Weekly Update - Written by on Wednesday, February 9, 2011 9:06 - 0 Comments

US employment data a mild positive but with caveat attached

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US employment data a mild positive but with caveat attached.

• Friday’s NFP figure shows weak employment growth.
• Chinese, European central banks announce policy.
• Australian data mixed, RBA commentary positive for local growth story.

The Non Farm Payrolls figure is currently the most anticipated data release to affect global markets and reflects the current state of the US economy. Friday night’s figure had an expected figure attached of 121K, however a lacklustre 36K were added to payrolls in January which prompted a sell-off in the Aussie as risk was pared. The markets however, found sector specific employment data that provided room for optimism and prompted the equity markets to put on weight (S&P 500 +.29%). The sector specific data included a strong showing for manufacturing jobs which followed the strong ISM Manufacturing data earlier in the week. Although equities rose modestly and bond markets highlighted that there was optimism to be found, the good news has the very significant caveat attached that core NFP was well below expectations. This put US centric interest rate hikes on hold for a projected period, potentially 12months and provides the capacity for the Aussie to go higher in the short term.

Ahead of Fed Chairman, Ben Bernanke’s speech tonight (Wednesday) we had both the European Central Bank and the People’s Bank of China outlining their inflation strategy. The ECB was up first and poured cold water on a rate hike in the near term, noting that inflation risk was “broadly balanced” and that “price developments will remain in line with price stability”. This allowed the Aussie to rally against the Euro, however in the absence of the recent sovereign debt risk, couldn’t sustain levels of AUDEUR .75. China announced last night that they would add to recent increases of bank capital requirements by tapping the breaks on their economy in raising interest rates 25 basis points (6.06%). This prompted a sell-off in the Aussie of half a US cent which was quickly recovered

This week has seen a large volume of data releases locally which included some mixed results, while the RBA made positive comments about the local growth story. Building Permits (8.7%), ANZ Job Ads (.2%), WPC Consumer Confidence (1.9%) and NAB Business Confidence (4) performed well, while the Trade Surplus unexpectedly contracted (1981m), Retails Sales Trend (0.2%) was modest for the December month and the NAB Business Conditions (-6) was down. The data wasn’t particularly strong and was negatively impacted by natural disasters in Queensland and Victoria. The RBA increased their 2011 growth expectations 50 basis points (4.25%) while saying that “growth in the December and March quarters” would be notably lower and that this would be followed by “a strong recovery in the June quarter” due to the rebuilding effort and coal production. Thursday’s Unemployment figure is key and we expect that out at 11:30am EST.

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