The Australian economy is on a roll with another data set today that almost defies belief.
After yesterday’s stunning GDP performance it was the turn of labour data to beat consensus estimates by a large margin. The Australian economy added 38.9k jobs in May, well above the flat reading expected, and it was difficult to find any negatives in the report. All the jobs added were in the full-time category, 46.1k in total, with 7.2k jobs lost in the part-time category. The unemployment rate edged up to 5.1 percent, as expected from a revised 5.0 percent last month: a participation rate that rose to 65.5 percent from 65.2 percent was the main factor. AUD understandably gapped higher with short-term interest rate futures reversing lower and OIS markets lowering expectations of a cut at the next meeting. That said, they are still looking at an almost 90 percent chance of a 25bp cut, obviously subject to a deterioration in the external situation.
In line with overnight comments from Fed’s Williams and Lockhart, noted dove Janet Yellen said early in the Asian session that she sees significant downside risks to the economic outlook, adding that it may be prudent to insure against adverse shocks. Specifically, she said the Fed has scope to provide further accommodation either through forward guidance or additional balance sheet actions, such as asset purchases or further maturity extension of its program.
All eyes were on the ECB yesterday with some observers suggesting now was the “prime time” for the ECB to act on rates. In the end the bank took no action, but in his press conference ECB Chief Draghi noted that some (not many) had preferred a cut. The tone of the statement (using words/phrases like “weak” and “downside risks”) suggested that the ECB is now not far off contemplating a rate cut, especially if evidence builds that the recession is deepening. EURUSD saw a slight dip lower, but only a shallow one, and rebounded strongly as risk appetite jumped on Fed QE hopes. On this topic, Fed members Lockhart and Williams talked about more accommodation if necessary and all ears will now be pinned back for Fed chairman Bernanke’s testimony before the Joint Economic Committee later today for further hints.
US data releases were mainly second-tier with non-farm productivity falling slightly more than expected (-0.9 percent q/q versus -0.8 percent) in the first quarter while unit labour costs were well below forecast at +1.3 percent q/q versus 2.1 percent). Wall St had a bumper day on rising QE hopes with the DJIA gaining 2.37 percent, S&P 2.3 percent and the Nasdaq 2.4 percent.
Data Highlights
US Q1 Final Non-farm Productivity out at -0.9% q/q vs. -0.8% expected and -0.5% prior
US Q1 Final Unit Labour Costs out at +1.3% q/q vs. 2.1% expected and 2.0% prior
UK May BRC Like-for-Like Sales out at +1.3% y/y vs. 0.7% expected and -3.3% prior
AU May AiG Performance of Construction Index out at 34.7 vs. 34.9 prior
AU May Employment Change out at +38.9k vs. flat expected and revised 7.0k prior
AU May Unemployment Rate out at 5.1%, as expected vs. revised 5.0% prior
Upcoming Economic Calendar Highlights
(All Times GMT)
JP Leading/Coincident Index (0500)
Swiss Unemployment Rate (0545)
UK Halifax House Prices (0700)
Swiss CPI (0715)
Norway Industrial Production (0800)
UK PMI Services (0830)
US Fed’s Rosengren to speak (0945)
UK BOE Rate Announcement (1100)
US RBC Consumer Outlook (1200)
US Initial Jobless Claims (1230)
US Bloomberg Consumer Comfort Index (1345)
US Fed’s Bernanke to testify (1400)
CA Ivey PMI (1400)
US Fed’s Lockhart to speak (1610)
US Fed’s Kocherlakota to speak (1715)
US Consumer Credit (1900)
US Fed’s Fisher to speak (1930)
Andrew Robinson,
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