Jan 19, 2012

Australia's Markets Defying Gravity (For Now)

Today the Aussie employment numbers surprised on the negative side. About 30k jobs were lost in December according to the Australian Bureau of Statistics press release. This compares to a consensus estimate of a net creation of 10k jobs, for a negative surprise of -40k. Both the Aussie stock index and the Aud/Usd fx rate met this with slightly more than a yawn.

The -40k surprise may not seem like a whole lot, but normalized by population size (22mm in Australia vs 310mm in the United States) this would be equivalent to US payrolls disappointing by approx 560k and such news would have completely tanked the SPX!

The Aussie (the currency that is) has been trading in line with global risk sentiment and out of synch with the fundamentals of the local economy. Other currencies have done that in the recent past, most notably the Euro. However when the regime shifts and the market starts pricing in the negative fundamentals the moves can be quite large. We just need to wait for the decoupling.

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