US non-farm payrolls were a little weaker than expected on Friday, stocks were a little lower, and currency markets recovered from the earth tremor that was Friday’s flash crash in the British pound.
This week the focus is on the US presidential race (Sunday’s debate and the fallout from the latest Trump revelations), Fed speakers, including chair Janet Yellen, and the potential for any further fallout for Britain and the pound. Traders in many asset classes will also be watching bonds closely. Was Friday night the high or are US 10s on the way to 2%?
In Australia, the release of the NAB business survey, Westpac consumer sentiment, and the Melbourne Institute consumer inflation expectations survey are all important scene setters for the local economy and markets.
Earnings season in the US also kicks off, so moves in the Dow and S&P will be felt here in local markets.
Despite weaker than expected payrolls expectations of a Fed hike are climbing. The US economy added 156,000 jobs in September, that’s a little less than the 172,000 the market expected, but August was revised higher by 16,000 mitigating the miss and the fact that the unemployment rate rose to 5%. Labour force participation rose to 62.9% and average hourly earnings rose 0.2% over the month, less than the 0.3% forecast, but right on the 2.6% year-on-year expectation.
Kansas City Fed president Esther George said September jobs was encouraging and the economy was getting closer to full employment. Bill Gross, investment officer at Janus Capital Group, told Bloomberg Friday “there’s nothing much there to keep the Fed from raising interest rates. Whether it’s November or December I’m not sure, but at some point they have to”.
The markets seems to agree, although December is the clear favourite, which is important for the Aussie dollar, and global bond markets.
US bonds rose 12 points last week breaking through the 2016 downtrend US 10-year Treasuries closed at 1.74% on Friday night. That’s the highest weekly close since June 3, as traders continue to increase bets the Fed will tighten this year. But the sell off in bonds also saw German 10s back in positive rate territory finishing the week at 0.02% – the highest close in 3 weeks.
Part of that is a reappraisal of the outlook for monetary policy globally as politicians go on the offensive. On the weekend, ECB president Mario Draghi was joined by BoJ governor Kuroda and Swiss National Bank governor Jordan in saying policy could be eased further. But like British prime minister Teresa May last week, Germany’s finance minister Wolfgang Schaeuble said “monetary policy reaches its limits with negative side effects…becoming more and more visible”.
Bond traders are getting titchy.
Australian Calendar – (courtesy NAB Economics, our emphasis)
The main local releases are Tuesday – the NAB Business Survey for September and August Housing Finance Approvals. Chicago Fed President Charles Evans is speaking in Sydney, also on Tuesday. The W-MI Consumer Sentiment Survey is released Wednesday, followed by the Melbourne Institute’s Consumer Inflationary Expectations report Thursday. The week is capped off with the RBA’s biannual Financial Stability Review on Friday with market focus particularly on housing.
The NAB Business Survey is my favourite monthly indicator for Australia – here’s their preview. As usual, we are offering absolutely no hints on the NAB Business Survey! Remember that the August Survey pointed to a somewhat patchy, but sustained improvement in the non-mining economy, with the major services sectors and construction sector leading the way. Some emerging softness in retail and wholesale conditions was also evident. The RBA’s recent rate cut seemed to have helped underpin business confidence in August, along with the resilience in business activity.
International Calendar (also courtesy NAB Market Economics)
Global : Earnings season kicks off in the US this week and there is more Fed focus with several speakers including Fed Chair Yellen and the FOMC September Minutes Wednesday.
US:It’s Columbus Day on Monday so the data flow starts on Tuesday with the NFIB Small Business Optimism index along with the Labour Market Conditions Index. Wednesday sees JOLTS job openings, the monthly Budget report, then the focus is on 20- 21 FOMC minutes. The key data day is Friday with the release of Retail Sales for September and the University of Michigan’s Consumer Sentiment Preliminary Survey for October. There are two Fed presidents speaking on Thursday-Friday (Harker, Thursday; Rosengren, Friday) along with Yellen, who is speaking at a Boston Fed Conference on Friday.
China: The September monthly reports start this week with Trade on Thursday, followed by CPI and PPI on Friday. The monthly money supply, yuan lending and aggregate financing report is also due, any time from Monday onward.
Japan: A very light week – Machine/Machine Tool Orders the picks, both Wednesday.
Euro: Sentix Investor and ZEW surveys, Industrial production, and Trade. Several ECB speeches.
UK: RICS House Price balance, Construction Output, and BOE Credit Conditions survey.
Canada: The main focus ahead is housing data.
NZ: The main economic reports are jam-packed into Thursday. These include the 2015/16 Crown accounts, Job Ads, the Performance of Manufacturing index, and the Food Price Index, all for September, along with the ANZ Roy Morgan consumer Confidence index, for October. The REINZ September housing report is also likely to be released this week.
Here’s the NAB’s summary of all the key data and events.