There were some very interesting moves on Friday night, not universally though, as bond and commodities did zip. But in the equity and forex space things were fascinating.
As it turns out, good news really is good news, and as we know that’s not always the case. Stocks surged for a start and at the bell the S&P500 was up 1.1 per cent (1805), the Dow was 198 points higher (16,020) and the Nasdaq was up 0.7 per cent (4062). For the S&P500 that’s the first gain in six sessions, reversing the losses for the five prior sessions, and taking the index back to where it was at the end November.
As for the actual numbers, US payroll employment rose by a very strong 203,000 in November, following a 200,000 increase in October. Otherwise, average weekly earnings and hours worked both rose modestly, which also points to a very good report.
The key figure though is the unemployment rate. This sank to 7 per cent from 7.3 per cent which, if readers remember, is the point at which the Fed had said it expected to end QE. You can see why I have long argued that the Fed has no credibility and that officials speak with a forked tongue. Policymakers here would be wise not to follow the US example and to rid ourselves of any Ben Bernanke disciples. Get rid of them!
Anyway, we are only 0.5 per cent point away from the threshold where the Fed said that ultra-low rates would remain appropriate – we could get there next month and there is of course no way the Fed will hike rates. Will they taper? They should – should have done so ages ago in fact, but I’ll be surprised if they do it soon. There has been some talk that it will come in December, but the Fed’s PR people in the press didn’t waste any time on Friday night explaining why the Fed probably needs more time to determine the implications of strong economic growth and strong employment growth. What does it mean? Lots of jobs being created and strong economic growth. It’s just so confusing!
Now, moves in the forex space were bizarre. The Australian dollar, for instance, dropped hard on the job figures – about 70 pips – and fell to a low of around 0.8996. In the next few hours though, the unit put on something like 135 pips to sit at 0.9134. The euro didn’t display anything like that volatility but was higher – about 40 pips – after the figures. Currently it sits at 1.3704.
Otherwise price moves were non-descript – the US 10-year yield was otherwise little changed at 2.85 per cent, gold fell about $3 or so to $1229, crude was 0.3 per cent higher on West Texas Intermediate ($97.6 ) and 0.6 per cent higher on Brent ($111.7).
For our market, the SPI suggests Aussie stocks will have a good day today, and why not – the US is booming! More than that, data out over the weekend shows Chinese exports grew at a faster than expected rate – 12.7 per cent (7 per cent forecast). Import growth was more modest at about 5.3 per cent. Actually, when I say ‘good’ I should say ‘okay’, because the SPI was only up 0.5 per cent which is well beneath other global markets. But hey, it’s still a gain, which isn’t bad given financial sector economists and our own central bank are doing everything they can to ensure we have a recession here. Unwittingly maybe, but still…
While we’re on the domestic market, we get some big figures out this week with the labour force numbers on Thursday. Recall that Australia’s economists said the unemployment rate would be 6 per cent at the beginning of the year – and in fact it was actually forecast to be 6 per cent or more by the end of last year. One year on, and the unemployment rate remains below this at 5.7 per cent which is still very low, while there hasn’t been any meaningful job shedding. Fair to say there hasn’t been job creation either but the fact is there is still no evidence this is a labour force on the brink of some huge downturn. This is a market where employers are holding off hiring because policy makers and economists are constantly warning them of some huge downturn.
That data piece will be the key for Australia (we also see home lending and confidence figures) but there is some big global stuff to watch out for as well – Chinese industrial production, retail trade etc comes out on Tuesday. Inflation figures are out today as well, while for the US there is a lot of Fed speak. Data-wise over there the key print will be retail sales on Thursday night.
Have a great week….