Australian employment report, Trump reignites trade war

Summary:

• Australian labour market report offers mixed results
• Market-based likelihood of a rate cut there has risen in the aftermath
• Stocks improved yesterday after a Trump’s decision to delay auto tariffs, however, a declaration of a national emergency to address threats against American technology has already spoiled upbeat moods

RBA under pressure

The Australian central bank has come under pressure of late after the Reserve Bank of New Zealand decided to trim interest rates. Taking into account the most recent meeting of the RBA one may arrive at a conclusion that each piece of data, especially from the labour market, could be important for market watchers to assess if a rate cut is needed in the nearest future. Hence, today’s employment report has added to uncertainty regarding Australian monetary policy.

The Australian labour force participation rate reached its all-time high in April (seen previously in 2010). Source: Bloomberg

The release showed that the Australian economy added as many as 28.4k new jobs last month, well above the expected number of 15k and close to the previously revised number of 27.7k. Nevertheless, the quality of this increase does not seem to very well as the rise came solely from part-time employees rising 34.7k, at the same time, a number of full-time employees declined 6.3k. However, the underlying trend of employment remained steady in April at 5.1% in annual terms. On top of that, the unemployment rate rose to 5.2% from 5.1% a month earlier, the second increase in a row. Albeit, this uptick was offset by an increase in the participation rate climbing to 65.8% and reaching its highest level since November 2010 (the all-time high). Although today’s report should not be a game-changer for the Reserve Bank of Australia, it may hope a grain of uncertainty among the bank’s members. They are expected to scrutinize incoming labour market reports, hence their impact on both the Aussie dollar and the Australian stock/bond markets could be even higher. After the release the market-based probability of a rate cut in June has jumped to above 50% from below 40%. The market is almost certain the RBA will slash rates by the year-end (more than 90% odds for such a scenario).

The Australian dollar has not responded to a large extent to the labour report. Either way, it is trading roughly 0.2% lower against the US dollar this morning. Technically the AUDUSD has approached the important technical support in the form of the lower end of the bearish channel. If this support is broken down, bears may aim to head toward the post-flash crash low. Source: xSstation5

Stock markets improve and decline again

The US stock market finished higher on Wednesday fuelled by a Trump’s decision to delay tariffs on EU cars. The decision also helped recover German equities especially carmakers with the DAX ending yesterday’s trading 0.9% up. In Asia positive moods have also been shared, however, the gains have been limited so far. While the news regarding delaying tariffs on EU cars was undoubtedly positive benefiting stock markets globally, a declaration of a national emergency (made by Donald Trump) over threats against American technology has already reignited a US-China dispute. After the order, the US Department of Commerce announced the addition of Huawei and its affiliates to the Bureau of Industry and Security Entity List, as CNBC reported. In practice, the Chinese company could find it hard to conduct business with US companies. This move has been read by market participants as a warning sign that Donald Trump does not want to terminate the trade battle with Beijing any time soon. That is why US and European futures are trading lower this morning.

The US500 is hovering above its crucial demand zone, 0.3% down. The next notable support could be found nearby 2715 points. Source: xStation5

In the other news:

• Japanese PPI for April rose 1.2% YoY, down from 1.3% YoY and above the expected 1.1% YoY increase

• Australian inflation expectations for May decreased to 3.3% from 3.9%