The US payrolls report has been cut, diced and sliced over the weekend and what exactly the numbers mean for the pace of tapering and whether the market’s roadmap, that QE will be cut $10 billion a month, is still the high probability scenario.
The comments from outgoing St Louis Fed president James Bullard after the payrolls print suggests the Fed (and the market) will look past this shocking jobs print, with the view that one jobs report does not make a trend. However, things get a bit more serious next month if we see a similar number, while economists will continue asking ‘why wasn’t the weather related issues shown up in the ADP payrolls data’?
Keep an eye on Fed speakers this week
The raft of Fed speakers this week will be of interest and their subsequent views on the December jobs report as well as how much more of an issue inflation is going forward. The market is going to pay great attention to the outgoing Fed Chairman and given that the title of the speech is ‘challenges facing central banks’, you’d imagine this subject is of great interest, especially considering extremely loose monetary policy hasn’t created any inflation and the jobs picture isn’t as rosy as they would have liked. I think it will also interesting to hear comments from Fed presidents Richard Fisher and Charles Plosser, as they become voters this year, thus their views become just that bit more significant.
Looking at price action in the markets today, there has been a continuation of the moves on Friday, with gold trading through $1250 and eyeing the downtrend drawn from the February high at $1268. Certainly there is good strength behind the short-term trend, with the MACD on the daily chart pushing above zero for the first time since November. Naturally we’ve seen strong moves in Aussie gold plays and when you see $16 million of short interest in names like Silver Lake Resources (SLR) you can see why it’s up 10%. On a side note, nickel is a commodity I rarely look at, but nickel plays (ones that don’t produce in Indonesia) are on fire on the back of news that Indonesia is banning mineral exports and again when you see a record $25 million of short interest in names like Western Areas (WSA) you can see this beaten up sector is seeing a number of short sellers buy back stock.
USD finding further sellers against the JPY and AUD
In terms of the FX market, USD/JPY has been the key talking point, trading through the May pivot high of 103.73, to a low of 103.26. Whether the pair can close below 103.73 will be key, but as said last week the risks are to the downside and could be eyeing a deeper move to 101.50, but it’s interesting to see at least two bearish reversal pattern at the recent highs of late.
AUD/USD was the best performer on Friday, with a good position adjustment underway. Data today in Australia has been OK, with a 1.1% rise in November home loans, while investment lending and owner-occupier loan value have increased 1.5% and 1.9% respectively. What’s incredibly poignant was that first home buyers accounted for 12.3% of all new owner-occupier borrowing, which is a record low and shows that first home buyers are just getting squeezed out of the market, especially in New South Wales, where this figure stands at around 7%. I am staying long AUD/USD, for a move to 0.9150 to 0.9160, where I’d look to reverse and short the pair.
Chinese equities are flat and will be keenly eyeing the financing data due out anytime over the next couple of days, while the ASX is lower by 0.4%, with losses fairly broad-based (56% of stocks are lower). European markets should see modest upside on open, pricing in a better finish on Wall Street, however as Asian markets have found sellers, so our clients have been better sellers of our out-of-hours markets. There isn’t a huge amount of data due today, so it promises to be fairly quiet affair on the markets, however it should be a further chance to reflect on the weak payrolls report (even weaker Canadian jobs report) and the upcoming US Q4 earnings report.
The Q4 earnings season contains upside risks in my opinion, premised more on the lowering of expectations of late. Stocks in the S&P 500 that were significantly extended have pulled back a touch and a month ago 31% of stocks were trading above the consensus twelve-month price target, however today we have 17% of stocks above that level. It’s also worthy of note that 108 companies have provided earnings guidance in the confession season, with 88% of these stocks giving negative guidance. It’s all about the banks this week; however GE and Intel will be in play.