\n\tBy Greg Peel<\/p>\n
\n\tThere was much speculation as to just how Wall Street might react to Friday’s US unemployment data. Would a good number be good, implying a strengthening US economy? Or would a good number be bad, implying Fed tapering sooner rather than later? As it turned out, the May report had a little something for everyone.<\/p>\n
\n\tOn first estimate, there were 175,000 jobs added in May, ahead of expectations of 164,000. Economically that’s good, albeit April’s 165,000 number was revised down to 149,000. Not so good. A significant 420,000 Americans entered the job market in May, increasing the participation rate for the first time since October, to 63.4%. Economically, that’s very good news as it implies confidence is increasing that jobs can be found. But the increase in the participation rate meant the unemployment rate rose to 7.6% from 7.5%. Well heck, that’s good too because it keeps an employment-focused Fed at bay.<\/p>\n
\n\tAt the end of the day, the May non-farm payrolls report proved a win-win.<\/p>\n
\n\tWall Street shot up on the news, traded sideways for most of the session, then had another spurt towards the death. The Dow closed up 207 points, or 1.4%, the S&P gained 1.3% to 1643 and the Nasdaq<\/span> added 1.3%. The strong moves meant Wall Street posted a weekly rally for the first week in three.<\/p>\n \n\tThe US dollar had taken a bit of a hammering last week on a sharp short-covering rally in the yen, but on Friday the greenback rebounded 0.5% against the yen and 0.2% on its index to 81.69, spurred on by the positive jobs number. The US bond market also read the jobs result as economically positive, with the ten-year yield up 8bps<\/span> to 2.16%. The bond market seems more resigned to upcoming Fed tapering. The gold market agreed, with gold falling US$27.30 to US$1384.60\/oz.<\/p>\n \n\tCommodities markets were at odds. A good jobs number is a positive, but a stronger US dollar is a negative. Base metals went with the stronger dollar, with all metals in the red and copper falling 1.5%. The oils went with the economic implications, hence Brent rose US95c<\/span> to US$104.56\/bbl<\/span> and West Texas rose US$1.17 to US$95.73\/bbl<\/span>.<\/p>\n \n\tSpot iron ore fell US$3.00 to US$110.90\/t.<\/p>\n \n\tThe Aussie dollar fell back a cent on the stronger greenback, following its own sharp short-covering rally on Thursday night. That rally failed to prevent the Australian stock market from falling further on Friday, and a weaker currency has recently implied more selling. But the SPI<\/span> Overnight rose 58 points or 1.2%.<\/p>\n \n\tThe mood soured on Saturday with the release of China’s May trade data. Economists had already forecast uninspiring numbers, with exports expected to rise 5.6% (year on year), down from April’s 14.7% gain, and imports expected to rise 5.0%, down from 16.8%. But the data showed only a 1.0% rise in exports and a 0.3% fall in imports.<\/p>\n \n\tAccording to Chinese customs officials, the disappointing performance was due to “a slowdown in the domestic economy, sluggish foreign demand, companies' high costs, the appreciation in the [renminbi’s<\/span>] real value and a worsening trade environment”.<\/p>\n \n\tAccording to the economists at ANZ<\/span>, China’s export growth “crashed” in May due to a government crackdown on the over-invoicing and “round-tripping” which made April’s numbers look so strong. Chinese merchants had been sending goods back and forth and bringing forward invoice payments in order to collect more currency than they otherwise would, to then ride the rising renminbi<\/span>. The Chinese currency has appreciated by almost 20% against the yen this year.<\/p>\n \n\tANZ<\/span> does not believe Beijing’s strong currency policy is sustainable, and notes a recent easing off in the renminbi’s<\/span> rise. Protectionism is another threat to exports ahead as the trade and IP battle hots<\/span> up. The EU has now applied anti-dumping tariffs on Chinese solar panels and related products, which ANZ<\/span> suggests will likely evoke some tit for tat from Beijing. Protectionism only adds to the currency issue, with China’s competitiveness under threat from the recent falls in regional currencies against the US dollar. “We believe China’s loss of competitiveness relatively to ASEAN and Japan,” says ANZ<\/span>, “will gradually show up in China’s export data in the following months, which will have dire consequences for China’s already weak job markets”.<\/p>\n \n\tMore Chinese data, released on Sunday, were not quite as shocking as the trade data but not overly inspiring either. Industrial production fell to an annual growth rate of 9.2% in May from 9.3% in April, retail sales growth rose to 12.9% from 12.8%, and fixed asset investment grew by 20.4%, down from the 20.6% rate posted in the months January-April.<\/p>\n \n\tInflation fell to 2.1% from 2.3%. While lower inflation provides Beijing with scope to provide stimulus, current policies including the above-mentioned crack down on export fiddles as well as tough measures against corruption are having the opposite effect, and the perennial issue of a property bubble limits Beijing’s options. The government is targeting annual inflation of 3.5%, up from 2.6% in 2012, on the expectation of improving economic growth. At this stage China will need a pretty solid second half.<\/p>\n \n\tYesterday Japan’s March quarter GDP result was upgraded to 4.1% growth from a previous 3.5%. After wild times last week mostly to the downside, the Nikkei jumped 4.9%. Yet April trade data proved disappointing, with exports growing only 3.8% compared to 5.4% expectation. Japan’s trade deficit subsequently worsened in the face of massive currency devaluation, suggesting Tokyo’s efforts to spark life in the economy may yet struggle due to low global demand.<\/p>\n \n\tWhile Australian markets were closed yesterday, Asian trading saw the Aussie plunge again on the weak Chinese data, briefly trading below 94. Support returned overnight however, with the currency now at US$94.63, down half a cent from Saturday morning.<\/p>\n \n\tChina was on Wall Street’s radar last night in the wake of Friday night’s big jobs-related rally. Consolidation was nevertheless the response, as indices chopped around the flatline<\/span> throughout the session. The Dow closed down 9 points, while the S&P was flat at 1642 and the Nasdaq<\/span> rose 0.1%.<\/p>\n \n\tThe US ten-year bond yield rose another 5bps<\/span> to 2.21%. The benchmark Treasury yield has now risen 29% since troughing<\/span> at the beginning of May, driven by talk of a Fed exit, and 57% since the yield low of 1.4% last July. Last night ratings agency Standard & Poor’s upgraded its US sovereign status to stable from negative for the first time since downgrading its ratings from AAA in 2011. Last night’s Fedspeak<\/span> came from St Louis president and FOMC<\/span> member James Bullard who suggested, following Friday’s jobs report, that an improving labour<\/span> market could see the Fed begin to taper purchases, but that surprisingly low inflation means the central bank could remain aggressive for a while yet.<\/p>\n \n\tThe US dollar index was little changed last night at 81.66, and gold was also steady at US$1385.80\/oz following Friday night’s fall.<\/p>\n \n\tA steady US dollar allowed the LME<\/span> to respond to the weak Chinese data, albeit Chinese traders are absent with the Dragon Boat holiday break running from yesterday to tomorrow. All metals were down slightly, with copper down another 0.9%. The oils trimmed their Friday gains to finish slightly over two sessions, with Brent down US61c<\/span> to US$103.95\/bbl<\/span> and West Texas down US25c<\/span> to US$95.78\/bbl<\/span>.<\/p>\n \n\tThe Chinese holiday means spot iron ore will remain at US$110.90\/t until Thursday.<\/p>\n \n\tThe SPI<\/span> Overnight fell 17 points, or 0.4% last night, bringing the net two-session move to up 41 points. The futures market appears to have found US jobs growth encouraging enough to offset Chinese weakness.<\/p>\n \n\tThere are more US data points to consider this week with retail sales and business inventories due on Thursday, and industrial production, the PPI, and the fortnightly consumer sentiment measure due on Friday along with the March quarter current account.<\/p>\n \n\tToday in Australia sees housing finance and investment lending and the NAB business confidence survey. Tomorrow it’s the Westpac consumer confidence survey, and on Thursday our own jobs numbers.<\/p>\n \n\tSPI<\/span> futures and options and ASX-listed<\/span> index options will expire on Thursday.<\/p>\n \n\tIndustrial production numbers are also due this week from the UK and eurozone<\/span>, the Reserve Bank of New Zealand will make a rate decision on Thursday, and as noted, China is closed today and tomorrow.<\/p>\n \n\tRudi will appear on Sky Business on Wednesday at 5.30pm. \n\tFor further global economic release dates and local company events please refer to the <\/em>FNArena<\/span> Calendar<\/a>.<\/p>\n
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