New home sales make a halfway recovery in August

Share Markets:

Markets cheered on a bumper US jobs report on Friday night.

The stronger-than-expected data raised the odds that the Fed would bring forward a rate hike, but also signalled further recovery in the US economy.

US shares jumped - the Dow lifted 1.2% and the S&P500 rose 1.1%. 

Interest Rates: 

The reaction in bond markets to US payrolls was relatively muted. Yields on 10-year US treasury bonds rose initially on the release, but then fell to be little changed.

Expectations of a nearer-than-expected Fed rate hike, however, saw yields on 2-year notes lift 3 basis points.

In futures markets, implied Australian 3-year bond yields were unchanged at 2.72%, while 10-year yields rose 2 basis points to 3.47%.

Foreign Exchange:

A stronger US dollar was the key theme in currency markets, which surged after the jobs report.

The dollar index rose to its highest in over four years.

The AUD fell to a four-year low against the US dollar, below 87 US cents, and lost a bit of ground against the euro, the pound and the yen.

Commodities:

Gold prices weakened to below US$1,200 an ounce after expectations were boosted that the Fed would raise rates.

Other commodity prices were mostly weighed down by the surge in the US dollar. Oil prices fell, and also continue to be weighed down on strong supplies.

Copper prices rose on Friday, but remain near multi-month lows.

Australia:

The AiG Performance of Services index declined from 49.4 in August to 45.4 in September.

New home sales lifted 3.3% in August, after dropped 5.7% in the previous month. 

Demand for new homes is being supported by low interest rates, firm population growth and a national shortage of dwellings.

China:

The non-manufacturing PMI declined from 54.4 in August to 54.0 in September. 

The reading remains above 50.0, suggesting that services activity is still expanding in China. 

However, the new orders sub-index fell below 50 for the first time since 2008, providing another sign of slowing GDP growth momentum.

Europe:

Euro zone retail sales volumes jumped 1.2% in August, driven by solid rises in Germany, France and Spain.

Annual growth in sales accelerated from 0.5% in September to 1.9% in August.

The Euro zone PMI composite was revised down from 52.3 to 52.0 in the final September reading.

United Kingdom:

The UK services PMI slipped from 60.5 to 58.7 in September, a 3-month low, but remains comfortably above the 50-expansion mark and relatively unaffected by the weakness in the euro zone economy and recent geopolitical tensions.

United States:

US non-farm payrolls jumped 248k in September, and back revisions added 69k to the payrolls count earlier in the quarter.

In the separate household survey, a solid employment gain in addition to a slight fall in labour force participation resulted in the unemployment rate dropping from 6.1% to 5.9%, the lowest since 2003. 

The pace of average job growth of over 200k per month, the downward trend of the unemployment rate continue to suggest that the labour market is stronger than what Fed officials were anticipating.

It keeps alive the chances of an early rate hike, before mid-2015.

In other data, the trade deficit was little changed at $40.1bn in August. Exports were up 0.2% and imports rose 0.1%. 

The ISM non-manufacturing shed 1.0 point to 58.6 in September. Meanwhile, the PMI services published by Markit was revised up from 58.5 to 58.9 in September, although still down from a recent peak of 61.0 in June.


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