Sat, Dec 04, 2021 @ 16:43 GMT
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Well, That Was A Surprise

US nonfarm payrolls a massive miss

Friday’s Non-Farm Payrolls dished out a huge surprise, rolling out a gigantic miss to the downside as the US economy added only 235,000 jobs. Despite a sizeable upward revision of 133,000 to the previous month, nothing was going to offset the shock of the miss in the headline data. Household employment performed strongly, helping to push the employment rate down to 5.20%, but retail jobs fell. At the same time, government construction rose only slightly, with business services and transport saving the headline number.

The sweep of the delta variant across the US has clearly impacted travel and leisure demand and has possibly seen many Americans hold off returning to the workforce. It contrasts with various jobs vacant surveys, which clearly show employers screaming to hire and average hourly earnings, also released Friday, rose by a higher than expected 0.60% MoM.

I’ll not postulate the underlying reasons for the stubbornly low employment gains in an environment where employers have millions of unfilled jobs. The world has plenty of armchair experts to do that. Needless to say, total employment in the US is still over 5.0 million less than pre-pandemic, and any thoughts that the FOMC would signal a taper at this month’s meeting are now off the table. Add in the soft China data last week, which usually runs a few months ahead of the US, and the hawks are in retreat.

I would have expected a “buy-everything” sell US dollars frenzy on Friday. Instead, all we got was more of a whimper. The US dollar rose, but not markedly, gold rose, but not by much, cryptos rose because they’re cryptos, and Wall Street equities ended up sort of sideways. Banks fell as US yields eased, which makes sense they make more money when rates are rising, and the yield curve steepens positively. That whimper may be due to the Wizards of Wall Street heading for the exit door right after the numbers for the long weekend. Today, US and Canadian markets are closed for Labour Day (sorry, Labor Day in rebellious English). So, a more genuine reaction may appear tomorrow.

Asia has opened in a circumspect manner this morning, with only the FOMO gnomes of Japan getting excited, propelling the Nikkei 225 higher as Friday’s Suga rush persists. After softer heavyweight China and the US last week and a clampdown a day on the mainland, regional investors are hesitating to grasp the US Non-farms peace dividend, which has let basically every central bank in the Asia-Pacific off the US tapering hook. Waiting for the gnomes of Wall Street to return from their last long weekend of the summer probably isn’t a bad strategy.

This week features a few heavyweight central bank policy decisions but not much in the way of tier-1 data globally. US JOLTS Job Openings should show employers screaming for warm bodies, while tomorrow’s China trade data will be Asia’s highlight. Asian investors, though, are likely to be more concerned about who is next in line for some “common prosperity” love. A soft exports number could cause a negative tremor to sweep Asia, although it will increase expectations that more central government stimulus is on the way. You can cut a bearish/bullish case for China equities both ways on a lower number.

The Reserve Bank of Australia announces its latest policy decision tomorrow. Rates will remain unchanged at 0.10%, but interest will be focused on whether it will roll back its tapering plans. That would be a positive for Australian equities, which are under the ex-dividend hammer today.

Bank Negara Malaysia will also leave rates unchanged at 1.75%, with its intentions to support the Covid-19 recovery already clearly telegraphed. With a Fed tapering now of the table until at least the end of the year, the ringgit could continue to rally as a potential carry trade candidate.

The week’s highlight will be the European Central Bank policy decision. There will be no change of the lower forever interest rates, but recent Eurozone inflation data has had the Northern European hawks squawking loudly and hunting for doves. Noise has risen around tapering, but I believe the ECB will note the data from China, the Asian PMIs and the US Non-Farm Payrolls and clip the hawks’ wings this time around. That shouldn’t derail the Euro’s rally, though, which is as much a weak US dollar story.

The US Non-Farms data has thoroughly derailed my Fed Q4 taper tantrum, Asian central bank nightmare, ASEAN underperformance outlook. I will ponder this over the next few days, especially once the US is back at work.


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