SINGAPORE, SINGAPORE -- (Marketwired) -- 07/09/13 -- In FXPRIMUS' Market Brief of The Week for 8 July, the brokerage firm's Director of Business Development, Mario Sant Singh, highlights the jump in U.S.payrolls, the Dollar rally and U.S. Equities.
Key Events to Focus On This Week
-- Mario Draghi speaks-- China's Consumer Price Index (CPI)-- China's imports and exports-- Federal Open Market Committee (FOMC) Minutes-- Australia's labor data-- Bank of Japan (BoJ) meeting
Key Events Last Week
-- U.S. Institute for Supply Management (ISM) climbed to 50.9 from the previous 49-- Reserve Bank of Australia (RBA) kept interest rate at 2.75% unchanged, with similar dovish tone as usual-- Australia's retail sales increased 0.1%, from the earlier 0.1% contraction-- U.S. Automatic Data Processing (ADP) climbed by 188k payrolls-- European Central Bank (ECB) and Bank of England (BoE) appeared extremely dovish, talking down Euro and GBP, despite no monetary policies changed.-- U.S. Non-Farm Payroll (NFP) increased 195k, topping medium forecasts at 165k, while unemployment rate stayed at 7.6% unchanged.
U.S. labor market unexpectedly expands close to 200k mark
U.S. payrolls unexpectedly jumped by 195,000 jobs in June, while the unemployment rate still stayed at 7.6%. The Dollar rally and Treasuries slump clearly tell us that the "Tapering momentum" model can't be better for the current Dollar pricing, instead of "risk on, risk off" which DOES NOT MAKE SENSE any more in the near term.
To view figure 1, please visit the following link:
As expected, the Greenback strengthened against the rest of its peers significantly, especially currencies driven lower by "mouths," such as the Euro, Cable and Aussie. You may argue that the Federal Reserve (Fed) doesn't communicate with the market effectively because it doesn't prefer a high long-term interest rate, but the market certainly intends to. One intention is clear: the Fed will be willing to "liberate" the Quantitative Easing (QE) purchase duration instead of holding the "infinite." This means indirectly excising the stress test to dig out truth from the U.S. macro and banking sectors. I believe there is more than an 80% chance that the central bank's intention is setting up cushion before the actual tapering comes. Meanwhile, it gives banks ample time, though it could take longer to shift their models into a "high interest rate" environment.
Duration short remains the main strategy after payroll data last Friday. iShares 0-5 years TIPS showed a modest rebound in the last NY session last week, while the entire TIPS ETF sold off. This strategy has yet to be outright, once it is, the Greenback may start its 'full speed" rally.
To view figure 2, please visit the following link:
U.S. Equities could be the second best market to benchmark the tapering reality after the fixed-income market. The equities slump after the latest Federal Open Market Committee (FOMC) meeting reflected worries on a "higher discount rate" to lower total valuations. But it only served as a "knee jerk" reaction when the SPX started rebounding on 24 June. Can we say analysts are not ready to adjust discount factors so far? Having said that, have fun!