Non-farm Payrolls Shocker, USD Slumps While Gold Rallies, ASX SPI200 Futures Up 1 Point

The big news on Friday was the disappointing US Non-farm payrolls which showed only 38,000 jobs were added in May against expectations of 160,000, while the unemployment rate dropped to 4.7% however this is to do with a lower participation rate as people left the workforce. One a side note there was a strike of Verizon workers totalling just under 40,000 which will re-join the count for June, however even accounting for this the numbers are extremely low. This is the lowest amount of jobs created since 2010 and basically removes any chance of a June rate hike, with the implied probability determined by Fed Funds futures for the June meeting dropping for 22% to 4%. While this is a disappointing results, it does not mean that the FOMC will not hike rates this year, however I must stress we will need to look at further incoming data over the next month to get a clear picture. A rebound in payrolls next month or data showing the economy is improving could see the Fed raise rates in July after we have an outcome from the “Brexit” referendum.  Meanwhile Fed Chair Janet Yellen is giving a speech in Philadelphia tonight and may provide some clues as to how the Fed will interpret this.

Following the Non-farm payrolls data the US Dollar dropped sharply, falling -1.60% against a baskets of its peers helping a rebound in the recently out of favour precious metal spot gold which gained 2.70%. US equity markets initially dropped following the report however rallied into the end of the trading session to only finish marginally lower, with the S&P500 & Nasdaq100 down -0.29% & 0.48%. A weaker dollar over the next few weeks will have different impacts on different economies, emerging markets will benefit from a weaker Dollar given the foreign investment that has poured in as a result of zero-bound rates over the past few years.  I also have no doubt we will hear more continued concerns and speculations from the Japanese regarding a strengthening Yen and any possible intervention or action by the BOJ, all though doubtful that any currency intervention will be sanctioned.  

Elsewhere on Friday Caixin Chinese Services & Composite PMI data showed a drop from April with both readings showing 51.2 & 50.5 respectively, a reading above 50 shows expansion. On the other hand Japanese Services & Composite PMI data showed an increase from the prior month, rising to 50.4 from 49.3 for services and 49.2 from 48.9 for the composite reading. Finally UK Composite & Services PMI for May beat expectations with a reading of 53.5 vs 52.5 expected and 53.0 vs 52.3 expected. Lastly Euro-Zone Retail Sales (YoY Apr) missed expectations of 2.1% with 1.4% growth helping limit gains by the Pound to 0.65%.

Locally the ASX200 closed 0.76% higher on Friday however we can expect a relatively flat open this morning with ASX SPI200 futures up 1 point. If you’re interested in trading global markets but aren’t ready for the risk, click here to open a free $100,000 Rivkin Trader account.

Data releases:

·         German Factory Orders (YoY Apr) 4:00pm AEST

·         US Fed Chair Janet Yellen Speech in Philadelphia 2:30am AEST



Source: Rivkin, Amibroker

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This article was written by James Woods - Global Investment Analyst, Rivkin Securities Pty Ltd. Enquiries can be made via info@rivkin.com.au or by phoning +612 8302 3600.

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