The US employment report was strong, but less strong than headlines and expectations had moved after yesterday’s ADP blowout. What do we focus on now after the anti-climax?
The Euro couldn’t stage much of a bounce today ahead of the US employment report risk event as there were no signs of improvement among the usual suspects of indicators, quite the contrary though not to a severe degree. Also weighing were a very poor German factory orders report for November (more on that below) and the further cratering in the stock price of Italy’s Unicredit bank, which held a rights offering at an incredibly low price in apparent desperation to raise funds. In other news, Belgium’s 2012 budget was rejected by the European commission because it was considered too optimistic, the ECB was said to be buying Italian and Spanish debt according to “sources”, the ECB took in record deposits (EUR 11 billion more than just yesterday) today and EU Economic Confidence sank to the lowest level since late 2009 in December.
US Employment Report
The US employment report was rather strong with non-farm and private payrolls beating expectations by +45k and +34k expected, though there was a -20k revision for the month of November, so the “net beat” wasn’t as robust perhaps as the optimists were hoping for after yesterday’s blowout ADP number.
The unemployment rate impressively dropped yet again – by 0.1% to 8.5% (the drop was 0.2% relative to the upwardly revised November data point of 8.7%). We said yesterday that if the unemployment rate dropped today it would be “at least partially due to the ‘wrong reason’”, i.e., a drop in the participation rate. This indeed turned out to be the case as the household survey upon which the unemployment rate is based showed only +176k in payroll gains, a five month low. Meanwhile, the participation rate fell to match the record modern era low (post 1984) from a couple of months ago and is a blemish on what is otherwise a fairly strong report.
Odds and ends
The Canadian employment report came out in-line with expectations at +17.5k, though the internals showed a slightly worrying net fall in full-time positions – only slightly worrying because this indicator and the part-time indicator jump all over the place from month to month. A bit more worrying is the fourth consecutive rise in the unemployment rate in a row to 7.5%, a development that is beginning to look like a trend – and a trend that will deepen if the Canadian consumer – the world’s most leveraged – begins to retrench.
German factory orders reverted back to trend with a big fall in November – after a slightly larger hop in October. Looking over the longer turn, orders peaked out last summer and have declined to where they were back in the middle of 2010.
Looking ahead
US bonds were generally well supported a half hour after the US employment report, suggesting until proven otherwise that the US employment report will not lead to a blowout further rally in risk just yet. Yields have hardly been doing anything for a couple of months now, though it is a bit interesting on a very local basis that the yields are shying away from the higher part of the 3-week range just above 2.00% in the 10-year t-note benchmark.
In crosses like AUDUSD and USDCAD we need levels of below 1.0200 and above 1.0300, respectively, for a more bullish view on the USD broadly speaking. Still, the greenback has performed rather well considering the still relatively healthy risk appetite out there (the VIX, to take a single example, is close to a six-month low.). It used to be that the USD and risk moved in lock anti-step with one another at all turns. The US is still likely to get better traction across the board if the S&P500 break above the 200-day moving average of late fails to hold.
We’ve got a heavy schedule of Fed speakers out today. As I tweeted early today (follow me @johnjhardy), the legendary Caroline Baum was out with an excellent opinion piece on the futility and potential unintended consequences of the Fed’s new strategy of more transparency and forecasting. She points out some of the ironies we also discussed yesterday. Baum is always worth a read.
Now, with the US unemployment report anti-climax out of the way, the focus shifts to next week’s important US Retail Sales report for December (remember ISM non-manufacturing was rather disappointing) and the first rounds of Q4 earnings reports. We also have the next round of Euro Zone bond auctions.
If you missed them earlier, check out our G10 FX charts from earlier today – handy for a longer term perspective on how the major currencies stand against one another.
Stay careful out there and have a great weekend!
Economic Data Highlights
UK Dec. Halifax House Prices out at -0.9% MoM and -1.3% 3M/YoY vs. -1.0% 3M/YoY in Nov.
Switzerland Dec. CPI out at -0.2% MoM and -0.7% YoY vs. -0.1%/-0.6% expected, respectively and vs. -0.5% YoY in Nov.
Norway Nov. Industrial Product Manufacturing out at +0.2% MoM and +0.4% YoY vs. +0.7% YoY in Oct.
Norway Nov. Retail Sales out at +0.1% MoM and +0.9% YoY vs. +1.2% YoY in Oct.
Euro Zone Dec. Economic Confidence out at 93.3 as expected and vs. 93.8 in Nov.
Euro Zone Dec. Industrial Confidence out at -7.1 vs. -7.5 expected and -7.1 in Nov.
Euro Zone Dec. Services Confidence out at -2.1 as expected and vs. -1.6 in Nov.
Euro Zone Nov. Unemployment rate steady at 10.3% as expected
Germany Nov. Factory Orders out at -4.8% MoM and -4.3% YoY vs. -1.8%/-1.2% expected, respectively and vs. +5.2% YoY in Oct.
Canada Dec. Unemployment Rate rose to 7.5% vs. 7.4% expected and 7.4% in Nov.
Canada Dec. Net Change in Employment out at +17.5k vs. +20k expected and -18.6k in Nov.
US Dec. Change in Nonfarm Payrolls out at +200k vs. +155k expected vs. +100k in Nov.
US Dec. Change in Private Payrolls out at +212k vs. +178k expected vs. +120k in Nov.
US Dec. Unemployment Rate out at 8.5% vs. 8.7% expected and vs. 8.7% in Nov.
US Dec. Average Hourly Earnings out at +0.2% MoM as expected
US Dec. Average Weekly hours rose to 34.4 vs. 34.3 expected and 34.3 in Nov.
Upcoming Economic Calendar Highlights (all times GMT)
US Fed’s Dudley to Speak (1400)
US Fed’s Rosengren to Speak (1520)
Euro Zone ECB’s Orphanides to Speak (1600)
US Fed’s Duke to Speak (1740)
US Fed’s Raskin to Speak (1800)
US Fed’s Bullard to Speak (Sat 2300)
New Zealand Nov. Trade Balance (Sun 2145)
Australia Dec. AiG Performance of Construction Index (Sun 2230)
Australia Nov. HIA New Home Sales (Mon 0000)
UK Dec. Lloyds Employment Confidence (Mon 0001)
Australia Nov. Retail Sales (Mon 0030)
John J Hardy
SAXO BANK