Market themes & issues
RBNZ boosts NZD, AUD thumped by jobs data. The more hawkish than expected RBNZ statement saw NZD/USD jump from 0.8150 to around 0.8220. Subsequent claims by RBNZ Gov Bollard that markets had over-reacted to the statement pulled NZD/USD back from its 0.8246 high, with the pair back to 0.8190 as the London open approached. AUD/USD had nudged higher into the Australian employment data, sitting at 1.0655 versus 1.0620 late New York. The surprisingly small rise in employment, particularly given the slide in full-time jobs and the downward revision to April, saw AUD/USD hammered to under 1.0590 in very short order. Attempts to rally were very half-hearted, with AUD/USD touching a 1.0570 low. The focus then turned to the gyrations of regional equity markets, where Chinese shares had a poor morning and weren’t much better after the lunch break. After heavy losses in London/NY, EUR/USD ground back steadily, from 1.4575 to 1.4630. USD/JPY paid little attention to Japan’s revised Q1 GDP, squeezing up to 80.31 briefly but mostly trading around 80.00 versus a 79.84 early low.
Asian FX less lively than equities. Weakness in Asian equity markets had limited impact on USD/Asia. While USD/KRW gapped about 4 won higher at the open, to 1084, it then traded comfortably, mostly 1082-84, with no sign of panic in this typically risk-sensitive currency. USD/SGD had ramped up in New York to around 1.2340, but SGD subsequently took heart from the steady rise in EUR/USD, falling to under 1.2290 before buyers returned to steady the pair. Spot USD/CNY extended its sideways trade on either side of 6.48 and the 1-year CNY saw some buying interest, nudging it up to the mid-6.39s. Despite the recent predictions of USD/CNY band widening etc (including calls from Chinese officials), spot yuan has been extremely dull this week. China’s stock market caught the eye though, with the main board –0.9% in afternoon trade and the tiny retail Shanghai B market –6%.
Malaysian April IP was a little softer than expected. USD/MYR edged up from 3.0110 early to 3.0190 near Wed’s close.
Economic data & events
Aus labour market report: total employment rose just 7.8k, below even the lowest market forecast. Even after making an allowance for the natural disasters, the softer jobs numbers we have experienced through 2011H1 to date (just +31k) suggests a correction to the labour hoarding seen in 2010H2, when 200k new jobs were added. In May, the mix of jobs was also weak with a 22k fall in full-time employment offset by a 29.8k rise in part-time employment. So far this year, full-time employment has been broadly flat – that is, all the employment growth has been in part-time employment. However, the overall story may not be as weak as the headlines suggest as the unemployment rate was unchanged at 4.9% in May. An unemployment rate holding below 5% is indicative of a stable labour market with relatively tight conditions. The unwinding of jobs has been concentrated in NSW, just like the excesses of late 2010. So far this year, NSW has shed 5?k jobs compared to the 96.2k of jobs added in 2010H2. The next weakest state was disaster-affected Qld which has lost 2.1k jobs since December. We had been looking for a statistical bounce in May. And while we did not get it, we continue to see an unusually high correlation between jobs and the labour force. Job ads and business surveys have all pointed to jobs growth of around 20k per month in 2011H2. The unwinding of the employment hoarding should be completed in 2011H1; we would characterise the labour market as being in a holding pattern until the excesses of 2010 are cleared.
NZ OCR unchanged at 2.5%, but RBNZ issues hawkish statement. The Reserve Bank has grown more confident about the domestic recovery and is setting the stage for a rapid policy tightening as post-quake reconstruction begins next year. The overall message was that monetary policy is no longer seen as closely tied to the reconstruction process, and the timing of rate moves will be more data-dependent. The RBNZ was also surprisingly positive on the outlook for global activity, and expects the terms of trade and exchange rate to be stronger for longer. In the past, the RBNZ has been sceptical of global growth prospects, concerned that New Zealand’s terms of trade would fall, and therefore uncomfortable with the high exchange rate. Like the RBNZ, we now see the next OCR move as likely to be a 25bp hike in December. An earlier move would face high hurdles, while a deterioration in world growth could see hikes delayed to next year again.
The second estimate of Q1 Japanese GDP was little changed from the first at –3.5% annualised (prev –3.7%). The market had been expecting a –3.0% annualised outcome. The quarterly decline in private non-residential investment was revised up to –1.3%, from –0.9%, subtracting an additional –0.1%ppts from annualised quarterly growth. However, this larger subtraction from investment was more than offset by a reduction in the inventories drag, –0.4ppts on the second estimate.
Upcoming events (mkt f/c %mth unless indicated otherwise)
Still to come today
Idr Bank Indonesia policy decision (last 6.75%, f/c 6.75%, WBC f/c 6.75%)
Eur ECB rate decision (last 1.25%, f/c 1.25%, WBC f/c 1.25%)
UK Apr visible trade balance GBPbn (last –7.7, f/c –7.6)
UK BoE rate decision (last 0.5%, f/c 0.5%, WBC f/c 0.5%)
US Initial jobless claims w/e 4/6 (last 422, f/c -, WBC f/c -)
US Apr trade balance $bn (last –48.2, f/c –48.6, WBC f/c –47.5)
US Apr wholesale inventories (last 1.1%, f/c 1.0%, WBC f/c 1.0%)
US Fedspeak: Plosser on economy (London); Yellen on housing in Ohio
Can Apr new house prices (last 0.0%)
Can Apr trade balance C$bn (last 0.6, f/c 0.3)
Asian timezone tomorrow/next trading day
NZ May card spending (last 1.7%)
NZ REINZ house price index (last 1.1%)
Chn May trade balance USDbn (last 11.4)
Jpn Apr tertiary industry index (last –6.0%, f/c 2.7%)
Jpn May corporate goods prices %yr (last 2.5%, f/c 2.5%)
Inr Apr industrial production %yr (last 7.3%)
Kor Bank of Korea policy decision (last 3.00%, f/c 3.00%, WBC f/c 3.00%)
Westpac Banking Corporation