Market Briefing: US jobs report in focus
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Cross-currents. Sluggish US data dampened risk sentiment a bit. US equities & bond yields dipped. USD/JPY declined ~1%. AUD & NZD a little lower.
Macro events. RBA Dep. Gov. Hauser speaks today. Tonight the delayed US jobs report is released. Will the US data come in better than feared?
Global Trends
A few crosscurrents hit markets over the past 24hrs resulting in some mixed results. On the one hand, the landslide victory by Japanese PM Takaichi’s party at the weekend elections and prospect of more stimulatory fiscal spending pushed the Nikkei to fresh all-time highs. By contrast, sluggish data dampened sentiment a bit in the US with equities (S&P500 -0.2%) and bond yields (US 10yr -6bps) ending the session lower. In FX, there were push-pull forces at work. On net, the USD index drifted back thanks to a ~1% decline in USD/JPY (now ~154.35). This offset weakness in other currencies such as the EUR (now ~$1.1895) and GBP (now ~$1.3642). The backdrop also exerted a little downward pressure on the NZD (now ~$0.6045) and AUD (now ~$0.7073), although both remain near their recent respective peaks.
With respect to the US economic news there was more evidence the cracks in the jobs market are flowing through to wages, which in turns points to more of a slowdown in services/core inflation down the track. The US employment cost index (a broad wages measure monitored by the US Fed) rose just 0.7% in Q4, the slowest pace since 2021, on the back of weaker demand and reduced jobs turnover. US retail sales were also on the weaker side of expectations. Total retail sales were flat in December, while the ‘control group’ (which feeds into US GDP) fell 0.1%. Household consumption, the engine room of the US economy given it accounts for ~3/4’s of GDP, was solid in Q4, but momentum looks slower than Q3. Higher import costs due to tariffs, job market worries, and/or lower confidence are factors that may be playing on the minds of US consumers. The extreme winter weather in January could also dent spending in Q1.
The spotlight should remain in the US tonight with the delayed January jobs report due (12:30am AEDT). Interestingly a couple of Trump Administration officials, such as National Economic Council Director Hassett, were on the wires over the past 24hrs noting that people should expect job numbers that “are lower than you’re used to” because of things like slower population growth and productivity enhancements. This might have shifted market expectations towards a potential negative surprise in tonight’s employment data. We think the comments are probably more related to the underlying trend going forward rather than one month’s result. As our chart shows, non-farm payrolls have tended to negatively surprise the past few months. We believe some payback after the US government shutdown and residual seasonality issues at this time of year may see the US jobs data exceed downbeat predictions. If realised we think this could give the USD (which is still tracking below our fair-value estimate) a short-term boost.
Global event radar: US Jobs (Tonight), US CPI (Fri Night), US Retail Sales (18th Feb), RBNZ (18th Feb), US GDP (21st Feb)
Trans-Tasman Zone
The shaky risk sentiment overnight in the US stemming from some underwhelming data has taken a bit of heat out of the NZD and AUD (see above). That said, at ~$0.6045 the NZD is less than 1% from its recent multi-month high, while the AUD (now ~$0.7073) is hovering just shy of its multi-year peak. The AUD also lost ground on most of the major crosses with modest falls recorded against EUR (-0.1%), NZD (-0.1%), and CNH (-0.3%), while there was a larger pull-back against the JPY (-1.3% to ~109.17).
As discussed earlier in the week we believe markets had gotten ahead of themselves with respect to the JPY, and crosses like AUD/JPY and NZD/JPY have become very stretched relative to underlying drivers such as interest rate differentials. AUD/JPY is also in rarefied air having only traded above ~110 in ~3% of trading days since 1988. In our view, as sentiment/momentum fades, the Japanese fiscal policy reality hits, and/or the Bank of Japan delivers more inflation fighting/currency stabilizing rate hikes, the undervalued JPY might snap back sharply, flowing through to a sizeable retracement lower in AUD/JPY over the period ahead.
In terms of AUD/USD, today in Australia RBA Deputy Governor Hauser speaks (12:30pm AEDT) and tonight the US jobs report is released (12:30am AEDT). If policy is discussed we believe Hauser will reiterate that inflation pressures are keeping the door open for the RBA to raise interest rates again. Data released yesterday showed the Australian economy is still operating under capacity constraints with measures like capacity utilization above average and at levels indicative of 'excess demand' (see chart below). That said, expectations matter in markets and with another RBA rate hike fully discounted by August ‘hawkish’ comments shouldn’t be seen as new news for the AUD. Based on our thoughts the USD might edge up a little due to the chance of a better than feared US jobs report, the AUD may lose some ground. However, given the shift in relative interest rates in Australia’s favour retracements in the AUD shouldn’t be overly large, in our opinion. We expect the AUD to track in a higher average range compared to the past few years. But with the negative economic effects of higher interest rates also set to materialise over coming months we continue to think ~$0.71-0.72 may be a ceiling for the AUD.
AUD & NZD event radar: US Jobs (Tonight), US CPI (Fri Night), US Retail Sales (18th Feb), RBNZ (18th Feb), AU Jobs (19th Feb), US GDP (21st Feb)
AUD levels to watch (support / resistance): 0.6940, 0.7010 / 0.7090, 0.7150
NZD levels to watch (support / resistance): 0.5990, 0.6030 / 0.6080, 0.6095
Market Moves
Peter Dragicevich
Currency Strategist - APAC
Upcoming Events
WEDNESDAY (11th February)
AUD RBA’s Hauser Speaks (12:30pm)
CNY PPI/CPI Inflation (Jan) (12:30pm)
EUR ECB Wage Tracker (8pm)
EUR ECB’s Cipollone Speaks (9:20pm)
THURSDAY (12th February)
USD Jobs Report (Jan) (12:30am)
USD Fed's Schmid Speaks (2am)
USD Fed's Bowman Speaks (4am)
EUR ECB’s Schnabel Speaks (4am)
USD Fed's Hammack Speaks (8am)
AUD RBA Senate Testimony (9am)
AUD RBA’s Hunter Speaks (3:45pm)
GBP GDP (Q4) (6pm)
EUR ECB’s Cipollone Speaks (8pm)
FRIDAY (13th February)
USD Initial Jobless Claims (12:30am)
CAD BoC’s Rogers Speaks (12:45am)
EUR ECB’s Lane & Stournaras Speak (2:50am)
EUR ECB’s Nagel Speaks (6:30am)
USD Fed’s Logan Speaks (11am)
USD Fed’s Miran Speaks (11:05am)
NZD 2yr Ahead Inf. Expectations (Q1) (1pm)
EUR ECB's Guindos Speaks (11pm)
GBP BoE’s Pill Speaks (11pm)
SATURDAY (14th February)
USD CPI Inflation (Jan) (12:30am)
*Note, all times/dates provided are AEDT
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