Payrolls Setback

Daily Analysis - 06/04/2015

Nonfarm Payrolls Stun Market Participants After Worst Print Since 2013

Following a weak ADP employment print, Friday’s nonfarm payrolls figure confirmed the trend lower in jobs gains with more Americans leaving the labor force. Unemployment managed to stay on-hold at 5.50%, but the economy remains far away from the optimal, full-employment sought by the Federal Reserve.

Job Gains Reverse Lower

The US employment outlook proves less picturesque than previously thought after an unambiguous disappointment in the latest labor data release. US nonfarm payrolls rose 126,000, vastly underperforming consensus expectations of 245,000 jobs added. The unemployment rate remained stable at 5.50%, but the downward revisions of January and February’s official data is concerning. Nearly 70,000 jobs were subtracted from the prior months, highlighting that the overly exuberant labor recovery expectations might need to be modified. Other setbacks include the drop in labor force participation, with over 93 million eligible Americans no longer employed, the lowest since 1978. The kneejerk reaction to the news was largely negative, sending US equity benchmarks negative for 2015 as a crash in the dollar sent commodities soaring.

IMF Preparing for Greek Default

The risk of a Greek default on upcoming payments stands at the highest level since the last crisis as the nation desperately searches for cash to satisfy obligations. The Eurogroup remains unimpressed by the latest set of proposed Greek reforms just as Greece’s Prime Minister Alexis Tsipras heads to Russia to meet with Vladimir Putin on Wednesday to discuss bilateral cooperation in a host of sectors. More troubling are the rumors of the IMF staff leaving Greece in a sign that the elevated risks facing the outlook might be permanent and not just transient. Cyprus, the island nation forced to bail-in depositors, highlighted its own resolve to protect against any credit event in Greece after removing capital controls in place for 2 years. EURUSD rose on Friday following the US payrolls release, gaining over 120 pips before retracing part of the move.

Gold Higher on Rate Outlook

The anemic jobs gains stoked anticipation that the Federal Reserve will have to postpone its rate hike time line as the economy reverses from growth. With the move lower in the dollar, commodities strengthened, led by the gains in precious metals. The energy complex also moved higher despite the interim arrangement reached with Iran that set an outline for the terms of a nuclear deal that curbs the nation’s ambitions. No imminent lifting of sanctions however continues to weaken the Iranian economy despite the fact that the nation has the third largest oil reserves and fourth largest production capabilities of the current global energy paradigm. After falling below $50 per barrel on the outline announcement, oil has ticked higher as unrest in Yemen continues to spread and the Saudis leave the ground operation option on the table. European markets will be closed today in observance of Easter Holiday will business will remain as normal in the United States after the market holiday on Friday.

USDJPY Head & Shoulders Technical Pattern

The slew of bad economic data is seeing popular carry-trades including USDJPY unwind as fears of an economic stagnation in the US sees optimism in the economy wane. The recent weakness in the dollar has been pervasive against major currency peers, with the Yen gaining despite the best efforts of the Bank of Japan to keep the Yen artificially low. The head and shoulders bearish pattern setting up in the USDJPY pair has a downward bias, with support at 118.33 the major level to watch. Further data disappointments from the US or a move below the key support line could see 116.83 as the next stop for the pair. A move above resistance at 120.44 could negate the pattern and indicate an upside reversal.