US Employment Report Contrasts with Canada’s Supposedly Positive Shocker
US Employment Report Largely in-line with Expectations, Contrasts with Canada’s Supposedly Positive Shocker. USDCAD Drops through 1.1600.
US unemployment rate jumps to 8.9% - highest since 1983. EURUSD trades above 200-day moving average.
MAJOR HEADLINES – PREVIOUS SESSIONSwitzerland Apr. Unemployment Rate rose to 3.5% as expected and vs. 3.4% in Mar. Germany Mar. Trade Balance out at EUR 11.3B vs. 8.0B expected Norway Mar. Industrial Production/Industrial Product Manufacturing out at -2.7% /-0.6% MoM, respectively UK Apr. PPI Input out at -1.0% MoM and -5.0% YoY vs. +0.8%/-3.5% expected, respectively UK Apr. PPI Output out at +0.6% MoM and 1.2% YoY vs. +0.2%/+0.7% expected, respectively Germany Mar. Industrial Production out at 0.0% MoM vs. -1.3% expected and -20.4% YoY Canada Apr. Unemployment Rate unchanged at 8.0% vs. rise to 8.3% expected Canada Apr. Net Change in Employment rose +35.9k vs. -50.0k expected and -61.3k in Mar. Canada Apr. Housing Starts out at k vs. 140k expected and 146.5k in Mar. US Apr. Change in Nonfarm Payrolls out at -539k vs. -600k expected and -663k in Mar. US Apr. Unemployment Rate out at 8.9% as expected and vs. 8.5% in Mar. US Apr. Average Hourly Earnings out at 0.1% MoM and 3.2% YoY vs. +0.2%/3.3% expected, respectively US Apr. Average Weekly Hours out unchanged at 33.2 as expectedTHEMES TO WATCH – UPCOMING SESSIONUS Mar. Wholesale Inventories (1400) US Fed’s Lacker to Speak (1700) Australia Apr. NAB Business Confidence (Mon 0130) China Apr. Producer/Purchasing Price Indices (Mon 0200) Japan Apr. Machine Tool Orders (Mon 0600)
Market Comment:
The US economy seems to have hemorrhaged fewer jobs in April than in the previous months, a sign that the galloping deceleration in the US economy may be slowing a few notches, though we should always wait for a few months of data before declaring any trend. A continued source of worry is the persistent steepness in the US unemployment rate as it jumped another 0.4% to reach 8.9%, the highest since 1983 (in the 1982-3 episode, employment stayed above 8.5% for 22 months with a peak at 10.8% in late 1982). As we have mentioned ad nauseum, an improvement in the US employment situation is nearly always presaged by a steady decline in the weekly initial jobless claims numbers. And other indicators are less lagging and more indicative of the future direction of the economy anyway, though many argue convincingly that the degree of unemployment in the US economy is severe enough to make things different this time around and could jeopardize the strength of any recovery. Also recall that the Reagan recovery was aided by a massive increase in deficit spending when the US current account was still positive and the national debt was a manageable 2% of GDP - now we have massive deficit spending from an already hopelessly profligate starting point of 5% of GDP and rising. If we get a modest recovery here in the short to medium term, it will likely be due to the massive stimulus measures more than anything else, and the Obama administration better hope that the economy can catch fire of its own accord down the road, because the public sector will soon be pushing on a string on the stimulus front.
The US employment numbers contrast sharply with the Canadian numbers for April, which showed unemployment. Some of the surge may be due to suspicious changes in the composition of the Canadian workforce (the increase was entirely due to an increase in the self-employed - not by companies expanding hiring), but the market didn’t care about the internals of the number and USDCAD pushed all the way below 1.1600.
On the risk appetite front, the equity markets showed strong signs of profit taking ahead of the US bank stress test announcements late yesterday ahead of the post-close stress tests. But as these proved a complete anti-climax with virtually nothing new of import emerging, risk appetite regained its footing today, though it was lower after the US employment report failed to show the kind of improvement we have seen out of the latest Canadian and Australian data points. US fixed income rallied strongly after the US data and thus capped the action in USDJPY, where another try at 100.00 seemed imminent. Again, higher yields in the US long end would support a further USDJPY rally through that key level, until then, we may continue to see rangebound trading.
Looking forward, it seems the market focus remains pinned on hopes for a recovery and the trajectory of risk instruments. 100.00 in USDJPY seems a good pivot point for either the extension of this rally in the short term, or its rejection. A key development yesterday was the rejection of the GBP rally in both GBPUSD and EURGBP as the BoE’s performance relative to expectations seems to have been judged rather dovish, while the market had already built in a good dose of pessimism on the EUR ahead of the ECB press conference. So 1.5200 and 1.5000 are the key lines in the sand on the close for next week in GBPUSD and the 0.8800 and 0.9100 areas in EURGBP look the most important.
Chart: EURUSD
EURUSD crossed above the 200-day moving average today after nicking the level yesterday and the USD index is now testing its 200-day moving average around these levels as well. This will be a key pivot area for this rally to hold if it is to continue. It also moves the bearish case higher than it was previously - in other words, a reversal only needs to make it to perhaps 1.3350 now for a more bearish outlook in the short term. Seeing is certainly believing for USD bulls, however, in this environment.
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