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Weak Payrolls Spur Expectations of Big US Fiscal Package

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Note The table above is updated before publication with the latest consensus forecasts. However, the text charts are prepared ahead of time. Therefore there can be discrepancies between the forecasts given in the table above and in the text charts.

Rates as of 0500 GMT

Market Recap

Its a riskon day, with stock markets soaring again, and finally the FX market is reacting as usual the commodity currencies up, led by AUD, and JPY and CHF lower, with USD at the bottom of the pack.

The story behind the move is simple but strange bad news is good news. Fridays US nonfarm payrolls missed expectations, with payrolls rising only a meager 49k vs 105k expected. But signs that the US job market is stalling just increased pressure for a large fiscal rescue package ASAP. Treasury Secretary Yellen said that the US job market is stalling and the US needs a big package quickly. Leaders in the US House of Representatives said they could vote on the package the week of Feb. 22nd, if not sooner, and said they would use a method of passing the legislation that averts the possibility of the Republicans blocking it.

Expectations of a large package quickly have caused the US yield curve to steepen and breakeven inflation rates to rise. Twoyear yields fell 1 bps to end the day at a record low 0.10 while 10year yields rose 2.4 bps and a further 2.3 this morning.

Surprisingly though the higher US yields failed to support USD, perhaps because of the weak US jobs report.

AUD rose…

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