Keith Underwood No Comments

US December NFP +156,000 – Wage Growth Will Spur the FED to Accelerate Rate Increases

The United States Department of Labor Bureau of Labor Statistics announced on Friday that total nonfarm payroll increased by 156,000 in December and the unemployment rate ticked up a tad to 4.7%. The revisions to the previous months saw the October number drop from 142,000 to 135,000 while the November figure was revised up to 204,000 from 178,000. The all important (ok not really) 3 month average now stands at 165,000 per month. Of more importance is that average hourly earnings in December increased by 10 cents to $26.00. This takes the 2016 average to 2.9% and this will get the FED to increase rates at a faster clip as wage growth typically is the precursor to inflation in a tight employment market such as in the US.

As tough as it is to find work these days, one can’t ignore the average overall unemployment rate being below 5% for all of 2016. By historical standards, 5% is considered to be ‘full employment’ which is when all available labor resources are being used in the most efficient way possible. Those that are unemployed within the ‘full employment’ are considered to be structurally or cyclically unemployed. When full employment is encountered, wages increase as the supply of labor shrinks and employees become more valuable. As those who are employed receive increasing wages, their disposable income increases and this combination has previously produced inflation.

This is the type of inflation that the FED will notice. This is the type of inflation that the FED has wanted to see for many years. This is the inflation that has to be contained by raising interest rates. This is the inflation that many central bankers in the developed world want themselves. This is the inflation that we have been hearing about that was expected in the ‘medium term’. This is the inflation that could quite possibly wreck the government-induced bubble in the bond market and send the US dollar to new highs in 2017.

As the inflation scenario unfolds in the US, the FED will quickly have to be seen to be ‘out in front of it’ meaning that they have the inflation genie under control. The FED will have to raise rates sooner and higher than the market previously thought. The difficulty here is that the widening interest rate differential globally will continue to fuel demand for the US dollar. In addition to the widening interest rate differential between the US and say Europe (socialized economy) or Japan (Abi-normal), the fiscal machine looks set to roar again in the US.

Before the new president is even sworn in on the 20th the rumors are circulating and theories are being tested on what business in America might be like with a Trump presidency. It will be very interesting to see who, what, where, when, and how the fiscal beast is unleashed and this change in approach provides my macroeconomics students with a daily update on how Trumpism is going to make America great again.

Rising US interest rates and the belief that a fiscal boost from the incoming administration will be enough to keep the US dollar headed higher, and probably a great deal higher is 2017. If the US bond market falls out of bed and volatility continues to rise in that market one should also brace for increased currency volatility as well. Stay long US dollars my friends.

 

keith@underwoodfx.com

UnderwoodFX.com 

Keith Underwood No Comments

US March Nonfarm Payrolls Dissapoints

Total US nonfarm payroll employment rose by 126,000 in February and the unemployment rate remained at 5.5%. Job gains continued in professional and business services, health care, and in retail trade. Revisions from the previous months where January was revised down from +239,000 to +201,000 and the change for February was revised from +295,000 to +264,000. With these revisions, employment gains in January and February were 69,000 lower than previously reported. This takes the 3-month average gains to just 197,000 per month, from 288,000 previously and ends the 12-month streak of job gains above 200,000 for the month.

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Keith Underwood No Comments

US January Nonfarm Payrolls

The headline number is that total nonfarm payroll employment rose by 257,000 in January and the unemployment rate nudged up to 5.7% from 5.6% previously. Job gains occurred in retail trade, construction, health care, financial activities, and manufacturing. Added to this are revisions from the previous months where November was revised from +353,000 to +423,000 and the change for December was revised from +252,000 to +329,000. With these revisions, employment gains in November and December were 147,000 higher than previously reported. The monthly revisions were because of seasonal factors and the annual benchmark process.

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Keith Underwood No Comments

Notable events the week of the 2nd February 2015

Monday the 2nd:

China HSBC/Markit PMI Manufacturing  49.8 versus 49.8 prior

Eurozone Manufacturing PMI 51 versus 51 prior

UK CIPS/Markit Manufacturing PMI 52.8 versus 52.5

US Personal income 0.2 versus 0.4 prior

US Personal spending -0.2 versus 0.6 prior

US ISM Manufacturing 54.8 versus 55.1 prior

 

Tuesday the 3rd:

New Zealand RBA Overnight Rate 2.5 versus 2.5 prior

US Factory orders -2 versus -0.7 prior

New Zealand RBA interest rate meeting

US Vehicle sales 16.8m versus 16.8 prior

 

Wednesday the 4th:

Eurozone Services PMI 52.3 versus 52.3 prior

UK CIPS/Markit Services PMI 56.4 versus 55.8 prior

US ADP Employment Survey 220k versus 241k prior

US ISM Non-Manufacturing index 56.5 versus 56.5 prior

 

Thursday the 5th:

New Zealand Retail trade 0.3 versus 0.1 prior

German Factory Orders m/m 1.3 versus -2.4 prior

UK BoE MPC – Base Rate 0.5 versus 0.5 prior

US Initial Claims 305k versus 265k prior

 

Friday the 6th:

German Industrial Production m/m 0.3 versus -0.1 prior

Canadian Net Change in Employment 5k versus -11.3k prior

Canadian Unemployment 6.7% versus 6.7% prior

US Non-Farm Payrolls 231k versus 252k prior

US Unemployment 5.6% versus 5.6 prior

US Fed’s Lockhart speaks on the US economy in Florida (5:45PM)

 

Keith Underwood No Comments

Notable events the week of 26th January 2015

Tuesday the 27th:

UK GDP (1st Est.) q/q: market expects 0.6 versus 0.7 prior

Federal Reserve FOMC meeting begins

 

Wednesday the 28th:

Australia CPI q/q: market expects 0.3 versus 0.5 prior

FOMC – Fed Funds Rate: market expects 0.25 versus 0.25 prior

RBNZ – Cash Rate:  market expects 3.5 versus 3.5 prior

 

Thursday the 29th:

German HICP (Prelim.): market expect -1 versus 0.1 prior

 

Friday the 30th:

Eurozone Flash HICP: market expects 0 versus -0.1 prior

Canadian GDP: market expects 0 versus 0.3 prior

US GDP Annualized (1st Est.): market expects 3.1 versus 5 prior

 

keith.d.underwood@gmail.com

Keith Underwood No Comments

US December Nonfarm Payrolls

The headline number is that total nonfarm payroll employment rose by 252,000 in December and the unemployment rate declined to 5.6%. Job gains occurred in professional and business services, construction, food services and drinking places (I’m not making this up), health care and manufacturing. Added to this are revisions from the previous months where October was revised from +243,000 to +261,000 and the change for November was revised from +321,000 to +353,000. With these revisions, employment gains in October and November were 50,000 higher than previously reported. All in all, the year ended on a very strong footing for job creation and the best since, wait for it, 1999.

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Keith Underwood No Comments

US December ISM Non-Manufacturing Index

Prior               59.3/ Expected         58/ Actual                  56.2

Still a healthy number but somewhat down on the November reading of 59.3 and the employment reading is only down 0.7 to 56.0. With 12 out of 18 individual industries reporting monthly growth this should bode well for NFP on Friday.

Keith Underwood 2 Comments

The Ruble: A bear of a market

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The Russian ruble fell to a record low against the dollar today, losing 5.7%, in a stinging rebuke to the central bank’s attempt to stop the carnage by raising interest rates to 17%. While on the face of it a 650 basis point rise may seem huge, it does little to convince the market that the Russian economy will recover from sanctions and a collapse in the price of oil. One should expect the ruble to face continued headwinds as a result.

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Karl Otto Pöhl – the man behind price stability

The Bundesbank announced yesterday that Karl Otto Pöhl, former president of Germany’s central bank, died at age 85. For those of us who traded currencies during his tenure at the central bank, we remember him as always being resolute in his belief that price stability should be the core of everything that the central bank represents. This faith is still in practice today at the ECB, thanks in a large part to Mr. Pöhl.

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Keith Underwood 35 Comments

Greece, the petulant child of Europe

Once again, the Greeks are throwing the toys out of the pram over budget and bailout negotiations. Their actions have renewed awareness that this country has not solved all of its financial woes and this carries geopolitical risks.   An equity shocker such as this combined with a 30% drop in oil will add volatility to all asset classes as adjustments to risk must be made.

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