The strong payrolls growth in February which swept past all expectations were tempered by softer-than-expected average hourly earnings (AHE) reading leaving the market with a bit of dilemma as we near March FOMC forward guidance. On the surface, the headline was strong enough to shift their dot plot need, but there remains the begging the question about the fuller inflation prospects.
So wage growth remains muted – and with this week’s CPI unlikely do indicate a significant uptick in inflation, investors are left mulling over what this all mean for interest rates and specifically should they continue to move higher amid signs that lower taxes and higher public spending will most certainly lift short-term growth. Despite the positive economic narratives, the tepid wage growth suggests the Feds will be in little rush to move into the four rate hike camp.
Trump’s trade agenda and the recent North Korea news continued to dot the weekend news flow.
The remarkable turn of events in North Korea has sent a wave of positivity through the region, but there remain many obstacles to overcome, but on the surface, any talk is a good talk between these political nemeses. Financial markets in South Korea have reacted positively to news of the meeting. The KOSPI and the Korean won improved, cheered on by the prospects for the Trump-Kim meeting.
On the tariff front, Australian Prime Minister Turnbull confirmed that Australia would be exempt from US steel and aluminum tariffs.
Equity Markets
The best of both worlds for equity markets, with the economy in full swing but nary a sign of wage inflation. It doesn’t get much better than that for investors and at least for now have dampened the inflationary fears that weighed on investor sentiments in February. But when coupled with an easing in trade rhetoric and positive news from the Korean peninsula, risk sentiment is powering higher.
Goldilocks returns at least for a day.
Oil Markets
Crude Oil markets rallied sharply after the stellar US jobs reports which rocketed the S&P 500 higher and in general sparked a wave of global risk-on trade. But oil traders are banking on the stronger than expected jobs reports to translate into higher oil product demand. Finally, oil bulls cheered on the Baker Hughes reports which indicated the number of oil drilling rigs fell by four to 796 last week.
Gold Markets
The markets are turning more neutral yet cognizant of upside risks. The US dollar, at least for now, is trading with a bit more swagger, Trump's trade and tariff rhetoric has eased, and with the US-North Korea meeting set to take place, investors are in a happier spot. With Goldilocks back at the table, at least for today, gold hedge appeal could be tempered near term.
Currency Markets
Japanese Yen
With positive risk sentiment gripping the markets and with USD/JPY looking to squeeze a bit higher on the Goldilocks jobs report, positioning could take over. A good portion of the market remains short, but with risk sentiment looking very bubbly in early APAC, risk on could flush out some weaker hands sending USD/JPY to the fundamental 107.30 level.
The Euro
Draghi, the master of illusion, has taken much of the top side momentum out of the euro. The softer data flow and the overall dovish ECB take should cap strength over the near term.
Lacklustre AHE but strong NFP favours the ‘goldilocks’ economy scenario so risk assets should remain bid which will underpin the Aussie dollar. Also, the AUD has a bit of a spring in its step after trim confirmed AUD tariff exclusion, but this was signalled last Thursday, so the Aussie dollar remains more of the risk play driven by external factors
The Malaysian Ringgit
Ultimately this risk on the environment will benefit the MYR, and while local assets are cheering on the prospects of improving North Korea-US relations. Currently, the market is caught between a stronger USD/JPY and buoyant regional equity market with suggested we will trade within recent ranges.
The regional markets will closely monitor the progress of President Trump and North Korean leader Kim Jong Un summit as most certainly an easing of tension will be a boost to regional sentiment.
Oil prices rose after the US Non-farm payroll while being buffeted by buoyant risk sentiment and remain mildly supportive for the Ringgit.