Fallout from the Payrolls collapse

The disastrous US Non-Farm Payrolls (NFP) release on Friday has killed off any chance of a June rate hike by the Fed.

Click to enlarge

While the door is still ajar for a July rate hike, it has turned into a sliver from being wide open. While one data point does not a trend make, the worst NFP since 2010 was also accompanied by a large 2.6 index point decline in the US ISM Non-Manufacturing PMI heightening fears that there could be a more concerning trend developing. Certainly, should a similar NFP number be seen for June, the question no longer becomes when the next rate hike will be but more what the introduction of negative rates will mean for the US and the global financial system.

The US dollar collapsed 1.6% on the news, causing great ructions in the FX space. The Japanese yen and the Kiwi dollar both saw 2.2% increases, while the Aussie dollar and the Euro both increased 1.9%. The DXY dollar index collapsed below the lower Bollinger band (two standard deviations below the 20-day moving average), which often indicates an unusually extreme move and some investors often use this as a signal for mean reversion. The last time we saw a daily move this large was 3 December, but by 17 December half of that selloff had been retraced.

Click to enlarge

Surprisingly, the move did not have the same effect on the equity index. By the time the market closed, the S&P 500 had trimmed its losses to -0.3%. A range of other asset classes understandably benefitted, notably emerging market assets, commodities, gold and bitcoin.

The iron ore price regained the US$50 handle off the news, and BHP’s ADR gained 3.9%. This all bodes well for the ASX today, which we are currently expecting to open relatively unchanged from Friday’s close around 5319. However, it will not be a good day for US dollar earners or stocks like QBE that people view as a US rates proxy. It especially bodes well for Whitehaven Coal (WHC), our momentum pick last Monday (+11.3% on the week), which is likely to continue its irrepressible rise for the moment despite being one of the most hated stocks in the index.

However, Japanese markets are unlikely to be seeing the same optimistic start. The massive strengthening of the yen to the 106 handle is likely to see the Nikkei to open up 1.9% lower today.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

CFD’s zijn complexe instrumenten en brengen vanwege het hefboomeffect een hoog risico mee van snel oplopende verliezen. 79% van de retailbeleggers lijdt verlies op de handel in CFD’s met deze aanbieder.
Het is belangrijk dat u goed begrijpt hoe CFD's werken en dat u nagaat of u zich het hoge risico op verlies kunt permitteren.
CFD’s zijn complexe instrumenten en brengen vanwege het hefboomeffect een hoog risico mee van snel oplopende verliezen.