US Jobs Report Pushes USD to 7-Month High

The positivity afforded to world markets in the wake of Friday’s Non-Farm Payrolls announcements (that showed a much-larger-than-expected increase of 236k) has slipped back over the weekend, following poor data from China. The unemployment rate also fell to 7.7% from 7.9%, with the dollar pulling higher as a result – as investors continued to bet that support from the Federal Reserve will end sooner rather than later.

The impact of the sequestration will have obvious effect on growth and will more than likely slow the rate of jobs growth as we move through spring and summer. Hours worked increased by 0.5hrs in this report; an interesting rise that normally leads to increased job expansion in coming months.

Given the figure came in over 70k higher than expected it is no surprise that the dollar continued to smash higher and remains close to a 7 month peak, in trade weighted terms.

The Chinese data seen over the weekend was not particularly poor, but just increased fears that the hard landing of the Chinese economy has been and gone but take-off is now proving more difficult to engineer. Industrial output rose 9.9% through February which was the weakest since 2009 with retail sales and loan demand also disappointing. Inflation is also ticking higher in China, which may just act as a brake on further monetary easing and stimulus in that part of the world.

GBP has started the week quietly but headlines over the weekend tend to suggest that the political risk quotient here in the UK may well increase further in the run-up to the Budget. Both Cameron and Osborne have emphasised that the Budget will continue to target deficit reduction but more and more voices from within the coalition and indeed, the Conservative party itself is calling for greater focus on growth. Infrastructure spending would be very welcome with money coming from cuts to benefits such as the blanket fuel allowance for the elderly.

Sterling looks likely to only engineer a fight back on the basis of strong data given the continued negativity surrounding the pound. Tomorrow’s industrial production numbers are the first opportunity for that.

Japanese yen has continued to weaken this morning after, much like everything else, being smashed against the USD on Friday. Data overnight suggested that the weakness of the yen has not translated into capital investment with machinery orders 13% lower in January from the month previous. Haruhiko Kuroda continued to weaken the yen overnight by suggesting in his diet confirmation hearing that the central bank could buy derivatives as part of its stimulus plan.