With the aftermath of Friday’s US non-farm payroll report resulting in a definite risk-off sentiment, risk currencies took another dip lower at the start of trading in Asia, but failed to dramatically follow through.
Part of the reason could be attributed to a pretty benign inflation environment revealed in China in June with CPI falling to 2.2 percent y/y, down from the 3.0 percent the previous month and below median forecasts of 2.3 percent. Food prices rose 3.8 percent y/y which was partly negated by a slower 1.4 percent annualised increase for non-food items. Pipeline inflation also remains benign with producer prices falling for the fourth month in a row with falls accelerating to -2.1 percent y/y in June, a faster rate than the 2.0 percent expected and 1.4 percent the previous month.
At the weekend China Premier Wen Jiabao said downward pressure on the economy is still “relatively large” and the government will intensify the fine-tuning of policies as measures taken since April are helping stabilise a slowdown. However, he also pledged to “unswervingly” continue property controls and prevent prices from rebounding. The better inflation environment will undoubtedly give the central bank more leeway in easing policy, be it in the form of reserve ratio requirement cuts or direct interest rate cuts. The reaction in the markets was muted, with EURUSD rallying a slow 10 ticks and AUDUSD about the same.
We also heard Fed’s Rosengren on the wires commenting on last week’s jobs data, saying that the jobs growth rate is not a positive sign. He added that slow US growth will probably continue for quite some time as a result of the global economic uncertainty with a quick solution for Europe’s debt issue and large country deficits “remaining elusive”. He admitted his views were more pessimistic than Fed colleagues with inflation seen at roughly 1.2 percent in 2012 and growth lower than the Fed’s 1.9-2.4 percent range while unemployment higher than the 8.0-8.2 percent forecast.
The US jobs report referred to was a disappointment with other data leading up to the release prompting higher expectations. The ADP employment report, weekly jobless claims and the employment sub-index of the non-manufacturing ISM all showed improvement and forecasts were revised higher to 100k+. In the event, 80k was the outcome, marginally better than the revised 77k last month. Risk appetite waned dramatically post-data – JPY firm across the board, EURUSD sliding down to 2-year lows as the USD index regained monthly highs.
In contrast, Canada enjoyed some better than expected jobs data with employment change showing 7.3k jobs added (5k expected) and the unemployment rate easing to 7.2 percent from 7.3 percent. This benefitted the CAD in early trading before a weak Ivey PMI (49.0 versus 57.5 expected and 60.5 last) knocked it back again.
Data Highlights
US Jun. Change in Non-farm Payrolls out at 80k vs. 100k expected and revised 77k prior
US Jun. Unemployment Rate out at 8.2%, as expected and unchanged from prior
CA Jun. Change in Employment out at +7.3k vs. 5.0k expected and 7.7k prior
CA Jun. Unemployment Rate out at 7.2% vs. 7.3% expected and 7.3% prior
CA Jun. Ivey PMI out at 49.0 vs. 57.5 expected and 60.5 prior
UK Jun. Employment Confidence out at -51 vs. -59 prior
JP May Machine Orders out at -14.8% m/m, +1.0% y/y vs. -2.6%/7.0% expected and 5.7%/6.6% prior resp.
JP May C/A Balance out at +¥215.1b vs. +¥493.1b vs. +¥333.8b prior
JP Jun. Bank Lending out at +0.8% y/y vs. +0.4% prior
China Jun. CPI out at +2.2% y/y vs. 2.3% expected and 3.0% prior
China Jun. PPI Out at -2.1% y/y vs. -2.0% expected and -1.4% prior
AU Jun. ANZ Job Advertisements out at -1.2% m/m vs. revised -2.6% prior
Upcoming Economic Calendar Highlights
(All Times GMT)
JP Bankruptcies (0430)
US Fed’s Evans to speak (0500)
JP Economy Watchers’ Surveys (0500)
Swiss Unemployment (0545)
GE Trade Data (0600)
EU Sentix Investor Confidence (0830)
EU ECB’s Draghi to speak (1230)
CA Business Outlook Future Sales (1430)
UK BOE’s Tucker to testify (1530)
US Fed’s Williams to speak (1555)
EU ECB’s Nowotny to speak (1700)
Andrew Robinson,
SAXO BANK