Market wrap: traders reverse-out the negative nonfarm payrolls headlines - Westpac

Analysts at Westpac wrapped up the closing sessions for Friday.

Key Quotes:

"US non-farm payrolls rose 164k in April, below the median forecast of 193k, although +30k in upward revisions to the prior two months leaves a healthier picture. The unemployment rate fell from 4.1% to 3.9% (vs 4.0% expected) – the lowest rate since December 2000. Even so, average hourly earnings were soft at 0.1%, with the prior month’s 0.3% gain revised down to 0.2%. The annual rate is tracking at a very benign 2.6%. The labour force shrank 236k, dragging down the participation rate -0.1ppt to 62.8%.

So markets could focus on the strong unemployment headline or the weak wages and payrolls numbers. Initially, markets focused on the weak side, producing a dip in the US dollar and yields. This was reversed within about 30 minutes, with the dollar and yields settling down for little net change over the day.

EUR/USD dipped as low as 1.1911 – its weakest point since 28 December - before steadying down 0.2%, around 1.1960. GBP/USD opens the week around 1.3535, -0.3% since early Friday, having printed lows since 11 January, under 1.3500. USD/JPY traded a range of 108.65 – 109.27, flat overall at 109.10.

AUD/USD is net unchanged around 0.7540, but dipped to 0.7492 in the post-NFP gyrations. NZD ranged between 0.6995 and 0.7033, starting the week around 0.7020. AUD/NZD was choppy but overall about 0.3% higher, including touching 1.0756 during the Sydney afternoon, a six-week high.   

The US 10yr treasury yield traded 2.91% to 2.96%, barely changed overall, but 2yr yields rose from 2.46% to 2.50%, perhaps encouraged by the steady climb in equity markets. Fed fund futures yields continued to price a rate hike in June as virtually a done deal, and priced in a greater chance of quarterly hikes into year end.  Fedspeak came from Bostic (voter), who said he supported three hikes this year, but there could be two, or four, depending on the data. George (non-voter) said more rate increases could be needed if the economy appears to be overheating. Kaplan (non-voter) said that good progress is being made toward the dual mandate, but also that the policy path may be flatter than in the past, with pricing power of businesses challenged."