Far-Lower-than-Expected Nonfarm Payrolls Weigh on US Dollar, Pay Attention to Greek Debt Risk Next Week

05 Apr 2015 Please read the "Special Disclaimer" Section on the last page Securities Research Report Global Economy Far-Lower-than-Expected Nonfarm Payrolls Weigh on US Dollar, Pay Attention to Greek Debt Risk Next Week Global Economic Weekly Weekly Review  Nonfarm payrolls weighed on the US Dollar index, while funds flowed into safe-haven assets. Following a general slowdown of US macroeconomic data in January-February, US March manufacturing PMI, nonfarm employment and other important data released the week ended April 5 all came in below expectations again, pointing to weak economic growth in 1Q15. However, as extreme weather and other temporary influences subside, accelerated wage growth and low oil prices will boost consumption, and the US economy is very likely to rebound in 2Q with strong support from consumption (consensus forecast of 3% growth in 2Q). Eurozone data continued to exceed expectations. The Citigroup economic surprise index showed that the US and Eurozone saw similar economic conditions, Japan’s economy showed a bigger-than-expected decline, while data in China and other emerging markets continued to miss expectations but within an improved range. There were three major events during the week: ① US March nonfarm payrolls came in much lower than expected, leading to expectations that an upcoming interest rate hike will be postponed. Nevertheless, with accelerated wage growth as the only bright spot in the US economy, we still maintain our judgment that the US Federal Reserve Bank will announce an initial interest rate hike in June or September; ② Manufacturing data of various countries showed that Eurozone manufacturing activity picked up more than expected, while that in the US and Japan continued to slow; ③ Iran and six major countries reached a framework agreement on the development of nuclear energy, causing oil prices to plunge 4% in a single day. US and European stocks remained volatile during the week. The yield on 10-year US Treasuries declined 10bp to 1.85%, while German bonds fell 6bp to 0.19%. The price of gold rose 0.4% for the week while that of oil remained unchanged amid fluctuations. The US Dollar index decreased sharply following the release of weak nonfarm payrolls data, down 0.6% for the week and almost flat compared with the rate of decline the previous week. Given that most exchanges were closed Friday (April 3), the significant decline in the US Dollar index has yet to be reflected in asset prices. Dow Jones Industrial Average futures closed down 200 points as capital flowed to risk-adverse assets. Meanwhile, RMB forward contracts set the biggest weekly gain in four years.  US March nonfarm payrolls were much lower than expected, and accelerated wage growth was the only bright spot. US nonfarm payrolls added only 126,000 jobs in March, far lower than an expected increase of 245,000 jobs and 295,000 jobs the previous month, falling below the 200,000 figure for the first time in nearly a year; the January-February figure was revised down by 69,000 jobs. The unemployment rate remained at 5.5%, unchanged from the previous month, but the labor force participation rate fell 0.1ppt from the previous month to 62.7%, the lowest level since 1978. Specifically, employment in the mining, construction and manufacturing Analyst: Rong Cui 021-22167199 cuirong@ebscn.com Practice license number: S0930513080004 Analyst: Gao Xu 010-56513082 gaoxu@ebscn.com Practice license number: S0930512080004 Macroeconomic performance vs. forecast index Next week’s key data and events Date Economic Data 4/06/2015 US Labor Force 4/07/2015 BOJ Meeting 4/08/2015 Eurozone Retail Sales 4/08/2015 Fed March Meeting Minutes Watch Everbright Macro Grasp the Economic Pulse U.S. Japan Eurozone Emerging Markets 2015-04-05 Global Economy Weekly Please read the "Special Disclaimer" Section on the last page - 2 - Securities Research Report sectors fell significantly, while employment growth in the business services and health care sectors also slowed from the previous month. The main factors behind the lower-than-expected employment data include: ① Declined oil prices led to layoffs at energy companies; ② Slower investment growth since the beginning of 2015 due to weather factors and a strong US Dollar have had a negative impact on exports; ③ Labor disputes on the west coast have driven declines in employment in the manufacturing and construction sectors. Stronger-than-expected wage growth was the only bright spot in US economic data: the average hourly wage increased 0.3% MoM in March, higher than the expected 0.2% and the previous month’s figure of 0.1%; the March figure increased 2.1%