Sunday April 6, 2014 - 20:55:20 GMT
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Australia & NZ Morning Thoughts
Australia & NZ Morning Thoughts
|US equities, interest rates and the US
dollar all fell in the wake of the US payrolls report. While the report, net
of revisions, was decent (192,000 jobs were added in March, compared to
200,000 expected, with February revised up by 22,000), the market had
expected something much stronger. US equities initially reacted by rising to
a fresh record high but reversed an hour later and closed down 1.3%.
6:22AM, 07 Apr 2014
Global market sentiment: US equities, interest rates and the US dollar all fell in the wake of the US payrolls report. While the report, net of revisions, was decent (192,000 jobs were added in March, compared to 200,000 expected, with February revised up by 22,000), the market had expected something much stronger. US equities initially reacted by rising to a fresh record high but reversed an hour later and closed down 1.3%.
Interest rates: US 2yr treasury bond yields fell from 0.47% to 0 41%, while 10yr yields fell from 2.80% to 2.72%. The market read the payrolls report as conducive to retaining accommodative policy.
Australian 3yr government bond yields (implied by futures) fell from 3.11% to 3.03%, while the 10yr yield fell from 4.18% to 4.11%, both following US interest rates.
Currencies: The US dollar index was volatile following US payrolls but settled lower. EUR ended the session slightly lower at 1.3705, headlines the ECB is modelling a bond purchase program weighing on the currency and offsetting US dollar weakness. USD/JPY fell from 103.95 to 103.20. AUD rose from 0.9240 to 0.9308. NZD rose from 0.8530 to 0.8604. AUD/NZD consolidated the week’s rise in a 1.0800-1.0830 range.
The weekly CFTC futures positioning report showed speculative US dollar shorts were slightly reduced, EUR longs were reduced, AUD shorts were reduced (and are almost square) and NZD longs were slightly increased.
US non-farm payrolls rose 192k in March, and the usual upward revisions added a further 37k jobs to Jan and Feb, such that March was 5k down on February’s gain. Even so, payrolls averaged just 178k in Q1, down from 198k in Q4 last year and indeed was the second weakest quarter for jobs growth in the last year and a half (beating Q3 13 by 6k mth avge). Payrolls averaged growth of over 200k per month in each of the three quarters to Q2 last year, but since then only Q4 came close to that with a 198k average. The industry breakdown for March showed almost the same hiring gains as in February except that factory jobs fell 1k after rising 19k in Feb; and retail jobs rose 21k after falling 2k in Feb. There was a 0.6% bounce in average weekly hours worked in March after they fell 0.3% in Feb, essentially the reversal of the prior month’s snow disruption. Consequently Feb’s above trend 0.4% rise in average hourly earnings (as some were paid for hours they could not work) was followed by flat earnings in March as working hours normalised. Total hours worked rose 0.7% in March and with revisions Q1 saw hours worked rise 1.6% annualised after a 1.5% gain in Q4, which suggests a baseline for growth no weaker than in Q4, before inventories, net exports and productivity exert their often significant influence on the GDP bottom line. Finally the separate household survey showed a 478k jump in employment, accounted for by 503k new entrants into the labour market, The 0.2 ppts gain in participation to 63.2 meant that the jobless rate was unchanged at 6.7% in March. One thing is clear from all this: the snow disruption impact on existing payrolls was minimal, seemingly limited to construction jobs temporarily lost in December but recovered in January. There was also impact on hours worked in Dec and Feb, since normalised. That said, the snow seemed to coincide with a soft patch in hiring at the turn of the year (employers may have suspended job interviews and related activities) and although payrolls growth has picked up since then, it is yet to regain the late 2013 hiring pace.
Canadian jobs grew 43k in March, after falling 7k in Feb. Dec-Jan showed a similar see-saw hiring pattern, possibly weather–related. Indeed the unemployment rate at 6.9% is the same as it was in November, having risen to 7.2% in Dec and drifted lower since then.
German factory orders rose 0.6% in Feb, to be 6.1% yr higher than a year earlier.
UK house prices accelerated to an 8.7% yr pace in Q1, despite a 1.1% fall in the month of March.
Event risk today: The calendars are of minor interest today, NZ releasing QV house prices for March and Australia releasing job ads. Tonight there’s Eurozone investor confidence.
AUD/USD 1 day: The rally which started in late January resumed and targets above 0.9300 today.
AUD/USD 1-3 month: The RBA’s neutral policy bias and net short speculative positioning have supported AUD lately. We can now add potential economic stimulus from China’s authorities to the list. The medium term thus looks encouraging and 0.9400 looks feasible, but US dollar strength is a risk to our view.
NZD/USD 1 day: Needs to rise above 0.8605 today to signal a resumption of the uptrend.
NZD/USD 1-3 month: The break above 0.8600 last week has not been sustained and so we are back in the old multi-year contracting range. The RBNZ tightening cycle will remain supportive but much is already priced in, while a US dollar resurgence is in prospect with the upward turn in US economic data surprises.
AUD/NZD 1 day: Likely to consolidate below 1.0840.
AUD/NZD 1-3 month: By mid-year we expect another stab at 1.05 below. The multi-year decline has already undershot fair value by around 7% we estimate. That said, over/undershoots have historically been worth 10%, suggesting there is potential for lower still, particularly if RBNZ has hiked three times by June.
AU swap yields 1 day: In response to movement in Australian bond futures overnight the 2yr should open around 3.03% while the 10yr should open around 4.40%.
AU swap yields 1-3 month: Inflation prints have upside risk for the next couple of quarters, which in turn pose upside risk to the 2yr’s 2.80%-3.05% multi-month range.
NZ swap yields 1 day: In response to overnight changes in US and Australian bond yields the 2yr should open down 4bp at 4.05%, while the 10yr should open down 4bp at 5.04%.
NZ swap yields 1-3 month: The upward trend in NZ interest rates remains intact, mainly due to NZ’s improving fundamentals and RBNZ tightening cycle which is now in play. The 2yr targets beyond 4.30% during the next few months, while the 10yr targets 5.20%. The curve should flatten throughout 2014
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