The blowout US ADP payrolls number for December shocked the market and gave a tremendous boost to the USD – particularly versus the JPY as the recent bond rally was decapitated. Should we take the ADP number at face value?
The USD was more or less on a roll coming into today as US equity futures were lower in Asian and European hours - perhaps on news that China may be planning to introduce a property tax to slow the housing bubble (and perhaps as well on the aggressiveness of the SEC in investigating the Goldman Sach/Facebook deal). These risk negative stories and the floods in Australia – which threaten key Australian agricultural industries – continue to keep a lid on the Aussie, which has been weaker virtually across the board over the last couple of sessions – finally reversing sharply lower even against the kiwi.
But the biggest news of the day so far was the Dec. ADP payrolls number, which blew away expectations of a gain of 100k jobs and posted a 297k increase. This was the largest single-month increase in the survey’s history and suggests that hiring was extraordinarily strong for the month. It would be easy to embrace the number at face value if it was a number for February or March, but the fact that this strong number comes in December means we must take it with a grain of salt for now. Seasonal factors – especially temp retail hiring for the holidays to meet the seasonal surge in demand – may have been at play here – the only question is how much of a factor this has been versus “normal” years. So we’ll need a couple more months of data to get a better feel of the underlying strength in the US job market.
For now, the market took the number more or less at face value, punishing bonds and taking the USD generally stronger across the board. It was no surprise to see USDJPY tick sharply higher on the reaction in bond markets, but AUDUSD edging lower after the number was especially interesting, as we became so accustomed previously to risk appetite dominating the moves in AUD and USD more than any indications from the real fundamentals. It’s great to see a more logical reaction today – a sign that sanity may be reasserting itself. The question going forward, though, is to what extent risk can continue to rally if bond markets threaten.
Chart: USDCHF
USDCHF has rallied brutally over the last couple of days, and the sharp move back above the old 0.9465 low suggests that the odds of a low now being in place are dramatically higher. The more broad based weakness in CHF crosses that reversed the enormous squeeze higher in the franc ahead of the New Year suggest that a climax reversal may now be in place. See GBPCHF and EURCHF for further illumination of this theme, though the latter two have yet to take out bigger, structural resistance.
USDCHF has rallied brutally over the last couple of days, and the sharp move back above the old 0.9465 low suggests that the odds of a low now being in place are dramatically higher. The more broad based weakness in CHF crosses that reversed the enormous squeeze higher in the franc ahead of the New Year suggest that a climax reversal may now be in place. See GBPCHF and EURCHF for further illumination of this theme, though the latter two have yet to take out bigger, structural resistance.
Looking ahead
Immediately ahead, we have the US ISM Services report, which will help to round out the impression of the US economy’s health here (if we can speak of health at all in an economy where the structural issues are fervently being ignored and where everything is on Fed and public-spending life support.) Watch for the employment sub-component to see whether there is any confirmation of the ADP development. Tonight we have a couple of highly relevant Australian data points in the form of the latest AiG services sector survey (the November number was close to an 18-month low) and the Nov. Building Approvals number, after the a strong bounce in approvals in October within an overall strong decline in the rate of approvals that peaked in the early spring of 2010.
Immediately ahead, we have the US ISM Services report, which will help to round out the impression of the US economy’s health here (if we can speak of health at all in an economy where the structural issues are fervently being ignored and where everything is on Fed and public-spending life support.) Watch for the employment sub-component to see whether there is any confirmation of the ADP development. Tonight we have a couple of highly relevant Australian data points in the form of the latest AiG services sector survey (the November number was close to an 18-month low) and the Nov. Building Approvals number, after the a strong bounce in approvals in October within an overall strong decline in the rate of approvals that peaked in the early spring of 2010.
The Friday US employment report gets added weight after today’s strong ADP number. Bloomberg consensus expectations were running at around 150k before today’s news, and obviously the market will now be leaning higher for the Nonfarm/Private payroll numbers.
Chart: USDJPY
As we are writing this, USDJPY is swooping back higher through the 55-day moving average and is confronting the critical Ichimoku daily cloud resistance. This reverses the move last week that threatened a test of the 15-year lows that never quite materialized fully. Interesting to see where we close today. It is likely that US treasuries will continue to point the way.
As we are writing this, USDJPY is swooping back higher through the 55-day moving average and is confronting the critical Ichimoku daily cloud resistance. This reverses the move last week that threatened a test of the 15-year lows that never quite materialized fully. Interesting to see where we close today. It is likely that US treasuries will continue to point the way.
Economic Data Highlights
- US Weekly ABC Consumer Confidence out at -45 vs. -44 last week
- US Dec. Total Vehicle Sales out at 12.53M vs. 12.3M expected and 12.26M in Nov.
- Australia Nov. HIA New Home Sales fell -0.2% MoM
- China Dec. HSBC Services PMI out unchanged at 53.1
- UK Dec. PMI Construction fell to 49.1 vs. 51.0 expected and 51.8 in Nov.
- EuroZone Nov. PPI rose +0.3% MoM and +4.5% YoY vs. +0.3%/+4.4% expected, respectively
- US Dec. Challenger Job Cuts fell -29.0% YoY vs. -3.3% in Nov.
- US Dec. ADP Employment Change rose 297k vs. 100k expected and 92k in Nov.
- Canada Nov. Industrial Product Price rose +0.5% MoM vs. +0.3% expected
- Canada Nov. Raw Materials Price Index rose +3.5% MoM vs. +2.0% expected
Upcoming Economic Calendar Highlights (all times GMT)
- US Dec. ISM Non-manufacturing (1500)
- US Weekly DOE Crude Oil and Product Inventories (1530)
- US Fed’s Hoenig to Speak (1800)
- Australia Dec. AiG Performance of Services Index (2230)
- Australia Nov. Building Approvals (0030)
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