Daily Market Update 8 July 2013 - Tapering talk up, just like US payrolls

Daily Market Update 8 July 2013 - Tapering talk up, just like US payrolls

As suggested by improved readings in jobless claims, the ISM non-manufacturing PMI employment index and Wednesday’s ADP report, the US labour market continued to strengthen<http://www.bls.gov/news.release/pdf/empsit.pdfhttp:/www.bls.gov/news.release/pdf/empsit.pdf> in June, at least according to headline figures, with the economy adding an additional 195k workers in June. The result was stronger than the 165k pace that had been expected by economists with private-sector hiring of 202k able to offset a decline of 7k government payrolls resulting from ongoing sequester cuts. Despite the headline beat and upward revisions to prior data totalling 70k, a lift in participation to 63.5%, something usually coincides with improved economic conditions, saw the unemployment rate hold steady at 7.6% for a second-consecutive month. While not to dispute the headline data, job growth is strengthening as are earnings which grew by 0.4%, double the rate expected, the composition of hiring remains a concern with the household survey reporting a surge in part-time employment of 322k during the month. While some job creation is certainly better than none, given the breakdown of sector hiring, leisure and hospitality was +75k, retail trade +37k but manufacturing -6k, it does suggest that much of the job creation was in lower-paying, lower-skilled roles. Despite the underlying weakness, financial markets leapt on the data with US stocks, yields and the USD all surging higher on heightened expectation that the Fed will begin to taper their QE program, potentially as early as September. While this is an understandable reaction given the discussion of late, given the economic recovery was lead by the housing market on the back of lower rates, it will be interesting to see how that sector fares, along with the economy as a whole, should yields remain at-or-above present levels.


Following an unrevised 95k hiring surge in May, the Canadian labour market cooled last month with the economy<http://www.statcan.gc.ca/daily-quotidien/130705/dq130705a-eng.pdf> shedding 400 jobs in June. While better than the 2.5k fall that had been expected by the markets, the underlying strength of the data was weak with a 32.2k increase in part-time employment completely offset by a 32.4k decline in full time workers. While slightly disappointing, with job growth essentially flat and the participation rate holding steady at 66.7%, the unemployment rate held at 7.1% for a second-consecutive month.


Corresponding with the recent decline in their manufacturing PMI gauge, German industrial orders continued to slip in May with a decline of -1.3% reported. The result was well below the 1.2% increase expected by the markets and came on the back of 2.2% fall in April.


Spanish industrial output<http://www.ine.es/en/daco/daco42/daco422/ipi0513_en.pdf> contracted modestly in the year to May with a contraction of 1.3% reported. The result was an improvement on the downwardly-revised 1.5% decline reported in the year to April.


The French trade deficit widened sharply in May with an increase to €6bn reported. The figure was higher than the €4.5bn deficit reported in April with a fall in exports, largely due to lower aircraft orders from Airbus, behind the sudden jump.


Swiss consumer prices inched higher in June with an increase of 0.1% reported. The result was above expectations for a decrease of 0.1% with the year-on-year deflation rate slowing to -0.1% from -0.5% in May.


The Day Ahead (All times AEST)


Having pre-emptively rallied on Friday last week, SPI futures point to a lower start this morning with a decline of 13pts expected. While futures suggest we’ll open weaker, given the late surge on Wall St and likely replication in Europe this afternoon, a gain for the ASX 200 appears likely in the absence of any unexpected news throughout the Asian session.


Having fallen heavily on Friday evening following the US jobs report, the AUDUSD has opened under pressure this morning with the pair currently buying .9044. In the absence of any major market-moving data today, the Aussie remains a sell-on-rallies prospect with a test of last week’s .9036 low likely during today’s trading session. On the topside expect selling to emerge at .9070 and again at .9110.


The ANZ job ads series for June will be released this morning at 11.30am. Regionally, investors will also receive bank lending and current account figures from Japan.


A calendar chock-full of second-tier data pieces this evening with trade and industrial output figures from Germany, unemployment and industrial orders from Switzerland, the Eurozone Sentix index, Canadian building permits and consumer credit data from the US all scheduled for release.


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