The hugely disappointing Australian jobs report resurrected talk of an RBA rate cut and took the Aussie down to fresh mult-year lows. Even as it tries to stabilize in the European morning, it is still off about 1.4%. It approached $0.8775 and it is not clear that the low for the day is in place. The tone remains fragile.
The Australian economy lost a net 22.6k jobs. The Bloomberg consensus called for a 10k increase. Adding insult to injury the November series was revised to show a 15.4k gain instead of the initial 21.0.
Moreover, these headline figures understate the dismal news. Australia lost 31.6k full-time jobs in December and the downward revision to the November series reflects almost exclusively full-time jobs.
Barring a significant upside surprise with next week's Q4 CPI figures, we expect the pendulum of opinion will continue to swing back toward another rate cut. In our annual outlook, we penciled one in for late Q1 or early Q2.
Aside from the Aussie, which is also dragging down the Kiwi, the other major currencies are narrowly mixed. The news stream in Europe has been light. The euro is consolidating in a narrow $1.3585-$1.3630 range and does not appear to be going anywhere quickly. Sterling was briefly pushed through yesterday's lows, which some attributed to cross rate adjustments, but quickly bounced back. It has been largely confined to a $1.6320-$1.6380 range.
The dollar did manage to extend its recovery against the yen, although Japanese shares finished lower. The growing confidence that the Fed is most likely to continue to announce further tapering later this month, even if the 10-year Treasury yield has not moved back to 3%, has helped the dollar recover from the dip below JPY103 at the start of the week. Support is now seen near JPY104.50.
Japan's economic data points to a solid finish to 2013, even if the current account deficit widened to record levels (which as we suggested was exaggerated by the seasonal weakness in investment income, and will likely offset the trade deficit in Q1 14).
The BOJ upgraded its economic assessment for five of the main regions, largely due to domestic demand. Core machine tools orders jumped 9.3% in November. The market had looked for a 1.2% gain. This is seen as a proxy of capital expenditures.
Separately, the corporate goods price index rose 0.3% in December for a 2.5% year-over-year rise, a tad slower than November, but has been up for nine consecutive months, boosting confidence that the deflation dragon has been slayed. Simply put, Japan is no longer the low inflation country among the G10.
The North American session features the US weekly jobless claims, CPI and Philly Fed survey. Weekly initial claims were distorted at the end of 2013, but appear to be moving back within the longer-term downward trend. This is consistent with continued gradual improvement in the labor market, though we note that this time series will not pick up the loss of emergency benefits. While the headline CPI may tick-up, the core rate is likely to remain steady around 1.7% (which is likely to remain above the headline rate). The Philly Fed may prove to be the most interesting of today's reports. It is a January report and follows yesterday's upside surprise from the Empire State's January survey.
Bernanke and Williams (not in that order) speak at a conference on central banking and its challenges in Washington, D.C. There is unlikely to be much insight to be gleaned about the trajectory of US monetary policy. Williams is not a voting member of the FOMC and Bernanke will soon step down.
Canada reports its portfolio capital flows for November today. The Canadian dollar's weakening trend accelerated beginning in late October. The net capital inflows have been slowing gradually over the last several months. A surprise net sales of Canadian assets, coupled with the drag from the Australian dollar, could give participants a reason to re-test the CAD1.10, where optionality and corporate offers are thought to exist.