Ahead of Unemployment

Daily Analysis - 06/03/2015

US Unemployment Forecast to Fall Marginally

Today marks nonfarm payroll employment figures from the US on the heels of several disappointing labor market metrics. With layoffs accelerating in certain sectors today’s number is very important to determining the outlook for the economy.

Unemployment Faltering

The latest figures from the US economy are not supportive of improving conditions in the labor market as data points continue to miss estimates. The downturn in employment has been steadily accelerating as evidenced by the latest initial jobless claims and challenger job cut reports. Initial jobless claims are now firmly back above 300,000 with the latest number coming in at 320,000. Challenger reports that layoffs have increased by approximately 20% year over year as 40% of announced job cuts in 2015 have come from the energy sector which is rapidly paring jobs amid the slump in prices. Disappointing factory orders data is adding to economic woes after contracting for 6-straight months. Nevertheless, equities remain elevated, anticipating today’s nonfarm payrolls.

Central Banks Keep Rates Constant

The Bank of England and European Central Bank met analyst expectations by keeping rates on hold. The Bank of England key rate remains at 0.50% while the ECB benchmark stays at 0.05%. The significant ECB press conference gave more details on the upcoming quantitative easing program that is set to begin Monday, March 9^th. The ECB will target purchases of €60 billion per month until the program is slated to end in September of 2016. Aside from the program, President Mario Draghi released the latest growth and inflation forecasts for the Euro Area with revisions upwards. The growth outlook was upgraded substantially and inflation although expected to be at 0.00% for 2015 is forecast to expand at 1.5% in 2016. EURUSD has since fallen to new 11-year lows as speculation remains high that the numbers are overly optimistic.

China Risks Mounting

Rising nonperforming loans at Chinese banks along with tightened lending standards and difficult liquidity conditions highlight just a few of the problems facing China’s ambitious 2015 growth targets. Real growth has slowed to approximately 3% according to some analysts as capital flight out of China accelerates. Aside from dropping foreign direct investment and capital outflows, slowing employment growth and relentless price deflation are hampering efforts to accomplish the objectives as the Central Planners try and shift the orientation from a strictly export economy to a balanced consumption-based platform. Global economic headwinds are not helping these efforts with further easing measures from the People’s Bank of China expected in coming months.

AUDJPY Ascending Triangle Technical Pattern

The ascending triangle pattern setting up in the AUDJPY has an upside bias after no change to the Reserve Bank of Australia’s policy in the latest monetary policy announcement. Although further rate cuts are likely in the pipeline as highlighted by Governor Stevens, the Australian dollar continues to appreciate against the Japanese Yen as the Bank of Japan maintains its easing policies. The AUDJPY is currently consolidating between resistance sitting firmly at 93.950 and an uptrend line intact from the beginning of February. Any move above resistance could see a 200-225 pips breakout to the upside. Any break below the uptrend line will likely be indicative of a reversal in the pair.