Australia: Jobs growth continues to lose speed in Australia, especially full-time employment. Since the start of this year, less than 6k full-time jobs have been created. It suggests some underlying weakness in business hiring. Total employment fell 10.8k in August and the unemployment rate crept up to 5.8%. The last time the unemployment rate was this high was in August 2009. An alternative measure is the employment-to-population ratio; it fell to 61.2% in August, the weakest since early 2006.
Jobs growth is failing to keep pace with population growth, so the unemployment rate is set to rise further in coming months. Further, leading indicators of employment continue to point to a further slowdown ahead in employment.
We continue to expect the unemployment rate to head towards 6% later this year and move higher again over the first half of next year.
Share Markets: US share markets fell overnight for the first time in eight sessions. The S&P 500 index closed 0.3% lower and the Dow ended down 0.2%.
Bonds: US Treasury bond prices ended flat overnight as investors adopted a cautious tone ahead of the US Federal Reserve meeting next week. The Treasury sold US$13 billion in 30-year bonds, the final sale of US$65 billion in new US government debt this week. Market moves remained modest, however. The sharp drop in US jobless claims overnight briefly sent bond prices lower. The dip was short-lived as it was later revealed that computer system issues affected two states. It meant jobless claims were underreported in the period.
Australian 3-year government bond yields (implied by futures) ranged between 2.92% and 2.96% and 10-year yields ranged between 4.02% and 4.08%.
Foreign Exchange: The US dollar index for much of the night session continued its five-day decline, making a two-week low (weakest since August 28). However, the USD has recovered its losses late in the New York session. Financial markets have tempered their expectations for any aggressive stimulus withdrawal by the Federal Reserve this month. That has led investors to trim long-USD positions built on expectations the Fed will unwind or 'taper' its US$85 billion monthly bond purchases by a much larger amount. A Reuters poll of economists this week found that consensus is for the Fed to now trim its monthly spending on bonds by about $10 billion, compared with estimates for a $15 billion reduction in the previous poll.
EUR/USD dipped from 1.3320 to 1.3258 on the back of soft Eurozone industrial production data, but the common currency rebounded in New York to 1.3325. USD/JPY fell from 99.60 to 99.00.
The Aussie dollar partly recovered from the losses incurred in the wake of the weaker-than-expected jobs report yesterday. The AUD/USD dropped from a high of 0.9354 ahead of the jobs data to as low as 0.9228 on its release. But overnight, the AUD/USD recovered to 0.9280 on the back of USD weakness.
Commodities: Oil prices rose for a second straight day ahead of talks between the US and Russia to resolve the crisis in Syria. These geopolitical woes have bolstered concern that Middle Eastern oil supplies may be disrupted, therefore, pushing oil prices higher.
Gold dropped 3% overnight. News that the Western world might go down a more diplomatic route on Syria is likely to have contributed to a sell-off in gold. Sovereign wealth funds and hedge funds reducing their gold positions after the sudden decline extended the gold market's weakness. The yellow metal posted its biggest one-day drop in more than two months.
Other commodity prices, however, mostly ended the overnight session higher. The CRB index, a basket of commodity prices, moved up 0.5% overnight.
Europe: Eurozone industrial production fell by 1.5% in July, the steepest fall for the year so far, to be down 2.1% on a year ago. It illustrates that manufacturers are struggling to shake off the legacy of a record-long recession.
European Central Bank President Draghi said overnight that a recent rise in bank-to-bank borrowing costs was unwarranted. He took a cautious view of the recent signs of stabilisation in the euro zone economy, saying the recovery was still "very, very green".
Japan: Machinery orders were unchanged in July against expectations of a 2.4% gain. Annual growth rose to 6.5% in July, from 4.9% in June.
New Zealand: The Reserve Bank of New Zealand (RBNZ) left the Official Cash Rate (OCR) unchanged yesterday morning. Yesterday's monetary policy statement (MPS) largely retained the language used in July. Firstly, the OCR is expected to remain unchanged this year, but hikes "will likely be required next year". Secondly, there's no longer any question about the direction of the next move in rates, only the degree. The most telling measure of how the RBNZ's view of the world has shifted in recent months is in its projections for the 90-day interest rate. Compared to the pallid series of OCR hikes that was projected in the June MPS, today's statement projected a substantial tightening cycle beginning around April next year and proceeding at a pace equivalent to one OCR hike per quarter. By the early 2016 cut-off for the published forecasts, the 90-day rate is projected to be at 4.7% (and rising) - a full 50 basis points higher than what was projected in June. That puts the RBNZ broadly in line with our forecast of an extended tightening cycle from March 2014.
United Kingdom: Bank of England (BoE) policy maker David Miles said overnight that he is sceptical that the recent strength of the recovery will translate into a sharp drop in unemployment toward the level that may trigger a rate increase. The UK jobless rate fell to 7.7% in the three months to July, moving closer to the point that the BoE has said it will prompt it to reassess its policy stance.
United States: Initial jobless claims in the US declined last week to the lowest level since April 2006 as work on computer systems in two states caused those employment agencies to report fewer applications. First-time claims for unemployment insurance fell by 31k to 292k in the week ended September 7, which also included the Labor Day holiday. Overall, the pace of US jobs cuts has waned since the end of last year, which sets the scene for faster growth in employment and income.
Import prices were flat in August and fell by 0.2% excluding oil, representing the fourth decline in a row on that basis.
The debt ceiling issue is starting to come to the fore. Syria has largely distracted the press from the issue but analysts believe the government could meet its debt-ceiling limit between mid October and mid November.