By Jeffrey Halley, Senior Market Analyst, Asia Pacific, OANDA
Friday’s Non-Farm Payrolls dished out a huge surprise, rolling out a gigantic miss to the downside as the US economy added only 235,000 jobs. Despite a sizeable upward revision of 133,000 to the previous month, nothing was going to offset the shock of the miss in the headline data.
Household employment performed strongly, helping to push the employment rate down to 5.20%, but retail jobs fell. At the same time, government construction rose only slightly, with business services and transport saving the headline number.
The sweep of the delta variant across the US has clearly impacted travel and leisure demand and has possibly seen many Americans hold off returning to the workforce. It contrasts with various jobs vacant surveys, which clearly show employers screaming to hire and average hourly earnings, also released Friday, rose by a higher than expected 0.60% MoM.
I’ll not postulate the underlying reasons for the stubbornly low employment gains in an environment where employers have millions of unfilled jobs. The world has plenty of armchair experts to do that. Needless to say, total employment in the US is still over 5.0 million less than pre-pandemic, and any thoughts that the FOMC would signal a taper at this month’s meeting are now off the table. Add in the soft China data last week, which usually runs a few months ahead of the US, and the hawks are in retreat.
I would have expected a “buy-everything” sell US Dollars frenzy on Friday. Instead, all we got was more of a whimper. The US Dollar rose, but not markedly, gold rose, but not by much, cryptos rose because they’re cryptos, and Wall Street equities ended up sort of sideways. Banks fell as US yields eased, which makes sense they make more money when rates are rising, and the yield curve steepens positively. That whimper may be due to the Wizards of Wall Street heading for the exit door right after the numbers for the long weekend.
Today, US and Canadian markets are closed for Labour Day (sorry, Labor Day in rebellious English). So, a more genuine reaction may appear tomorrow.
Asia has opened in a circumspect manner this morning, with only the FOMO gnomes of Japan getting excited, propelling the Nikkei 225 higher as Friday’s Suga rush persists. After softer heavyweight China and the US last week and a clampdown a day on the Mainland, regional investors are hesitating to grasp the US Non-Farms peace dividend, which has let basically every central bank in the Asia-Pacific off the US tapering hook. Waiting for the gnomes of Wall Street to return from their last long weekend of the summer probably isn’t a bad strategy.
This week features a few heavyweight central bank policy decisions but not much in the way of tier-1 data globally. US JOLTS Job Openings should show employers screaming for warm bodies, while tomorrow’s China trade data will be Asia’s highlight. Asian investors, though, are likely to be more concerned about who is next in line for some “common prosperity” love. A soft exports number could cause a negative tremor to sweep Asia, although it will increase expectations that more central government stimulus is on the way. You can cut a bearish/bullish case for China equities both ways on a lower number.
The Reserve Bank of Australia announces its latest policy decision tomorrow. Rates will remain unchanged at 0.10%, but interest will be focused on whether it will roll back its tapering plans. That would be a positive for Australian equities, which are under the ex-dividend hammer today.
Bank Negara Malaysia will also leave rates unchanged at 1.75%, with its intentions to support the Covid-19 recovery already clearly telegraphed. With a Fed tapering now of the table until at least the end of the year, the Ringgit could continue to rally as a potential carry trade candidate.
The week’s highlight will be the European Central Bank policy decision. There will be no change of the lower forever interest rates, but recent Eurozone inflation data has had the Northern European hawks squawking loudly and hunting for doves. Noise has risen around tapering, but I believe the ECB will note the data from China, the Asian PMIs and the US Non-Farm Payrolls and clip the hawks’ wings this time around. That shouldn’t derail the Euro’s rally, though, which is as much a weak US Dollar story.
The US Non-Farms data has thoroughly derailed my Fed Q4 taper tantrum, Asian central bank nightmare, ASEAN underperformance outlook. I will ponder this over the next few days, especially once the US is back at work.
Receding Fed taper boosts Asian heavyweights
Friday’s US employment data substantially lowered the risks of a Fed taper this year, which is playing out well in Asian equity markets this morning. Wall Street had a non-descript finish on Friday despite the huge downside miss by the US data, with a long weekend appearing foremost in US investors’ minds. The S&P 500 finished almost unchanged at 0.03% higher; the Nasdaq rose by 0.21%, while the Dow Jones retreated by 0.21%. US futures are practically unchanged, with US OTC markets closed today.
In Asia, receding tapering fears and rising expectations of stimulus locally after soft data last week has lifted Japan and China markets, in particular. The Nikkei 225 is still experiencing a post-Suga rush, leaping 1.60% higher as local investors expect a pre-election fiscal tap opening. The Kospi is having a sedate start, though, rising just 0.10%.
Similarly, the soft China data last week has lifted hopes of an earlier RRR cut as well as more central government largesse. That has sent the Shanghai Composite soaring by 1.25%, the CSI 300 by 1.65%, and the Hang Seng by 0.45%. After some torrid sessions recently, led by governmental sectorial clampdowns, it appears that bargain hunters are out in force today in Mainland equities.
Singapore has risen by 0.20% this morning, and Taipei by 0.12%. Kuala Lumpur has retreated by 0.55% as oil prices come under pressure once again. Bangkok is just 0.10% lower, despite the government surviving a non-confidence vote over the weekend. Jakarta has fallen 0.35%, with Manilla down 0.25%.
Australian markets have retreated today after large-cap heavyweights went ex-dividend and Covid-19 cases continued climbing in New South Wales and Victoria. They have, however, reclaimed part of their early losses suggesting that today’s sell-off is not the start of a broader movement. A suitably dovish RBA tomorrow should restore business as usual. The ASX 200 has fallen by 0.50%, while the All Ordinaries has retreated by 0.65%.
Although Europe’s eyes will be on German data and the ECB this week, the soft payroll data from Friday should lift European equities into the green today, with a Fed tapering having been dealt a severe blow.
Read more market analysts’ commentaries here
The US Dollar reclaims Friday’s losses
The US Dollar fell on Friday after an ultra-soft Non-Farm Payrolls print, but not markedly so. The dollar index reclaimed most of its intraday losses to finish just 0.11% at 92.12. These losses have reversed this morning, with the index creeping 0.10% higher to 92.20, leaving the index effectively unchanged post-payroll.
A US holiday today is sapping liquidity and almost certainly had a similar effect Friday, limiting losses. However, the fall in unemployment to 5,20%, and data indicating rising wages and swaths of unfilled jobs, could have taken the edge of the Non-Farm shock.
EUR/USD probed 1.1900 on Friday but retreated by the session’s end to be unchanged at 1.1880, easing to 1.1868 in dull Asian trading. EUR/USD has now formed a triple top at 1.1910, and although dips to 1.1850 should be supported, EUR/USD has wood to chop at 1.1910 before we can talk about a return to 1.2000+. GBP/USD closed at 1.3870, having probed 1.3900 post payrolls. GBP/USD should find support on dips to its 50-day and 200-day moving average (DMA) around 1.3810. The 1.3980/1.4000 area remains the key resistance region.
AUD/USD and NZD/USD powered 0.60% higher on Friday before retreating by 0.30% and 0.15% to 0.7435 and 0.7140 this morning. Until the US returns tomorrow, AUD/USD looks likely to trade in a 0.7400 to 0.7500 range. Cases in New Zealand fell to 20 today for the second day in a row, suggesting the country is on track for a fast reopening. That will support Kiwi on dips to 0.7100, leaving it on track to rise to 0.7300 later this week.
USD/CNY fixed at 6.4529 today, right on expectations. Somewhat surprisingly, the PBOC net-drained liquidity at the repo, although US strength generally has seen USD/CNY drift higher to 6.4545. The fixes will take greater importance going forward, with a significant deviation from the norm potentially signalling more China easing measures are on the way.
USD/Asia is mixed this morning, with liquidity impacted by the US holiday. The US Non-Farms data will take the Fed taper pressure of regional currencies, for now, allowing them to continue the V-shaped recovery of the past two weeks. The Non-Farms miss should greenlight an increase in appetites by international investors for ASEAN equities once again, and potentially some carry trades. That should be supportive for regional currencies this week.
Overall, the price action is rather less US Dollar downbeat than I would have surmised after the US employment data on Friday. Part of that is due to the US holiday, I am sure. I would prefer to wait until the US returns tomorrow to form a stronger opinion, but given the scale of the downside miss, it is hard to see the US Dollar rallying this week. If anything, the downside is the greater risk.
Oil slumps in Asia
On Friday, oil prices retreated after the soft Non-Farm Payrolls as investors fretted that the economic recovery was faltering, thereby reducing consumption. Brent crude fell 0.50% to $72.40, and WTI fell 0.80% to $69.20 a barrel.
The sombre mood has continued in Asia after Saudi Arabia but prices by $1.0 a barrel to Asian customers. Saudi Arabia was expected to cut prices to Asian customers today, but the cut was higher than expected. That has seen Brent crude and WTI retreat by another 0.95% to $71.75 and $86.55 a barrel, respectively, this morning.
Given that OPEC+ is continuing its plan to raise production monthly, despite weak data from China and the US raising slowdown fears, and Saudi Arabia looking for market share in the region, oil is likely to remain under pressure. This week, the data calendar is relatively thin of tier-1 releases globally, meaning sentiment will drive market moves.
That should keep oil offered on rallies with resistance on Brent crude at $72.50 and $73.70 a barrel. A fall through the 100-DMA at $71.15 a barrel signals a retest of $70.50 and $70.00 a barrel. Things could get ugly below $70.00 a barrel. WTI has resistance at $70.50 a barrel and is testing its 100-DMA support at $68.60 this morning. Thinned liquidity could see support at $67.00 a barrel threatened.
Gold still looks unimpressive
A lower US Dollar and easing US yields post-payrolls lifted gold prices on Friday. Gold finished the session 1.0% higher at $1828.00 an ounce, easing to $1826.00 in a moribund Asian session.
The rally on Friday was unimpressive, despite the headline figure. The Non-Farm Payrolls miss was a ripe environment for gold to stage a powerful rally as Fed tapering fears were swept off the table. Instead, all gold could manage was a modest rally that never threatened the major resistance zone lying just above between $1830.00 and $1834.00 an ounce.
Although a daily close above $1835.00 an ounce clears the technical picture for a move to $1900.00, gold appears to be running out of time to do so. The price action on Friday reinforces that gold’s upward momentum is waning.
Gold investors must now hope that US traders return to the office tomorrow and start selling US Dollars meaningfully to keep hopes of higher prices alive. If gold falls through support bounded by the 100 and 200-DMAs at $1815.50 and $1809.50 an ounce, gold could fall to $1780.00 an ounce.