cent (3932). By sector, basic materials, healthcare and consumer goods were the key out-performers with Tech and financials weighing heavy.

For our market, the SPI points to a 0.6 per cent gain for our stocks while the key economic data will be consumer prices. Despite the expectation for reasonably decent quarterly gains of 0.8 per cent on the headline and 0.6 per cent on the cores, headline rates should fall to 1.8 per cent year-on-year on the headline (from 2.4 per cent), while core rates should moderate from around 2.4 per cent to 2.2 per cent.

Looking abroad we see Chinese business sentiment indicators at 1145 AEDT, while tonight there isn’t much. The Bank of England’s minutes and then US house and import prices.   

Have a great day…

Adam Carr is a leading market economist.

Follow @AdamCarrEcon on Twitter.

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