Australian employment, the NAB survey, consumer sentiment and fear.
That looks like the menu for Australian markets this week as stock, bond and currency traders, all of them, get nervous about how soon the Fed is going to start tightening after the US February non-farm payrolls printed another huge increase of 295,000. That’s 55,000 more than the market expected and February was the 12th straight month of job gains above 200,000. The unemployment rate fell to 5.5%.
Key to market moves at home and all over the globe this week is one simple question.
Is the US economy back at full employment. If it is, or at least close, how soon will the Fed will tighten rates.
The US economy, or at least its employment sector, is looking strong. Non-farm payrolls are averaging 288,000 per month over the last 3 months and, with the unemployment rate now down at 5.5%, is the Fed going to tighten sooner than expected? Certainly the big falls in US stocks on Friday night which drove ASX SPI 200 futures down 58 points in Australia and pushed US 10 year Treasuries up to 2.25%. On currency markets the Aussie dollar fell to 77.15 cents, Euro dropped to 1.08 — the lowest level in 12 years — and Sterling is back at 1.50. Gold and oil were both sold down as well.
This could be the start of the sell off of stocks many have been quietly waiting for. Bonds are the key — and all eyes will be on the 2.40% level in US 10s.
While traders fret about rising volatility hitting stocks, bonds and forex markets, the good news here in Australia is that the Liberal Party turmoil seems to be abating with improved poll numbers. Also, the intergenerational report appears to have gone well for Treasurer Joe Hockey. The focus is now squarely on framing the budget and selling the need for a continuation of fiscal discipline to a wary public.
The problem for Hockey, who doesn’t have to face the House this week as it is in recess, is that to retain the integrity of his intergenerational report (IGR) he has to deliver another tough budget which is something Cherelle Murphy, Senior Economist at the ANZ, noted last week. Murphy said the IGR “makes the case for an implementation of the 2014-15 budget measures proposed by the Government – or polices that have the equivalent impact on spending and revenue”.
It’s going to be an interesting couple of months.
Looking now at the data for the week ahead the Australian unemployment rate is most likely to attract the most attention on Thursday. The market is looking a reversal of last month’s 12,200 fall with a 15,000 increase in jobs for February. The unemployment rate is expected to stay at 6.4%.
More important, however, is the NAB Business survey. If there was only one piece of economic information on the economy I was allowed each month it would be this survey. It’s deep, rich in data and asks the right questions. It will be released at 11.30am Tuesday just after the ANZ weekly consumer confidence survey. Wednesday sees the Westpac consumer sentiment survey released at 10.30am. It’s also an important release and it will be interesting to see if the consumer strength in evidence in last week’s Q4 GDP shows up with stronger sentiment.
Offshore Japanese GDP is due Monday, there is a Eurogroup meeting Monday night while on Tuesday Chinese CPI is out with the market expecting a rise of 0.7% in February. The release of loans, industrial production, retail sales, and urban investment data is also important for China. This is particularly the case given the NPC downgraded the official growth rate to 7% from last years 7.5%. The RBNZ interest rate decision will be closely watched by AUDNZD traders Thursday while German PPI, CPI and US retail sales are also out.
Here’s Westpac’s excellent summary of all the key data and events for the week.