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With two central banks, a US GDP and jobs report all due out, we were always bound to see some nervous trading. While most FX pairs have been fairly muted, the AUD has been on the move on the back of a disappointing jobs report. The unemployment rate came in in-line, with consensus at 5.7%, but the employment change fell well short of consensus with just 1100 jobs added (as opposed to 10,000 expected). A sharp drop in full-time jobs remains a concern which most jobs created being part-time. The local economy has now shed 60,000 full time jobs over the past 12 months with an alarming trend in employment growth, the lowest since 2003.
While the jobs reading missed consensus, the lack of growth has been well flagged by the RBA already, with non-mining investment continuing to lag and hurt the east coast economies. As a result, I don’t feel this necessarily changes rate expectations going forward and the RBA is still likely to maintain its wait-and-see approach. Participation was slightly lower than consensus at 64.8%. AUD/USD dropped sharply on the data and printed a low of 0.947 after having consolidated at 0.95 for most of the week.
Equities weaker in Asia
Taking a closer look at equities, the Nikkei is lagging the region after the USD lost a bit of ground in a move which has capped USD/JPY. The ASX 200 opened lower and basically stayed that way with some big dividends weighing. Over in China, the Shanghai Composite is relatively flat with focus remaining on the PBoC’s open market operations.
European calls pointing lower, ECB hard to call
European markets are set to open modestly weaker as they follow the lead from a subdued/cautious Asia. With the BoE and ECB both on the calendar today, this cautious tone is likely to continue. EUR/USD will be the pair to watch today with the much-anticipated ECB decision approaching. The actual rate announcement is at 23.45 AEDT followed by the ECB press conference at 00.30 AEDT. ECB President Mario Draghi will then speak a few hours later.
EUR/USD was fairly well bid in US trade and is consolidating above 1.35 in Asia. There is plenty of talk around what the ECB is likely to do with most analysts in the camp that it will use today’s meeting as an opportunity to set the market up for a December cut. I remain of the opinion that reacting to the ECB is a better play than pre-empting a decision here.
It is hard to find a value trade from these levels and we are likely to see a choppy reaction to the decision and press conference. Should we see a jump in the euro, selling into strength after the decision could be a good play. Fed members Williams and Pianalto set the tone for the greenback in yesterday’s session and there will be more Fedspeak later today with Dudley and Stein. We also have the US Q3 GDP reading which is expected to show a 2% rise. Given the recent surprises to the upside, some analysts feel there is upside risk to this data. We also have unemployment claims due out with the market looking for a fall to 336,000 (from 340,000).
Australia’s dividend story locally
The Aussie market continues to hold its ground above 5400 despite ANZ and NAB dropping over 3% each after going ex-div today. Iron ore miners have failed to hold on to early gains despite iron ore remaining firm and edging closer to $140 per tonne. Commonwealth Bank has posted another record high today with interest ramping up after its bumper first-quarter results. Behind the scenes, Macquarie has printed fresh cycle highs today with activity continuing to ramp up in the corporate space. Tomorrow is another big day on the dividend front with over eleven points coming out of the market, with Westpac trading ex-div.