Another ugly jobless claims reading this week and slightly weak US retail sales helping to anchor the view that the US economic growth is slowing up a bit. But is there enough "blood on the streets" for the USD to continue to rally?
We saw some follow through overnight in the anti-risk/pro-USD trade, boosted in part by a very ugly employment report out of Australia overnight. But so far today, some key technical levels are holding as the greenback has yet to take out critical levels that would move the technical status beyond a mere “consolidation”.
Australia’s un-employment report
The April employment report for Australia was downright awful, with a large contraction in payrolls for the month rather than the expected solid rise. This makes last month positive figure look like the outlier month in what has otherwise been a rather negative trend for payrolls that started with a weak December reading. The unemployment rate only held steady at 4.9% for April due to a -0.2% drop in the participation rate.
The April employment report for Australia was downright awful, with a large contraction in payrolls for the month rather than the expected solid rise. This makes last month positive figure look like the outlier month in what has otherwise been a rather negative trend for payrolls that started with a weak December reading. The unemployment rate only held steady at 4.9% for April due to a -0.2% drop in the participation rate.
The slowdown in fundamentals in Australia is a vastly under-appreciated thing.The market doesn’t care at present due to the Aussie’s use as a macro-economic indicator on commodities and risk. But we should remember that behind all currencies is an economy that eventually means something when things get too out of whack. The most recent Citigroup economic surprise index for Australia is at -52 after this bad employment report, up from its low last month at -74, but far from the +50 and higher levels of last summer. AUD is priced for perfection in many major crosses and perfection might just not happen.
Norges bank
Norway’s Norges Bank raised rates for the first time in a year, a move that was fairly well telegraphed in recent rhetoric, so there was no dramatic surprise in the market. The bank is clearly concerned not only about the trend in inflation (underlying inflation jumped in April), but also the high growth in consumer credit and house prices, as it feels it must move to stem the risk of overextension in private leveraging. The forward expectations from the market hardly budged and the focus for NOK will likely quickly shift back to risk and oil prices. The 200-day moving average in EURNOK at 7.92 is a key focus as is made instantly clear with any quick glance at a chart. USDNOK, meanwhile, has crossed above its 55-day moving average for the first time since January.
Norway’s Norges Bank raised rates for the first time in a year, a move that was fairly well telegraphed in recent rhetoric, so there was no dramatic surprise in the market. The bank is clearly concerned not only about the trend in inflation (underlying inflation jumped in April), but also the high growth in consumer credit and house prices, as it feels it must move to stem the risk of overextension in private leveraging. The forward expectations from the market hardly budged and the focus for NOK will likely quickly shift back to risk and oil prices. The 200-day moving average in EURNOK at 7.92 is a key focus as is made instantly clear with any quick glance at a chart. USDNOK, meanwhile, has crossed above its 55-day moving average for the first time since January.
US Data
The US data this morning was not terrible, but still suggests slowing momentum in the US economy. On the retail sales data, with soaring gasoline prices in the US, the consumer is clearly allotting more funds to the purchase of fuel as the ex-gas growth in sales was a slim +0.2% for the month. More worrying was another ugly jobless claims reading of well above 400k, suggesting that last week’s huge jump wasn’t a complete anomaly and still suggesting that we are seeing absolute job losses in the economy now that we have been (and the 200k+ gain in private payrolls notwithstanding) The PPI data was a relatively minor distraction as the core was mostly in-line and the headline rate was obviously exacerbated by the latest runup in commodities prices (which has now become a rundown – the inflation story is going to get awfully interesting if this commodity sell-off deepens even further.)
The latest Bloomberg Consumer Comfort reading showed the lowest level since late March - so much for the idea that the Osama bin Laden death would “bring the US together again” and other such naïve sentiments. Americans are more worried about their jobs and the price of gasoline. And signs are that things are going the wrong way in Afghanistan again. Could the bin Laden death actually raise the anti-war feelings among the US populace? Obama is very vulnerable on this front.
The US data this morning was not terrible, but still suggests slowing momentum in the US economy. On the retail sales data, with soaring gasoline prices in the US, the consumer is clearly allotting more funds to the purchase of fuel as the ex-gas growth in sales was a slim +0.2% for the month. More worrying was another ugly jobless claims reading of well above 400k, suggesting that last week’s huge jump wasn’t a complete anomaly and still suggesting that we are seeing absolute job losses in the economy now that we have been (and the 200k+ gain in private payrolls notwithstanding) The PPI data was a relatively minor distraction as the core was mostly in-line and the headline rate was obviously exacerbated by the latest runup in commodities prices (which has now become a rundown – the inflation story is going to get awfully interesting if this commodity sell-off deepens even further.)
The latest Bloomberg Consumer Comfort reading showed the lowest level since late March - so much for the idea that the Osama bin Laden death would “bring the US together again” and other such naïve sentiments. Americans are more worried about their jobs and the price of gasoline. And signs are that things are going the wrong way in Afghanistan again. Could the bin Laden death actually raise the anti-war feelings among the US populace? Obama is very vulnerable on this front.
Looking ahead
Bonds are very elevated on the relatively negative jobs data, though have come off a bit now and we wonder how long that rally can be maintained with the uncertainty in the pipeline on the US debt ceiling. The interesting crosses to watch if we see another move toward consolidation in the bond market will be the JPY and CHF crosses as usual (and the opposite if we see another vault higher for bonds). On that note – EuroZone sovereign debt spreads are coming in again and EURCHF could be in focus and might have another look at the 1.27 resistance if bunds consolidate a bit here.
Bonds are very elevated on the relatively negative jobs data, though have come off a bit now and we wonder how long that rally can be maintained with the uncertainty in the pipeline on the US debt ceiling. The interesting crosses to watch if we see another move toward consolidation in the bond market will be the JPY and CHF crosses as usual (and the opposite if we see another vault higher for bonds). On that note – EuroZone sovereign debt spreads are coming in again and EURCHF could be in focus and might have another look at the 1.27 resistance if bunds consolidate a bit here.
Beyond that, the overall commodity and risk picture is the critical focus for the moment. Using the AUDUSD pair as a barometer, the big focus for support is on the 1.0540/80 area, which is a kind of malformed head and shoulders neckline area and the zone containing last night’s and last week’s two lows. A failure there opens up considerable downside potential, but we’ll likely need new lows in equities and commodity prices here to keep the momentum up. The USD only seems to be able to thrive when there is “blood in the streets” so to speak.
Chart: AUDUSD
A very intriguing test for the currencies here would be a risk-off/bonds off development, which would jar recent correlations and provide an especially interesting dilemma for JPY crosses. Let’s see what the 30-year auction shows us later today (results usually available right around 1700 GMT). Yesterday’s 10-year showed pretty healthy appetite for US treasuries.
A very intriguing test for the currencies here would be a risk-off/bonds off development, which would jar recent correlations and provide an especially interesting dilemma for JPY crosses. Let’s see what the 30-year auction shows us later today (results usually available right around 1700 GMT). Yesterday’s 10-year showed pretty healthy appetite for US treasuries.
Tomorrow we have the US Apr. CPI and first May reading of the US University of Michigan confidence.
Be careful out there.
Economic Data Highlights
- New Zealand Apr. Business NZ PMI out at 51.5 vs. 50.2 in Mar.
- Japan Mar. Adjusted Current Account out at ¥753B vs. ¥972B expected and ¥1219B in Feb.
- Australia Apr. Employment Change out at -22.1k vs. +17k expected and +43.3k in Mar.
- Australia Apr. Unemployment Rate unchanged at 4.9% as expected
- Japan Apr. Machine Tool Orders rose +32.3% YoY vs. +49.6% in Mar.
- Sweden Apr. Headline CPI out at +0.4% MoM and 3.3% YoY as expected and vs. +2.9% YoY in Mar.
- Sweden Apr. Core CPI out at +0.4% MoM and +1.8% YoY vs. +0.3%/+1.8% expected, respectively and vs. +1.5% YoY in Mar.
- UK Mar. Industrial Production rose +0.3% MoM and +0.7% YoY vs. +0.8%/+1.1% expected, respectively and vs. +2.5% YoY in Feb.
- UK Mar. Manufacturing Production rose +0.2% MoM and +2.7% YoY vs. +0.3%/+2.8% expected, respectively and vs. +5.0% YoY in Feb.
- EuroZone Mar. Industrial Production out at -0.2% MoM and +5.3% YoY vs. +0.3%/+6.3% expected, respectively and vs. +7.7% YoY in Feb.
- Norway’s Norges Bank raised rates 25 bps to 2.25% as expected
- Canada Mar. New Housing Price Index out at 0.0% MoM and +1.9% YoY vs. +0.3%/+2.2% expected, respectively and vs. +2.1% YoY in Feb.
- US Weekly Initial Jobless Claims out at 434k vs. 430k expected and 478k last week
- US Weekly Continuing Claims out at 3756k vs. 3700k expected and 3751k last week
- US Apr. Producer Price Index out at +0.8% MoM and +6.8% YoY vs. +0.6%/+6.5% expected, respectively and vs. +5.8% YoY in Mar.
- US Apr. Producer Price Index ex Food and Energy out at +0.3% MoM and +2.1% YoY vs. +0.2%/+2.1% expected, respectively and vs. 1.9% YoY in Mar.
- US Apr. Retail Sales out at +0.5% MoM and +0.2% MoM ex Autos and Gas vs. +0.6%/+0.5% expected, respectively
- US Weekly Bloomberg Consumer Comfort Index out at -46.9 vs. -45.9 expected and -46.2
Upcoming Economic Calendar Highlights
- China Mar. Conference Board Leading Economic Index (0200)
New Zealand Apr. Non-resident Bond Holdings (0300)
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