Market Drivers Feb. 18, 2016

AU Labor numbers miss big
EU Summit focuses on UK
Nikkei 2.28% Eurostoxx 0.41%
Oil $31/bbl
Gold $1207/oz

Europe and Asia:
AUD AU Labor -7.9K vs. 15K eyed
AUD AUD Unemployment 6.0% vs. 5.8%

North America:
USD Philly Fed 8:30
USD Weekly Jobless 8:30
CAD Wholesale Sales 8:30

After months of vast outperformance on the labor front. Australian job markets finally started to crack with the country losing -7.9K jobs versus expectations of 12.9K gain. The Aussie dipped lower in early Asian session trade losing as much as 60 pips off the highs, but managed to retrace half its losses by mid morning European dealing.

The labor report missed its mark on all key components with full time jobs contracting by -40K while part time jobs rose 32K and the unemployment rate inched to 6.0% from 5.8% prior. The only upside note to the data was the small rise in participation rate from 65.1% to 65.2% presently.

For all of last year Australia has defied odds as the economy continued to generate jobs despite the sharp drop off in commodity demand from China. The great rebalancing from mining and investment towards retail and services has allowed the RBA to remain on hold keeping rates at 2.00% for the past eight months. However, the decline in the commodity sector has been so vicious that the layoffs in those companies are likely accelerate as this year progresses.

Today’s data may be the first sign that the Australian labor markets are finally succumbing to the reality of the situation on the ground. The loss of income is sure to curtail overall demand as the year progresses and may finally force the RBA to resume its easing cycle. Although the Aussie has been battered by risk aversion flows over the past year, the currency has actually held steady for the past 6 months in no small measure due to the fact the unit still sports the highest yield in the G-11. However, if the data continues to deteriorate the 2% AU rate is sure to go lower.

The markets remains remarkably complacent with respect to Aussie as, traders at the moment are paying more attention to rebound in oil price and the generally positive risk tone in global equity markets. But today’s data could be a warning sign that the pair is on the verge of another leg lower, with bears targeting 6500 as the first near term target over the next several months.

In North America today the calendar is light with only Philly Fed and weekly jobless on the docket and FX flows are likely to be dominated by equity and oil market action once again. With OPEC meeting done and with API numbers already out of the way, crude may begin to lose its grip on the financial markets as it settles into a more sedate range. That could lead to a generally more rangebound session in FX for the rest of the day.

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