The US employment data which came out on Good Friday was far from what the market expected which was an increase of 245,000, versus an actual number of 126,000. Perhaps Goldman Sachs has called the peak in jobs growth correctly, if they did, kudos to them, however revisions at a later date are not uncommon, so the jury is still very much out. The problem this time was, and this was what really shocked the market on Friday, not so much the relatively poor number itself, but the fact that the revisions for January and February actually reduced the original data! That’s a clear sign that job growth has peaked, over the last year revisions have generally increased the employment data. Even if the revision for this month ends up actually showing a better accumulation of jobs than initially reported, it is quite clear that the US economy has cooled off markedly from the middle of last year. This is certainly the case when you consider the totality of data we’ve been receiving so far this year. The fact remains that the unemployment rate in the United States is now low, the labour market is tightening, and there appears to be increasing evidence of this in the wage growth data which was better than expected at 0.3%. The currency markets responded to what could be an inflection point in the US growth paradigm with the US dollar selling off strongly with currency pairs like EUR/USD and GBP/USD jumping over 100pips in short order. This morning we have retraced about half of the move with the dollar attempting to recover the losses. If the data stabilises from here, there is no reason for the Federal Reserve not to push ahead with tightening of some sort, but the central bank will surely be cautious at this point, and be in data watch mode. The last thing they would want to do is start tightening if the US economy continues to cool off. On that basis, it is perfectly reasonable for the US dollar to have reacted in the way that it has so far.
The Reserve Bank of Australia (RBA) has not just contemplated a more cautious stance on rates, it has just done it, maintaining rates at current levels (2.25%), instead of a cut as some might have expected. Not ParityFX though, this blog opined that rates would be kept on hold as the prior cut is allowed time to impact the Australian economy. I would go further and suggest that the easing in Japan, China and India are more likely to have a beneficial impact on the Australian economy in the medium term, but either way, it was certainly too soon for another interest rate cut.
Even as the Nigerian equity markets have rallied in the wake of the historic national election, the naira has stayed quiet. This is, in a way, somewhat surprising, but it could illustrate a divergence between locals and foreign investors. The locals perhaps couldn’t afford the opportunity loss of not being invested in a more stable politico-economy than might have been expected, while foreigners can afford to wait on the sidelines and assess what the new administration does over the transition period. If this is the case, there is a great deal of sense in this. It is definitely noteworthy that the naira has so far not reacted, and I am duty bound to point out that it could be a sign of a negative reaction building in the near future, although I favour the view that we are seeing a dislocation between locals and outside investors..
I continue to view the currency markets as generally trendless at the moment. Selective emerging market currencies are likely to weaken dramatically over the coming months as their fundamentals are shown to be weaker than is currently believed. But where the majors are concerned I don’t believe, absent really bad mis-steps by the Greeks, that we are in for much excitement as we approach the summer months. But it’s the Greeks we must turn our focus to as, the 9th of April is the date of a €450m debt repayment to the IMF. Expectations are that the Greeks will make the payment but there is always the risk where inexperienced politicians are involved. And Syriza does lack experience. Watch this space..
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