Aussie Slumped After Poor Job Data

The Aussie slumped sharply today after shockingly poor employment report. The job market contracted -22.6k in December versus expectation of 10.3k growth. The details were even worse as full time positions dropped by -31.6k while part-time positions rose by 9k. Unemployment rate was unchanged at 5.8% but it should be noted that the participation rate dropped further to 64.6% from 64.8%. Overall results were disappointing and indicated labor market weakness. Before the job report, it's believed that RBA would be cautious on having another rate cut even though the bias is still easing. The central bank would opt to have lower exchange rate to stimulate the economy instead. But, the weak data raised the speculations that RBA could be forced to act again even though it would at least wait for another round of job data for January before deciding.

In US, Fed's Beige Book report released overnight painted a positive economic outlook. The reported showed moderate to modest pace in economic growth across districts. All districts reported year-over-year expansion in manufacturing activities with improvement in home sales too. Overall economy seemed little affected by the severe winter weather in December. Regarding the job market, some regions even reported labor shortages in some sectors and showed sign of tightening. That included Dallas with "acute labor shortages" for auditors, engineers, truck drivers and construction workers; Cleveland with "scarcity of high-skilled trade works"; "signs of tightening" in Minneapolis; "numerous reports of strong labor demand" in Richmond. Overall, two-thirds of districts reported "small to moderate" increase in hiring. That's a rather different picture from the December NFP report.

Chicago Fed Evans, a well-known dove, expressed his support for "measured" tapering of the asset purchase program. And, the pace could even accelerate towards the end. He said "successively through each meeting - I can sort of imagine 10 (billion dollars in cuts) - but if we get closer to the end, or if things are doing even better, I can see adjusting to somewhat more aggressive reductions." Though, he emphasized that the decision of tapering "does not, however, mean we thought the economy needed less overall policy accommodation." And he believed that "it makes sense to rely more on our traditional short-term interest rate policy tool, the federal funds rate."

IMF head Lagarde said global growth momentum "strengthened in the latter half of 2013, and should strengthen further in 2014". But she also wanted that "with inflation running below many central banks' targets, we see rising risks of deflation, which could prove disastrous for the recovery." And, "global growth is still too low, too fragile, and too uneven." Regarding tapering in US, Lagarde said she didn't anticipate "massive, heavy and serious consequences."

Elsewhere, Japan tertiary industry index rose 0.6% mom in November, machine orders rose 9.3% mom in November, domestic CGPI rose 2.5% yoy in December. UK RICS house price balance unexpectedly dropped to 56 in December. Inflation data will be the main focus in European session and Eurozone and German will release CPI. ECB will also release monthly bulletin. US will also release CPI, jobless claims, TIC capital flows, Philly Fed survey and NAHB housing market index.