Risk is on after a soft non-farms print

It was a very soft read from the non-farm payrolls overnight as the belated September data was well short of expectations.

With 148,000 jobs added in September and the August print revised up to 193,000 the markets reacted positively to Fed speculation.

The inferences being drawn from these figures are completely expected. September was expected to be the first month of taper and the non-farm print is leading some to suggest that withdrawing stimulus too early will stall the US economy as employers may have been front-running the Fed in September. The figure is a long way away from Chicago Fed President Charles Evans’ desired figure of 200,000 monthly jobs added before he would see tapering begin.

This led to the most predictable call of the night; that the taps will be on full for all of 2013, with the earliest call of winding back stimulus late in the first quarter.

I see that as unlikely; the first quarter will see a new chairperson and light data in January and February due to seasonality. I see tapering in April, as December quarter numbers marry up with leading indicators from the March quarter.

This means one thing; the risk is switch on and won’t be turned off anytime soon.

The news from the US was horrible for USD, falling against all 16 major pairs; it saw the S&P reach a record intraday high as the flood of easy money continues to pump up the world’s benchmark index.

China questions

The move in the USD pushed the AUD through $0.97 as risk currencies benefited from the risk euphoria. However, there is a slight question regarding China that may rain on risks parade.

Yesterday saw the release of new home prices and it does show possible bubble issues. The four majors particularly were well above the central governments comfort level.

Business hubs Shenzhen and Guangzhou jumped 20% year-on-year in September while Shanghai increased by 17% and Beijing 16%. This rapid pace with which china property prices are moving could prompt Premier Li Keqiang to intervene further as his goverment tries to clamp down on ballooning prices.

That would be AUD negative and also mining exporter negative. The record iron ore numbers coming out of BHP and RIO suggest steel demand from China is on the up, most of which heading to state-run projects such as high-speed rail and the clearing of shanty towns for new construction. A slowdown in property as funding is withdrawn would be very detrimental to the AUD (which would actually be a good thing for exporters) and even worse for cyclical risk assets which are finally finding their feet after years of lagging behind defensives.

Thursday sees the release of HSBC flash PMI and consensus is for a read of 50.5, however I wouldn’t be surprised to see the read drop below 50 for the first time since July. The trade balance Saturday-week ago did show exports were below expectations and that may transfer to the manufacturing data of small and medium enterprises, expectations here are on the downside.

Ahead of the Australian open

The news of the day for the local market will be the local CPI print at 11:30 AEDT. Expectations are growing for a print on the upside of the consensus number as increases in fuel, utilities rates and property filter through.

With most economists moving their calls for another rate cut to March and April 2014, a lift in the inflation rate will raise the eyebrow of the RBA board members. With most calling the end of the easing cycle an inflation rate on a trimmed mean basis popping into the 2% to 3% band (expectations are for 2.1%) could be a final nail for easing.  

With risk switched on we are calling the ASX 200 up 24 points to 5398 (+0.45%). If the opening call is reached, my call that the market is heading to 5426 in the interim looks almost assured. The movements in BHP in the London and Australia is a very positive move for risk assets and should support trade today and that is back by BHP’s ADR which is suggesting the stock could jump a further 22 cents to $37.27 (+0.6%).

I see a very positive few sessions, however post Melbourne Cup, when the RBA is on the wires, could be a very different story and I am watching for a pull back.

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