Australian Jobs Report Disappoints, ECB Upcoming

Australian employment unexpectedly contracted and the unemployment rate rose in August, sending AUD sharply lower. Market moves have been mild so far in Asia after the large risk rally on Thursday. The ECB decision will be a highlight of the European session.

Australia lost 9.7K jobs in August compared to the 10K gain expected. The unemployment rate rose to 5.3% from 5.1%, no change was forecast. There was no change in the participation rate and full-time jobs decreased 12.6K, so there was no silver lining in the report. AUD/USD immediately fell 50 pips to 1.0590 and has given up half the gains from Wednesday's session. It's not the first time Australia has posted a surprisingly weak report but the numbers are often volatile so we won't draw any conclusions. The RBA statement and separate comments from Stevens yesterday pointed to a central bank that's comfortably on the sidelines.

Gold has rebounded $35 in early Asia-Pacific trading after falling $80 on Wednesday. The German court decision not to block Eurobonds took some of the sovereign fear bid out of gold but the price action so far shows once again that buying interest in strong immediately after any selloff.

The $300 billion jobs stimulus program set to be announced by Obama on Thursday was been frequently cited as the reason for the rally in risk. That may have been overstated as a short-squeeze looked to be evident and the German court and Italian parliamentary news was more important. In any case, the risks are high that the plan will get bogged down or transformed by partisan US politics.

Early feedback from the first real Republican debate showed Rick Perry will be the likely candidate to face off against Obama next year. It's far too early for the race to have any impact on markets, although others may try to spin it that way.

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The highlight of the European session are the rate decisions from the ECB and BOE. The Bank of England is first at 11 GMT but no action is expected and, in that case, there will be no statement released. There is some talk about further easing but the core of the MPC appears to be strongly opposed.

The ECB decision comes 45 minutes later and will be followed by a press conference from Trichet. We expect to see, at minimum, an incremental shift to a more dovish stance. Expect him to exclude, or tone down the “very closely monitoring” phrase from the previous meeting. Any action or strong dovish hints will weigh heavily on EUR.