The release of a bumper US non-farm payrolls, which printed an impressive gain of 287,000 during June, delivered an interesting end to last week.
It saw US stocks surge, dragging the September SPI 200 contract 61 points (1.2%) higher and suggesting a great start to the week in Australia when the ASX opens at 10am Monday. Higher energy, gold and iron ore futures on Friday, as well basic materials and financial stocks, will reinforce the weekend strength in a busy week in Australia and abroad.
No less than 12 Fed officials are speaking this week, so traders are likely to get a solid read on the impact of the jobs numbers on the Fed. But data is also important in Australia with the release of the NAB Business Survey, Westpac-MI consumer confidence, and the ABS labour force data on Tuesday, Wednesday and Thursday.
Both China and the US have huge data dumps Friday. And of course we have the first Bank of England MPC meeting since Brexit on Thursday.
It’s going to be a huge week.
This makes no sense, or is perhaps nonsense, or perhaps a lot of sense. Stocks at record highs, bonds at record lows. Friday night’s massive print of 287,000 new jobs in the US during June looks as aberrant as the downwardly revised 11,000 jobs created in May. But stocks surged, with the S&P 500 gaining an impressive 32 points, 1.53%, to finish the week at 2129 – just 5 points shy of the S&P’s all time high at 2134. At the same time the US 10-year Treasury yield closed at 1.3650 – just a few points above last week’s all-time low of 1.32%.
The jobs figure was 100,000 more than the market anticipated. so it should put the Fed back in play, and should have weighed on both the bond and stock bulls, but it didn’t. Neither did it help the US dollar, which ended the week under pressure against commodity currencies like the Aussie, Kiwi, and CAD, together with pressure from the Yen and gold.
It’s tough to square this circle of stock and bond strength with US dollar weakness when such a strong number is coupled with more people entering and getting paid more. That should assuage the Fed’s recent worry about the “uncertainty” in the jobs market and put them back in play. But perhaps all this was possible because when you add the May and June numbers together and divide them by two and you get about 150,000 jobs, which is still a miss on expectations for both months. That is likely to keep the Fed on hold for a while longer.
So where to for the Aussie dollar? The Kiwi closed the week above 73 cents. That’s its strongest weekly close since May 2015. And even though Aussie/Kiwi fell to 1.0350 during the week, the Aussie closed the week against the US dollar at a pretty strong 0.7560.
The Kiwi strength was on the back of changed perceptions on the path of RBNZ interest rates while the Aussie’s strength was despite S&P putting the country on notice it will probably lose its AAA rating. Both moves came despite the strength of the US jobs data and, as a result, both moves beg the question of how high they can run.
The Aussie traded up to 0.7640 in pre-Brexit trade and that looks a reasonable target given this week’s data flow. But could it run back toward 78 cents? If the Kiwi can stay above 73 it’s a pretty strong possibility. The short term daily uptrend and the long term weekly downtrend converge at 0.7810/20, so chartists will be watching.
Australian Calendar – courtesy NAB Economics (our emphasis) Main data events are Tuesday’s June NAB Business Survey, Wednesday’s Monthly Consumer Sentiment, and Thursday’s Employment report. Second-tier data worth watching include Housing Finance Approvals Monday and Inflation Expectations Thursday. The RBA’s Head of Financial Stability is speaking at a Banking and Financial Stability Conference on Tuesday, along with Fed Cleveland President Loretta Mester, who is also speaking at the Australian Business Economists’ Luncheon on Wednesday
Australian Labour Force – June While for me the NAB Business survey is the key event for the week, traders will be watching the labour force data very closely.
The NAB’s economics team say they think there could be a rogue bad number:
Thursday’s focus will be on the Statistician’s Labour Force report for June and what it might reveal about the underlying trend in job creation and unemployment together with the influence on the headline results of month-to-month sample rotation effects.
On the latter point, the Statistician noted in last month’s release that “in looking ahead to the June 2016 estimates, the outgoing rotation group in May 2016, which will be replaced by a new incoming rotation group in June 2016, had a higher employment to population ratio compared to the sample as a whole”.
NAB research suggests that this statistical sample effect could detract in the order of 30K jobs from the underlying trend in employment. It is for that reason that NAB’s estimate for Thursday’s employment outcome is a headline decline of 17K, substantially lower than the 10k consensus.
They also think the unemployment rate may rise to 5.8% from 5.7% now. But again we might see the statistical quirks in the data as important drivers of Australian markets when the data is released.
International Calendar (also courtesy NAB Market Economics)
US: A big week for Fed speak but otherwise a lighter data week initially before Retail sales, CPI and Consumer Sentiment on Friday. The Fed releases its Beige Book on Wednesday and there is no less than 12 Fed appearances, including the two from President Mester in Sydney.
China: Super Friday, the main interest with Q2 GDP and June month activity partials. Ahead of then, CPI/PPI is Sunday, and Yuan Loans and Aggregate Financing is due any day, with the June trade report due Wednesday as a lead in to Friday.
Japan: Mostly second tier data: Machine/Machine Tool Orders Monday, Tertiary Index Tuesday, Final Industrial Production for May on Wednesday.
Euro: Eurozone Finance Ministers meet Monday-Tuesday. Eurozone data includes Industrial Production Wednesday, then Trade and CPI Friday.
UK: Thursday’s Bank of England meeting is the main UK focus with the meeting live following Governor Carney’s comments. Also BoE Credit Conditions Survey Wednesday, RICS House prices Thursday and Construction Output Friday. BoE Governor Carney speaks on Financial Stability in Parliament on Tuesday and in Toronto on Friday.
Canada: Wednesday’s Bank of Canada meeting is the main focus.
NZ: RBNZ Assistant Governor John McDermott speaks on Wednesday; otherwise data second-tier data with Card Spending Monday, Food Prices Wednesday, ANZ Job Ads, Business NZ Manufacturing PMI, and ANZ Consumer Confidence Thursday. The release of the June REINZ House Sales report is pending this week.
And now here is the NAB’s excellent Diary of all the key data and events for the next week.