Equities At Record Levels Ahead Of U.S. Payrolls

AUD/JPY Daily Chart

U.S. Stocks Continue Higher

The Middle East confrontation seems to be a distant memory as investors pile back in to equities, powering Wall Street to record levels in trading during the Asian morning. U.S. indices advanced between 0.17% and 0.19%, with the US30 index peaking at 29,043. Other indices in the region were not quite so euphoric, with the Japan225 index slipping 0.02% while China shares fell 0.20%.

Currency markets were mixed and confined to tight intra-day ranges. The Australian dollar made an attempt higher after retail sales data for November beat estimates, but that was quickly given back and AUD/USD is now in the red on the day. The Japanese yen was little changed against the U.S. dollar while GBP/USD was 0.03% lower after UK politicians voted in favour of keeping an 11-month Brexit transition period deadline.

Australia’s retail sales surge

Retail sales in Australia jumped 0.9% month-on-month in November, beating economists’ estimates of a 0.4% increase and the strongest expansion since November 2017 with Black Friday sales helping the cause. November’s numbers follow a mere +0.1% gain in October and +0.2% in September. The bulk of the gains were in the clothing, footwear and personal accessory and department store categories.

The much better than expected numbers boosted the Australian dollar temporarily to an intra-day high of 0.6872 versus the U.S. dollar and 75.30 versus the Japanese yen. The AUD/JPY high was the best in a week.

AUD/JPY Daily Chart

Payrolls in the spotlight

The U.S. economy probably added 164,000 jobs in December, according to the latest survey of economists, less than the stellar 266,000 recorded in November and below the six-month moving average of 196,000.

Other indicators have been giving conflicting signals, however. The ADP employment change beat forecasts, adding 202,000 jobs versus 160,000 and the highest reading in eight months, but the employment index in the ISM manufacturing PMI report fell in December. It has been on a declining path for the past two months. So maybe a bit of caution on the labour market euphoria may be warranted.

The unemployment rate is expected to remain steady at 3.5% while average hourly earnings are also seen ticking a fraction higher to +0.3% m/m from +0.2%.

In addition to the U.S. payroll report, we also get to see the Canadian equivalent. A notoriously volatile series of data, December is expected to show a net change in employment of +25,000 after a 71,200 drop in November. That was the biggest drop since January 2018. The unemployment rate is seen easing to 5.8% from 5.9% despite a slightly higher participation rate of 65.7%.