Strong US payrolls drive stocks and USD higher again
US nonfarm payrolls shrugged off last month’s summer distortion and posted not only a big upward revision, but also a better than expected headline number of 248K jobs added last month. This new has sparked a big rally in USD which is up over 1% against CHF, EUR, NOK, SEK, JPY and NZD and has driven gold down to a retest of the $1,200 round number level.
Meanwhile, stocks have taken off again on the news with the NASDAQ 100 regaining the 4,000 level. With CHF, gold and JPY in retreat, it appears an aggressive rotation is underway again for now with stock traders focusing more on the positive impact of economic growth on corporate earnings than the risk the Fed may need to get more hawkish sooner which is sending USD soaring.
Stock traders may also want to be wary of getting too enthusiastic because at some point the rebounding USD is going to have a negative impact on the earnings of US multinationals, making US exports more expensive abroad and lowering the earnings of overseas operations in USD terms.
USD also appears to be at a key turning point. Although it us up against may currencies, it also is approaching key resistance levels for CAD, JPY and others and support for AUD and NZD. While today’s data can clearly be seen as bullish for USD due to its hawkish Fed implications, if it can’t break out on such good news, it would suggest part has already been priced in and the potential for a correction.
Interestingly, the currency that is down the least against the USD onslaught is CAD even though Canadian trade data was disappointing. The surprise deficit could be blamed on falling crude prices. CAD relative strength suggests that the street expects Canada to eventually benefit from a stronger US than other countries. GBP has posted the second smallest decline with the Bank of England still the most likely central bank other than the Fed to raise interest rates within the next nine months.
Overall it appears that today could be a very strong day for US indices and USD but it remains to be seen if this is sustainable given that indices and USD are near their 52-week highs again. Once this burst of enthusiasm it’s possible that we could see a correction next week when US news flow subsides and focus turns elsewhere.
Economic reports released overnight and this morning include:
US nonfarm payrolls 248K vs street 215K previous revised up to 180K from 142K
US private payrolls 236K vs street 210K previous revised up to 175K from 134K
US unemployment rate 5.9% vs street 6.1%
US hourly earnings 2.0% vs street 2.2%
US trade balance ($40.1B) vs street ($40.8B)
Canada trade balance ($0.6B) vs street $1.60B
China non-manufacturing PMI 54.0 vs previous 54.4
Australia service PMI 45.4 vs previous 49.4
Australia new home sales 3.3% vs previous (5.7%)
Japan service PMI 52.5 vs previous 49.9
Sweden service PMI 55.6 vs previous 54.2
Spain service PMI 55.8 vs street 57.0
Sweden service production 2.3% vs previous 2.0%
Sweden industrial production (2.4%) vs street (1.3%)
Sweden industrial orders (4.7%) vs previous (4.4%)
Italy service PMI 48.8 vs street 49.6
France service PMI 48.4 vs street 49.4
Germany service PMI 55.7 vs street 55.4
Norway unemployment rate 2.7% as expected
Eurozone service PMI 52.4 vs street 52.8
UK service PMI 58.7 vs street 59.0
Eurozone retail sales 1.9% vs street 0.7%
Economic reports due later today include:
9:00 am EDT Brazil service PMI previous 49.2
9:45 am EDT US Markit service PMI street 58.5
10:00 am EDT US ISM non-manufacturing PMI street 58.5 vs previous 59.6