fter another rough start, Chinese markets stabilized, calming nerves around the world and enabling oversold markets to bounce back. The removal of the circuit breakers that had become a target for bears, the PBOC raising the CNY reference level and state fund buying of stocks combined to short up support and enable bargain hunting.
Although the rally faded a bit in the afternoon, Shanghai managed to close in the green. Other stock markets around the world have taken their cue from this action and started to rebound as well. Crude oil has stabilized but its rebound potential remains limited with high tension between major suppliers limiting the potential for co-operation. Defensive havens that had benefitted from this week’s volatility like JPY and gold retrenched a bit. This morning also finds EUR and neighbouring currencies like CHF and SEK giving back some of yesterday’s gains.
Focus now turns to North American markets where we could see significant action on the US nonfarm payrolls and Canada Labour Force Survey reports. On Wednesday, I had called for an upward revision to ADP payrolls and a weaker headline number and instead got a strong headline number and no revision. I still think the ADP surprise was a catch-up move and nonfarm payrolls could come in below the 200K street estimate.
My reasoning for this is that employers may have sat on their hands in the first half of the month waiting to see if the Fed was going to raise rates or not has happened back in September By the time the Fed made its decision the holidays hit with their normal slowdown. Here’s what happened the last time to nonfarm payrolls when the Fed started raising interest rates in June of 2004.
May 2004 308K
June 2004 74K
July 2004 33K
August 2004 132K
Sept 2004 162K
Oct 2004 345K
In other words, nonfarm payrolls growth stopped for a couple of months after the first rate hike then ramped right back up again. So a low number would not be unusual. I think we’ll see 100K for December with a possible upward revision to November, while the street is at 200K. The Fed’s party line of late has been looking at 4 increases this year and pretty much nobody is expecting a move at this month’s meeting. Therefore, I think it would take an extreme reading like above 300K or below 0 to change Fed expectations.
The street is expecting an increase of 10K jobs in December, but this could be a bit high. Both PMI reports for Canada (RBC manufacturing and Ivey) fell over month and both were in contraction territory. I suspect overall jobs fell by 10K with a slowdown in hiring on the full time side. This could be offset by a rebound in part time, it’s hard to say. I also suspect a stronger December could be offset by a potentially weak January if we get another round of oilpatch layoffs.
CAD which like oil has been looking technically oversold but hasn’t bounced back as much as other markets today could be quite active today. The Canadian employment report may indicate how much pressure the Bank of Canada is under to cut interest rates again, particularly since the central bank appears to be letting the currency do a lot of the heavy lifting for it.
Chinese inflation figures are due out over the weekend (tonight in North America) which could spark another flurry of activity when trading resumes on Sunday afternoon.
There have been no major corporate announcements so far today.
Significant announcements released overnight include:
Australia construction PMI 46.8 vs previous 50.9
Australia retail sales 0.4% as expected
Japan real cash earnings (0.4%) vs previous 0.4%
Japan leading index 103.9 as expected
Germany industrial production 0.1% vs street 0.5%
Germany trade balance €20.6B vs street €20.2B
France industrial production 2.8% vs street 3.0%
Sweden industrial production 6.2% vs street 4.5%
Norway industrial production (1.8%) vs previous (3.0%)
UK trade balance (£3.1B) vs street (£2.7B)
Upcoming significant announcements include:
8:30 am EST US nonfarm payrolls street 200K
8:30 am EST US nonfarm revision previous 211K
8:30 am EST US payrolls 2 month net revision
8:30 am EST US private sector payrolls street 198K
8:30 am EST US unemployment rate street 5.0%
8:30 am EST US average hourly earnings street 2.8% vs previous 2.3%
8:30 am EST US participation rate previous 62.5%
8:30 am EST Canada employment change street 8K vs previous (35K)
8:30 am EST Canada full time jobs previous 36K
8:30 am EST Canada part time jobs previous (72K)
8:30 am EST Canada unemployment rate street 7.1%
11:30 am EST FOMC Williams speaking
1:00 pm EST FOMC Lacker speaking
12:30 pm AEDT Sat China consumer prices street 1.6%
12:30 pm AEDT Sat China producer prices street (5.8%)
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