NFP fails to excite rest of world

Non-farm payrolls (NFP) data showed 248,000 jobs were created in September and unemployment fell to 5.9% (a pre-2008 level). Both were very positive figures and well ahead of expectations.

Non-farm payrolls
Source: Bloomberg

However, at 34.6, the average hours worked was still well below the historical average, showing part-time work is more prevalent than full-time. The labour market still has plenty of slack in it.

The strong employment numbers mean the economy is moving, but it’s not so strong that the Fed would jump the gun with moving rates. A mass rally on Friday night saw the S&P pop back above the uptrend line and the futures market back away from the 5% pullback level – these are positive momentum signs.

However, Friday’s rally (the strongest in the second half of the year) only just offset Thursday's slide, which was the strongest since June. The US markets are yet to really experience the slide Europe and Asia has seen. Looking at it from an Asia-centric point of view leaves me with the view that volatility will be up come 31 December. The US markets are also likely to see a similar pullback to the one seen in rest of the world over the past five weeks. That is going to put more pressure on the rest of the world.

I find it very telling that, despite the rally on Friday night, the futures markets for the rest of the world have hardly shifted. The ASX is a dozen points higher by a dozen points, while the Nikkei looks like adding 1.1% – most likely due to the shift in in USD/JPY, which moved back towards ¥110. The inverse correlation remains rock solid. The AUD moved back towards four-year lows on the non-farms and $0.8660 remains a key target. European futures also remain subdued in the Monday morning trade, despite mixed trade on Friday.

Intraday and daily moves remain volatile and, despite the large fall in the VIX on Friday, intraday price action is strong – highlighted by the fact that the US had its largest week of trade last week. The strong intraday moves show the market itself is having a debate about whether the five-year rally can continue. Remember the US market will be left to its own devices from 1 November as the asset purchase programme finishes and rate hikes are debated.

Ahead of the Asian open

Hong Kong is inching closer to some form of ‘clash’. The protests are moving into their tenth day, meaning the Hong Kong Chief Executive is coming under increasing pressure from Beijing to act and clamp down on dissent. With the deadline to clear the streets only hours way and no sign of movement from the protestors, will a clash occur? The open of the Hong Kong futures at 12:15 AEDT will be lively if we do see clashes.

We’re currently calling the ASX 200 up 12 points to 5330. However, with New South Wales, Queensland, South Australia and the ACT all on Labour Day holidays , volumes will be very low. There is no major news today that will move the market.

The week ahead will be interesting, with the RBA meeting tomorrow and whispers that the statement may change. The employment data on Thursday is likely to see a correction from last month’s rogue jobs print, followed by home loans data that may prompt further debate around macro-prudential leavers. We’ll likely see some market-moving data this week.

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