Global Themes

NZD

US jobs underwhelm

Employment undershoot give Fed food for thought.

The US economy added 155K jobs in November, according to the monthly report released by the Labor Department on Friday night. At 3.7% the unemployment rate hasn’t been lower since Neil Armstrong was walking on the moon, and if the US can manage seven more months of gains it will mark its longest expansion in employment since 1850. Wage inflation is now growing at 3.1%, but the pace of job growth is clearly slowing with an average of just 170K jobs added over the last quarter versus 200K+ numbers earlier in the year. There is still plenty of ammunition for the Fed to raise rates when they announce their decision on Thursday week, but a growing number of the Fed board seem to be talking about rates being at a neutral level now, implying that only accelerating growth or inflation could prompt them into further moves.

Stock markets didn’t take well to the jobs report, and NZD/JPY dropped away overnight. NZD/USD couldn’t seem to decide if it would be dragged lower by the risk off sentiment, or higher by a drop in US interest rate expectations, and closed off the week largely unchanged in the mid 0.68s.

Waiting on a Santa rally?

US stock markets near the infamous “death cross” pattern

Trump’s tax cuts and government spending are clearly wearing off in the States. Yet we know he watches the Dow Jones Industrial Average as much as he might watch his own opinion polls. The Federal Reserve seem preoccupied with an inverted yield curve as long term interest rates threaten to plunge below those in the short term. And the stock market is nearing the infamous death cross market, where the 50 day moving average slides lower than the 200 day, typically a predictor of a significant market correction coming.

Logic says therefore that those waiting for a Santa rally might be like those in Samuel Beckett’s famous play “Waiting for Godot” (Godot never arrives). But what happens when all participants are watching the same thing? Might a jittery stock market push Trump into a deal with China? Might the Fed pause on rates fearing an inverted yield curve? And therefore might a significant market and currency correction be delayed until next year when none of the signs are imminent, and no one can stop it until it’s too late? All of this says to us that some speculative orders over the Christmas break might not be a bad idea after all.

Politics to dominate

Trump probe, Brexit vote in headlines

The week has already began, with Chinese inflation data coming in below expectations yesterday, and might see the NZD and AUD on the backfoot early today, as concerns linger that the world’s second largest economy is slowing rapidly.

Offshore and the startling revelations around Russia’s alleged involvement into the 2016 US Presidential campaign look set to continue, while a Tuesday night vote on the Brexit bill through the UK parliament looks fraught with risk for the Pound.

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