US non-farm payroll beats, Fed warns virus risk | CMC Markets Daily Commentary
US non-farm payroll number in January smashed economists’ estimates with 225k new jobs added, signalling robust hiring momentum. More encouragingly, average hourly earnings climbed 3.1% yoy, higher than expectations of 3.0%. Strong employment figures fuelled gains in the US dollar index, which climbed to 98.70 – its highest level since Oct 2019 – before a pullback to 98.56 was seen this morning.
The futures market, however, is still pricing in the relatively high likelihood of a Fed rate cut this year, as the recent outbreak of coronavirus adds to the economic uncertainty globally. The likelihood of a Fed rate cut in the July FOMC meeting, according to CME’s FedWatch tool, is standing at 58.5%.
AUD, NZD, JPY and Euro are leading a mild rebound in G10 currencies this morning, following heavy losses seen on Friday.
AUD/USD has likely broken down a key support level at 0.670, and it is consolidating at around 0.666-0.668. Coronavirus conditions in China and the rest of Asia are dominating sentiment in Aussie trading at the moment, due to their close economic ties. Unless we see a significant turning point in the number of patients detected, the Aussie and Kiwi dollar are likely to be under pressure.
The rally in US dollar is partially driven by strong employment figures, and partially by safe-haven demand as the virus is set weigh on the world’s growth outlook.
The Fed warned on Friday that ‘spillovers’ from the coronavirus outbreak pose ‘a new risk’ to the US outlook. At the epicentre of the epidemic, China is suffering from huge economic impact – delay in businesses and factories, traffic control, retail and consumption headwinds etc. Therefore, Beijing might delay fulfilling some of the purchase commitments made in the phase one trade deal with the US, due to traffic and demand constraints.
Singapore raised the DORSCON level to Orange last Friday, and over forty coronavirus cases were detected locally. New cases include a school teacher, who had not visited China and is not linked to previous infections, suggesting a possibility of community spread.
The Straits Times Index is likely to take a hit today, as concerns of a wider spreading dampens investment sentiment and changes peoples’ daily behaviour. Retail, food and beverage services, entertainment, casino, airlines, banks are among the most badly hurt sectors, whereas healthcare, telcos and groceries are likely to remain resilient.
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