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US Payrolls forecast: Turbulence ahead – Deutsche Bank

Research Team at Deutsche Bank, suggests that one of the constants of the US post crisis recovery has been growth in nonfarm payrolls at a monthly average rate well over 200,000.

Key Quotes

“Nonfarm payrolls have expanded largely from reemploying the unemployed and transfers from non-payroll sectors. With five per cent unemployment this steady supply of surplus labour is running out.

We see this tailwind fading in 2016. Think of how weather changes from high to low pressure zones or when crossing a mountain range.

Employment gains must now rely on shiftier labour force growth

• Nonfarm payroll numbers will be increasingly dependent on growth in the labour force. This in turn is a function of younger workers (echo boomers) entering their peak years in the labour force, minus retiring baby boomers.

• We project that monthly average nonfarm payrolls could drop to 140,000 this year, and to 78,000 by 2020 solely due to these demographic trends, even if the US recovery remains on track.

• The tricky part is that the drop-in rate of echo boomers and dropout rate of baby boomers are winds that will not blow steadily – the behaviour of 55 to 64 year-olds in particular is key.

• The steady relationship between the labour market and the economy up until now will become less predictable, leading to much confusion.

Multi-asset investors can take advantage

• Investors should expect a gradually slowing trend in nonfarm payrolls and heightened labour market uncertainty and volatility. Be prepared for investment opportunities that arise when markets and policy makers overreact.

• Slower growth suggests a preference for higher quality and longer maturity bonds on the basis that longer term rates are less likely to rise on a sustained basis.

• On the plus side a tighter labour market could lead to higher wages and productivity, and some inflation. This may have implication for sectors exposed to capex spending.

• Emerging market countries with excess labour and manufacturing capabilities may also benefit.”

Research Team at Deutsche Bank, suggests that one of the constants of the US post crisis recovery has been growth in nonfarm payrolls at a monthly average rate well over 200,000.

(Market News Provided by FXstreet) [...]

EUR/NZD analysis for February 05, 2016

Overview: Recently, EUR/NZD has been moving sideways around the level of 1.6650. In the daily time frame, I found a weak demand bar, which is a sign of weakness. In the 4-hour time frame, I found evening star candle formation (bearish formation). So, b... [...]

China’s foreign reserves to touch record low in Jan on PBoC intervention

FXStreet - Official data on China’s foreign-exchange reserves data will be released on Sunday and it is very likely that China will post a record drop for the second consecutive month on account of the central bank intervention to support the falling yuan. China’s foreign reserves are currently at a three-year low. A Bloomberg survey of economists showed foreign reserves likely fell by $118 billion to $3.2 trillion in January, higher than the record $108 billion decline seen in December. Jian Chang, chief China economist at Barclays Plc in Hong Kong, estimates a drop of $140 billion while Commerzbank AG’s Zhou Hao and two others estimate an $80 billion reduction.

December’s fall had led to the total draw-down drop more than half a trillion dollars in 2015. It also marked the first annual decrease in the reserves since 1992. Beijing’s foreign-exchange reserves surged almost 200-fold to amount to $4 trillion in 2014. The 17 percent drop since then could not alter its position as the largest holder of reserves in the world.

The weak fundamentals in China together with the turbulence in the market had caused investors to become jittery. China grew 6.9 percent in 2015, recording the slowest growth in 25 years. Economists believe growth will further slip this year and come in at 6.5 percent. The Chinese currency has been weakening and to lend support to it the central bank was using their dollar reserve. When the PBoC set the reference rate at an unexpectedly weak level last month yuan dropped to a five year low. The turn of events caused the investors to yank their capital from the Chinese market and park it in the overseas capital. The investors had moved out $1 trillion in capital outflows in 2015.

Krishna Memani, chief investment officer at Oppenheimer Funds Inc said via Bloomberg “China is facing a significant capital outflow problem,” said. It’s an astounding reduction in their capital account position.”

In a bid to list the yuan in the IMF’s SDR basket, the PboC had in August 2015 depreciated the yuan. Ever since then the draw-down has increased manifold. Further devaluation of the yuan last month led to a stock sell-off pushing the Shanghai Composite Index down 21 percent this year.

Providing some relief to the policy makers Chinese stocks as well as the yuan recovered before the Lunar New Year holiday. Shares in Shanghai climbed 1 percent in this week while the Chinese yuan recorded its longest stretch of weekly gains since October 2014.

China’s measures adopted to restrict capital outflow have helped to a small extent. Jian Chang, chief China economist at Barclays Plc in Hong Kong said via Bloomberg "China has enforced many measures to limit capital outflows and plug the leaks in its capital account, which may have reduced the reserves drawdown. He has however warned that “ the bias remains for capital to flow out of the country”.

Chris Leung, a senior economist at DBS Bank Hong Kong Ltd feels China is under tremendous pressure as “Amid increasing uncertainties and market volatilities, the speed of reserves depletion will likely accelerate in the short term.”

Official data on China’s foreign-exchange reserves data will be released on Sunday and it is very likely that China will post a record drop for the second consecutive month on account of the central bank intervention to support the falling yuan. China’s foreign reserves are currently at a three-year low. A Bloomberg survey of economists showed foreign reserves likely fell by $118 billion to $3.2 trillion in January, higher than the record $108 billion decline seen in December. Jian Chang, chief China economist at Barclays Plc in Hong Kong, estimates a drop of $140 billion while Commerzbank AG’s Zhou Hao and two others estimate an $80 billion reduction.

(Market News Provided by FXstreet) [...]

Gold analysis for February 05, 2016

Overview: Since our last analysis, gold has been trading upwards. As I expected, the price tested the level of $1,160.44 in a very high volume. An intraday short-term trend is upward. In the daily time frame, I found an upward bar in a very high volume... [...]

Technical analysis of Gold for February 05, 2016

Technical outlook and chart setups:Gold has made yet another high around $1,160.00 today. The metal is facing resistance at the intermediary trend line as depicted on the chart. A bearish reaction here could push the metal lower and also resume a large... [...]

BoE provides little support for pound in the near-term – MUFG

Lee Hardman, Currency Analyst at MUFG, notes that the pound has weakened modestly following yesterday’s BoE policy announcements.

Key Quotes

“The BoE provided an increasingly cautious monetary policy stance which is understandable given the heightened uncertainty from building downside risks to global growth and the upcoming EU referendum. The BoE signalled that it is no hurry to begin raising rates this year as inflation is expected to remain below 1.0%. The BoE did provide some soft pushback against current pessimistic market expectations that there will be no rate hikes until 2018.

Inflation is expected to modestly overshoot their target in the medium-term based on the assumption that rates begin to rise from Q3 2017 implying the BoE expects to begin raising rates in the first half of next year. However, such soft pushback will provide limited support for the pound in the near-term. The pound will increasingly be driven by heightened uncertainty over the outcome from the upcoming EU referendum in the coming months favouring further weakness and more volatility. The outlook for BoE policy could change significantly depending on the EU referendum result.”

Lee Hardman, Currency Analyst at MUFG, notes that the pound has weakened modestly following yesterday’s BoE policy announcements.

(Market News Provided by FXstreet) [...]

GBP/USD: upside corrective short-term – Commerzbank

FXStreet (Edinburgh) - According to Karen Jones, Head of FICC Technical Analysis at Commerzbank, sees the current upside in the pair as corrective.

Key Quotes

GBP/USD is upside corrective near term, we note the Elliott wave count on the daily chart is implying scope into the 1.4790/1.4965 zone and this remains viable”.

“Note the March 2013 low cuts in at 1.4832 and the 23.6% retracement of the move down from the 2014 peak cuts in at 1.4816. Intraday dips lower are indicated to hold circa 1.4530/1.4460”.

According to Karen Jones, Head of FICC Technical Analysis at Commerzbank, sees the current upside in the pair as corrective...

(Market News Provided by FXstreet) [...]

US employment and earnings to determine market direction – Lloyds Bank

Research Team at Lloyds Bank, suggests that the US employment data today will now govern the markets sentiment and direction into the beginning of next week.

Key Quotes

“Expectations are for around 190k, which is in-line with the ADP release on Wednesday. But earnings are just as important as the headline rate, which disappointed last month. With the recent weakness in the USD and US yields, a weaker data set would have less of an impact we feel than if the data surprised to the upside.”

Research Team at Lloyds Bank, suggests that the US employment data today will now govern the markets sentiment and direction into the beginning of next week.

(Market News Provided by FXstreet) [...]