Last week kicked off with some weak Chinese data and ended with heavy selling in US and European stocks.
On Friday, late in Australia but running into the last day of the week for Wall Street, we got a weak US jobs report that provided the punctuation mark to a nasty five days many traders feared.
While the 173,000 jobs created undershot expectations the addition of 44,000 to previous months and the unemployment rating falling to 5.1% saw traders anticipate again that the Fed will be hiking rates soon.
Across the week the Dow Jones and S&P 500 lost 3.25% and 3.41% respectively while here in Australia the ASX 200 lost 4.2% in trade during the week with futures down again on Friday night after the US non-farm payrolls were released.
Also coming under heavy pressure during the week was the Australian dollar. It’s the most available, and liquid, proxy for China and Asian emerging markets. Of course the release of a very weak Q2 GDP number on Wednesday and the fall reported in retail sales during July didn’t help the outlook. That gave traders the energy to finally take the Aussie lower in Asia Friday before it was thumped to a low of 0.6901 on Friday night. That brought the Aussie’s losses to 3.74% for the week.
That move stands in contrast to the Euro which was flat on the week, the Pound which lost 1.24% and the Yen which rose 2.21% against the US dollar as it played its usual role as the forex safe haven play.
Strategists and forecasters are downgrading their outlooks for the Aussie and it’s notable that the expectation that the Aussie will trade down to, and possibly through, 60 cents has been growing. That is going to be worrying a lot of business owners and managers who were confidently told the Aussie should have been pulling up in the low 70’s this year. That in itself, the hedging that fear of more losses will cause, could also weigh on the Aussie this week.
Turning to the week ahead and it’s once again chock full of data and events for traders in Australia. Thursday’s employment data will be the highlight and the market is looking for a small increase of just 5,000 jobs.
But as Annette Beacher, TD Securities Chief Asia-Pac Macro Strategist, highlighted in her employment preview Friday: “It’s coming up to a year ago that Australian employment made headlines for the wrong reasons.”
Remember why? August is a seasonally weak month for employment in Australia (2009-13 average -95k,) but because the August 2014 ‘raw’ print was +32.1k, the seasonal adjustment process turned -95k into +121k. A month later, after the confession by the ABS that it would use “original” employment data for Jul-Sep to
avoid these seasonal adjustment issues, the September print was -30k, and ABS credibility went out the window.
A year later and after external consultants to the ABS have been and gone, these credibility issues have faded sufficiently for the RBA to have the view that the labour market is stronger than expected given ongoing sub-trend growth.
That means we could end up with more volatility than normal when the data is released says Beacher because “the risk of an upside shock based on the ‘seasonal analysis’ conundrum of 2014 cannot be ruled out.”
Thursday, 11.30am AEST is potentially going to be a huge event for traders.
In the lead up though Monday is fairly quiet with the release of the AiGroup performance of construction index and the ANZ job ads but traders will be busy adjusting to the weakness in US stocks Friday night. With the US out for the Labor Day holiday the market is likely to be somewhat thin and potentially whippy till US traders are back at their desks Tuesday evening, Australian time.
Tuesday sees the release of my favourite economic indicator: the NAB Business survey. There is risk of disappointment in this release given the NAB’s economics team said Friday that:
After a strong report in June, both Business Confidence and Conditions gave up some ground in July, both down four points, Confidence to 4 and Conditions to 6, both still around long term average levels. It was the continuing weakness stemming from mining and related construction firms (which includes a large share on
non-residential and engineering firms) together with the escalation of Chinese growth concerns that was putting firms confidence radar on alert in the July survey.
Tuesday we’ll also get the weekly ANZ Roy Morgan consumer confidence survey and, crucially, a speech from Luci Ellis, the RBA’s head of financial stability, on the timely topic: “Property markets and Financial Stability: What We Know So Far.” That’s at 9.05am AEST and the NAB’s economics team says “The market will be sensitive to any indication of heightened anxiety from the official monetary authorities about property markets, house prices, and progress with efforts to contain lending for investor housing.”
Wednesday we get the Westpac Melbourne Institute consumer sentiment survey and it seems the bank is fearful that last month’s sharp rebound, which saw the index bounce 7.8% to 99.5, might be reversed.
Here’s what Westpac said in its Australia and New Zealand Weekly:
The Sep survey is in the field over the week ended Sep 6. The situation in Europe has remained calmer, but financial markets have again seen sharp falls sparked by renewed concerns over China as well as unease ahead of a prospective Fed rate hike. The ASX is down 8.2% since the Aug survey, tipping the market over the 10% technical correction threshold. The AUD has also fallen sharply, down 3.6c to 70c US, marking the lowest survey-week read since Apr 2009. Sentiment may also be affected by a disappointing Q2 national accounts update that showed growth slowing to 0.2%qtr, 2.0%yr.
That’s not exactly optimistic.
Also out Wednesday is the ABS home loan data for July while RBA deputy governor Phil Lowe will be talking at CEDA at midday. His colleague, assistant governor Guy Debelle will be talking at 7pm AEST on FX Global Code of Conduct.
Thursday is employment day and there is nothing out in Australia on Friday.
Looking offshore, it’s a big week for interest rate decisions in the UK, Canada, and New Zealand. The bank of Canada is up on Wednesday night our, while Thursday is the big day for traders across the Tasman with the RBNZ’s interest rate decision and monetary policy statement. The Bank of England is also out Thursday.
On the data front the US and Canada are off on a holiday Monday. Germany releases the industrial production data. In the UK it’s house price data and EU-wise, business confidence is out.
Tuesday sees the release of Q2 GDP in Japan but markets are more likely to be focussed on Chinese trade data which has been elevated in global importance to the same level as US non-farm payrolls over the past couple of years. German and French trade is also out along with EU GDP for Q2. In the US it’s NFIB small business optimism.
UK trade is out Wednesday with the JOLTS job opening survey is out in the US.
Thursday China is back in the headlines with the release of CPI, PPI and new loans data while in Japan machinery orders and corporate goods prices are out. Thursday also sees the release of initial jobless claims and export and import prices in the US. Crude stockpiles are also out in the US.
Friday’s CPI in Germany and PPI in the US are the big events.
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