Market Briefing: US jobs in the spotlight this week
Positive tone. A solid end to November with US & European equities rising. Bond yields dipped. AUD & NZD edged a bit higher.
JPY revival. JPY rebound has weighed on USD/JPY & the USD. Narrowing yield spreads as the BoJ hikes & others cut rates is JPY supportive.
Event radar. Locally, retail sales out today & GDP is on Weds. US Fed Chair Powell speaks this week & the latest US jobs figures are due.
Markets ended last week, and November, on a positive note. In the holiday shortened US session equities rose with the S&P500 (+0.6%) touching another record. European stockmarkets also increased (EuroStoxx600 +0.6%), as did the China indices (CSI300 +1.1%). As a result, the US S&P500 recorded its best monthly performance of the year (+5.7%, its 11th increase in 13 months). By contrast, bonds rallied with yields in the US and Europe falling. The US bond market played catch up after being closed for Thanksgiving with the benchmark 10yr rate shedding ~9bps to be at ~4.17%, a ~5-week low. Eurozone yields extended their slide (German 10yr -4bps to ~2.09%). Eurozone core inflation defied predictions and held steady at 2.7%pa in November, reinforcing views that the ECB will deliver another rate cut in mid-December and follow that up with a steady stream of reductions in 2025 due to the growth challenges the region faces. By contrast, another cut by the US Fed in December is assigned a ~65% chance with only 4 moves fully factored in by next October.
In FX, the USD index continued to give back its post US election gains. Although when you look under the hood, while EUR (now ~$1.0577) and GBP (now ~$1.2740) posted modest gains the main driver was the strengthening JPY. USD/JPY is the second most traded currency pair so its trends influence the broader USD. USD/JPY (now ~4.5% from its mid-November peak) has fallen below ~150 for the first time in ~6-weeks with the JPY underpinned by the pricing in of further Bank of Japan policy normalisation after Tokyo CPI (a leading indicator for national inflation) accelerated and BoJ Governor Ueda noted that the next rate hike is ‘nearing’. Narrowing yield differentials between Japan and the rest of the world can support the still undervalued JPY, in our view. The backdrop also helped the NZD (now ~$0.5923) and AUD (now ~$0.6520) tick up with the weekend released China business PMIs not generating much impact so far this morning. While the China manufacturing PMI nudged higher the services gauge softened, a sign the economic recovery isn’t overly solid.
This week the global macro focus will be on the long list of US Fed members speaking (including Chair Powell on Thurs morning AEDT) and various US labour market figures (including the monthly jobs report on Fri night AEDT). The data could make or break the case for the US Fed delivering another 25bp rate cut later this month. We believe a rebound in US jobs growth after temporary disruptions last month and still low unemployment could see markets pare back US rate cut bets. If realised, this would be USD positive. Overall, we think the USD should remain firm as the US economy continues to outperform its peers and as the policy platform of US President-elect Trump is enacted (see Market Musings: Trump 2.0 & the AUD).
Global event radar: US Jobs (Fri night), RBA Meeting (10th Dec), US CPI (12th Dec), BoC Meeting (12th Dec), ECB Meeting (13th Dec), China Data (16th Dec), FOMC Meeting (19th Dec), BoJ Meeting (19th Dec), BoE Meeting (19th Dec)
AUD Corner
The softer USD on the back of the pull-back in US bond yields during holiday shortened trading and a stronger JPY (see above) has helped the AUD extend its grind higher. Although at ~$0.6520 the AUD is still below its 1-month average and just over 1% from its mid-November low point. The AUD’s mixed performance on the crosses has also continued. While the AUD consolidated against the EUR (now ~0.6163) and edged up a bit versus the CAD (now ~0.9119) and CNH (now ~4.7297) it slipped back relative to GBP (now ~0.5117) and NZD (now ~1.1013). AUD/JPY has also extended its decline to be near where it last traded in mid-September (now ~97.57, ~4.8% from its early-November peak) as the JPY continues to claw back ground.
Locally, October retail sales are due today (11:30am AEDT), with Q3 GDP released on Wednesday. We think the mix of government relief measures, income tax cuts, a solid jobs market, and warmer than normal weather may have given retail spending a boost (mkt 0.4%). In our view, based on the data released so far, quarterly GDP growth also looks like it quickened a little following a very sluggish Q2. For policymakers, the level of activity compared to supply is what is important as this drives inflation. And as our chart illustrates, although growth rates have decelerated the level of demand across the private and public sectors remains above its pre-COVID trend. This is keeping unemployment low and core inflation sticky. In our opinion, this also means that the start of a gradual and slow RBA easing cycle remains a story for late-H1 2025.
As discussed previously, we believe the pricing in and enacting of the Trump policy agenda of trade tariffs, greater fiscal spending, and steps to curb US immigration will be USD supportive. This in turn appears set to keep the AUD in the mid-$0.60s over the next few quarters (see Market Musings: Trump 2.0 & the AUD). A solid US jobs report (Friday night AEDT) might create some renewed AUD headwinds, an offset for the usual positive AUD seasonality at this time of the year. That said, a reason why we don't see the AUD falling too much on a sustained basis from already low levels is our assessment that diverging fundamentals between Australia and other nations should be helpful against currencies like EUR, NZD, CAD, GBP, and CNH. Indeed, we believe recent moves on several AUD crosses appears overdone. A run of solid Australian economic data may be a catalyst for these AUD-crosses to bounce back.
AUD event radar: AU GDP (Weds), US Jobs (Fri night), RBA Meeting (10th Dec), US CPI (12th Dec), BoC Meeting (12th Dec), AU Jobs (12th Dec), ECB Meeting (13th Dec), China Data (16th Dec), FOMC Meeting (19th Dec), BoJ Meeting (19th Dec), BoE Meeting (19th Dec)
AUD levels to watch (support / resistance): 0.6420, 0.6470 / 0.6575, 0.6630
SGD Corner
The pull-back in US bond yields and the rebound in the JPY has seen the USD drift lower over the past week (see above). This has exerted a little downward pressure on USD/SGD (now ~1.3393). By contrast, EUR/SGD has consolidated above its recently touched multi-quarter lows (now ~1.4154), while the revival in the JPY has seen SGD/JPY fall to ~2-month lows (now ~111.67) This week, as discussed above, the global economic focus should be on the US with several Fed members (including Chair Powell) speaking and with the release of the latest US employment figures. In our judgement, a rebound in US jobs growth and/or cautious comments from Fed officials about future rate cuts could give the USD (and USD/SGD) some renewed short-term support.
SGD event radar: US Jobs (Fri night), US CPI (12th Dec), ECB Meeting (13th Dec), China Data (16th Dec), FOMC Meeting (19th Dec), BoJ Meeting (19th Dec) SGD levels to watch (support / resistance): 1.3290, 1.3340 / 1.3430, 1.3480
Market Moves
Peter Dragicevich
Currency Strategist - APAC
Upcoming Events
MONDAY (2nd December)
AUD Job Ads (Nov) (11:30am)
AUD Retail Sales (Oct) (11:30am)
AUD Building Approvals (Oct) (11:30am)
AUD Inventories (Q3) (11:30am)
CNY Caixin PMI – Manufacturing (Nov) (12:45pm)
AUD RBA’s Jones Speaks (1:25pm)
TUESDAY (3rd December)
USD ISM Manufacturing (Nov) (2am)
USD Fed’s Waller Speaks (7:15am)
USD Fed’s Williams Speaks (8:30am)
AUD Net Exports (Q3) (11:30am)
AUD Current Account (Q3) (11:30am)
EUR ECB's Cipollone Speaks (7pm)
WEDNESDAY (4th December)
USD JOLTS Job Openings (Oct) (2am)
USD Fed’s Kugler Speaks (4:35am)
USD Fed’s Goolsbee Speaks (7:45am)
AUD GDP (Q3) (11:30am)
CNY Caixin PMI – Services (Nov) (12:45pm)
EUR ECB's Cipollone Speaks (8pm)
GBP BoE Governor Bailey (8pm)
THURSDAY (5th December)
USD ADP Employment (Nov) (12:15am)
EUR ECB President Lagarde Speaks (12:30am)
USD Fed’s Musalem Speaks (12:45am)
USD Factory Orders (Oct) (2am)
USD ISM Services (Nov) (2am)
EUR ECB's Nagel Speaks (4:10am)
USD Fed Chair Powell Speaks (5:45am)
USD Fed’s Beige Book (6am)
AUD Trade Balance (Oct) (11:30am)
JPY BoJ’s Nakamura Speaks (12:30pm)
EUR Germany Factory Orders (Oct) (6pm)
FRIDAY (6th December)
USD Initial Jobless Claims (12:30am)
GBP BoE’s Greene Speaks (4am)
JPY Labor Cash Earnings (Oct) (10:30am)
EUR Germany Industrial Production (Oct) (6pm)
SATURDAY (7th December)
USD Jobs Report (Nov) (12:30am)
CAD Jobs Report (Nov) (12:30am)
USD Fed’s Bowman Speaks (1:15am)
USD Uni. of Michigan Sentiment (Dec P) (2am)
USD Fed’s Goolsbee Speaks (2:30am)
USD Fed’s Hammack Speaks (4am)
USD Fed’s Daly Speaks (5am)
*Note, all times/dates provided are AEDT
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