There has been plenty of attention on the US economy and tapering since the disappointing payrolls reading from Friday. Encouraging comments from the Beige Book about the US economy and a much better-than-expected Empire State manufacturing index reading kept the momentum going for the USD. The Beige book described the economy as having risen at a moderate pace across most of the US. Comments by Fed member Charles Evans, who is considered a dove, also made quite an impact. Evans said it makes sense to continue tapering in January, which reinforces the rhetoric we’ve been hearing from other Fed members since the payrolls reading.
Later today we get unemployment claims out of the US which are expected to come in at 327,000, slightly weaker than the previous week’s reading. At the same time we have CPI data due out and considering inflation is the other major metric the Fed is closely watching; it will also carry significant weight. The Philly Fed manufacturing index will also help shape up economic sentiment while comments by Ben Bernanke and Fed member Williams will also be in focus.
ASX surges led by cyclicals
The local market has had an interesting session and managed to outperform the region today despite some disappointing jobs numbers. The ASX 200 got off to a good start and managed to add to these gains after lobs numbers came in well below consensus. Today’s gains are fairly broad-based with cyclical names well in the lead.
The miners have raced ahead with some bargain hunting at play after recent underperformance while the banks are only mildly firmer. While the unemployment rate for December was steady at 5.8%, there was a big drop in full-time employment. Interestingly if the participation rate hadn’t dropped, the unemployment rate would have probably risen closer to 6%. The overall reading showed the economy lost 22,600 jobs, with 31,600 full-time jobs going and 9000 part time jobs added. The impact of the reading was devastating for the Australian dollar, as AUD/USD plunged to a low of 0.8796 and broke through December lows. This is the lowest level for the pair since August 2010.
Jobs put rates in focus
The implication of the disappointing jobs reading from an interest rate perspective is what many investors will be looking out for now. While the reading is alarming, it might not be enough to see the RBA cut rates in February. The RBA is more likely to wait and see how the current dynamics on a macro level play out as well as another month of data before making a call on rates. The tapering situation in the US is likely to keep the USD bid and put further pressure on AUD/USD. One of the main goals of the RBA in recent times was to depreciate the AUD and this is gaining traction at the moment. Perhaps a weaker AUD will help some ailing sectors of the economy and see a gradual improvement in parts of the economy in coming months.
US earnings will help shape up the global macroeconomic outlook and our earnings season kicks into gear around mid-February. Comments from the big names always offer good insight into the economic situation. After assessing another month’s worth of data and getting a better earnings picture locally in February, March in my opinion is when we’ll see action if required. Otherwise the RBA might just be happy to maintain a wait and see approach. It’ll also be interesting to see how analysts who had forecast a rate hike later this year react to this poor jobs reading.
Firmer open for Europe
Ahead of the European open, we are calling the major bourses firmer with the momentum from US and Asian trade set to continue. On the economic front we have German CPI, the ECB monthly bulletin, Italian trade balance, CPI for the region and German Buba President Weidmann speaks.