Do two consecutive prints make a trend? Normally three or more pieces of data makes that comment plausible, however the fact that the Non-Farm Payrolls (NFP) saw its previous months downgraded along with the horrible September print does makes things more clouded and suggests a trend is building.
The print will completely rule out this month for a rate rise in the US (no press conference made it a near impossible, and the NFP have now made it impossible) and will put the December meeting in doubt. The Fed fund futures pricing went from a 43% rate hike chance to a 31% chance after the print. That’s likely to drift out even further over the few days as Fed members due to speak this week sit firmly in the dovish camp.
The market reactions to the NFP are unmistakeable – they see it as a trend and have recycled the 2012 to 2014 adage of, ‘bad news is good news’.
Moves to note
- S&P Futures fell 2.36% on the NFP, then rallied 3.2% 15 minutes after the NFP, and closing up 1.37% by the close
- The US five-year note moved massively on the numbers as inflation expectations plummeted and policy normalisation expectations went with it. Bond yields fell by 17 basis points at the close and was down as much as 22 basis points.
Asian and European futures over the weekend
- SPI futures closed up 67 points to 5098 (+1.33%) on Saturday night. Based on the close of the futures, our cash market expects the ASX to add 63 points today to 5115.
- The Nikkei is expected to add 161 points to 17876 when it opens today.
- FTSE futures were up 53 points to 6099. Our cash market priced in a 100-point move to 6229 on the open tonight, which saw the European market add over 4% in four days.
- China remains closed for National Day holidays until Wednesday, so there will be no direction for Asia for a couple more days. But the conclusion from the US NFP is that the China slowdown is spreading across the Pacific. This will only add to expectations that the People’s Bank of China or central government will move monetary policy this year.
It’s also the start of the month, which means it’s central bank week. The Reserve Bank of Australia (RBA) will kick off October rate decisions tomorrow and expectations are for a no move.
AUD/USD backs that theory, shifting higher over the weekend to 70.8 cents and is currently trading around 70.5 cents – suggesting tomorrow is a complete non-event. The interbank market agrees with this, pricing in a 6% chance of a 25 basis point cut tomorrow.
What’s interesting from the interbank market is the continue building of December expectations. It moved from a 42% chance of a cut last Monday to a high of 52% mid-way through Friday, to close at a 50% chance. At the open this morning, the market saw a 57% chance of a cut come the December meeting.
The statement preceding the decision tomorrow is all the more interesting as hints of domestic dovishness, the RBA’s view on the effect of the global slowdown on Australia and its view on confidence will see this figure move strongly in either direction – which will see the AUD and the ASX following suit.
With several states in Australia on Labour Day holidays, volumes today will be light and may produce larger than normal moves, but expectations are for a very positive day.