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Australian payrolls surprise, what of Chinese industrial output? - Desmond Chua

CMC Markets

While US stocks seemed to have followed Asian and European markets lower at the start of the session, they pared losses ahead of the close as the US stepped up efforts to ease tensions in Ukraine. In a last attempt of sorts to defuse the situation, US Secretary of State John Kerry has agreed to meet with his Russian counterpart on Friday, ahead of a referendum vote in Crimea this Sunday. The S&P 500 which earlier fell as much as 0.7% managed to eke out meager gains while the Dow fell slightly less than 0.1%. The energy sector grabbed the headlines on the M&A front with the acquisition of EPL Oil & Gas by Energy XXI, with both shares rising 30% and 6% respectively. Shares at Herbalife sold off and lost 7.4% as the FTC launches an inquiry after allegations from Hedge fund billionaire William Ackman that it was running a pyramid structure. While shares have been trading listlessly for most of the week, we might see a pickup in trading activity later tonight with the release of the US retail sales data, jobless claims and business inventories data. Markets will be monitoring the retail sales data closely. After official figures disappointed in January and December, a third strike would be ominous, even after discounting the weather. Following the jobs report on Friday, analysts are also expecting a slight rebound in February retail sales, from a decline of 0.4% to an expansion of 0.3%. While spending on utilities and basic necessities may have risen due to the cold winter, spending on big-ticket items like automobiles is likely to fall, pointing towards the possibility of a higher core figure and a let-down in the main indicator. The NZD was the main headliner after the RBNZ decided to hike interest rates this morning by 25bp. With unemployment at a four-year low and business confidence at multi-year highs, Governor Wheeler explained that a rate hike was needed to keep prices in check, especially in the housing market. While the decision was widely expected, the kiwi rose nonetheless as this marks the first step in a longer tightening phase. Aside from being the first major economy to conduct a rate hike, the RBNZ added that they expect rates to rise by 2% over the next two years. NZD/USD has since broken out of the 0.85 handle which has helped keep a lid on prices over the past six months. It is now poised to test the 13 April highs of 0.8675. Moving in lockstep with the kiwi this morning was the AUD due to payrolls data which tripled analysts’ estimates. The robust growth in the jobs sector comes as a relief as the currency has been plagued by copper’s decline and weaker-than-expected domestic data. AUD/USD has since rebounded and broken above 0.9050 while an upward revision to January’s dismal job figures - from -3700 to 18,000 - further added to upward momentum. The near-term fate of the AUD will also depend on how the Chinese industrial production figures perform in February, due for a release later this afternoon. As the cold weather wears out, so has the demand for crude, sending the US benchmark to below 100 as stockpiles increased. News that the US was releasing oil from its reserve - possibly as a show of strength to Russia - further aided a draw down on prices. With uncertainties still brewing in markets, Gold has found some shine having broken above 1350, and currently testing 13 October highs of 1365, with a break likely for the potential to run further up.