The US Non-Farm Payroll number blew away expectations, adding 517,000 for the month, striking fear into markets. The good news was treated with alarm by markets, as the strong labour market ‘green-lights’ the Fed to further aggressive action on interest rates, or so the argument goes. The US ISM Non-Manufacturing number was also one out of the box, surging strongly into expansion territory, although gains in the Services/Composite PMI data was more modest. US economic news has been very positive in 2023, despite the Fed’s aggressive war on inflation, thus endorsing their strategy. Global equities have also shown gains, for the new year, as recession fears dissipate. Massive fiscal deficit and debt are an existential threat to the US, especially with the debt ceiling negotiations are underway. The strong labour numbers, forced US Bond Yields higher and the US Dollar surged. The EUR plummeted to 1.0800, while the GBP collapsed, to trade 1.2050.
The volatile reserve caused mayhem in the commodity currency space, with the AUD crashing back to 0.6900, while the NZD plummets towards 0.6300. Australian Services/Composite PMI data was slightly better than expected, but remains deep in contraction territory, with more interest rate pain to come. The big spike in inflation will force more aggressive action from the RBA, testing the consumer and the economy, with much higher rates. The coming week will focus on the RBA rate decision, expected to be a 25 basis point rise, but may surprise (at least on the commentary), while European markets will look at inflation and growth.