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Fundamental
Forex Market Update
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Dismal headline non-farm payrolls wipe out all the positive vibes from earlier in the week
US Independence Day holidays leave markets in the doldrums today MAJOR HEADLINES – PREVIOUS SESSION * EU ECB leaves rates unchanged * US Jun Non-farm payrolls out at -467k vs. -365k expected and -345k prior * US Jun Unemployment rate out at 9.5% vs. 9.6% expected and 9.4% prior * US Jun Avg Hourly Earnings out at flat vs. +0.1% expected and +0.1% prior * US Weekly Initial Jobless Claims out at 614k vs. 615k expected and revised 630k prior * US May Factory Goods Orders out at +1.2% m/m vs. +0.7% expected and revised +0.5% prior THEMES TO WATCH – UPCOMING SESSION * Swiss CPI (0715) * GE Services PMI (0755) * UK PMI Services (0830) * EU Retail sales (0900) * US Independence Day holiday Market Comments: Markets had set themselves up for a shock into the non-farm payrolls number, with analysts quite optimistic for a better number. However this was not to be and the headline number disappointed with 467k jobs lost in June compared with 365k expected. The unemployment rate also crept closer to the 10% magnet, rising 0.1% to 9.5%. Optimists may wish to point out that the rate was below forecast and registered a slower increase than seen in previous months. Average Earnings were flat for month-on-month comparisons, a low that has only been matched about five times since the early 1990's. Average weekly hours declined to a new record low of 33.0 hours. The weekly claims number provided no cause for cheer, with yet another 600+ reading, even as Continuing Claims fell rather sharply. Prior to this Sweden’s Riksbank had surprised the market with a 25bp rate cut, citing concerns about unemployment and falling production and its effect of prolonging the contraction in the economy. Riksbank Deputy Governor commented that rates could not “in practice” be cut any further (now at 0.25%). The ECB on the other hand left rates unchanged and Trichet in his post-meeting press conference said rates were at appropriate levels. The EUR had eased back from early highs after Moody’s stripped Ireland of its last AAA credit rating and warned of further possible downgrades if more stringent fiscal measures were not adopted. After the US data, the resultant reaction in both FX and stock markets was brutal and quick, partly due to thin liquidity conditions ahead of today’s US holiday. The USD rebounded sharply from its recent sell-off, posting gains across the board with a particularly strong performance against the commodity-bloc currencies that had risen during the recent bout of risk appetite, and compounding the pressure on the EUR. Very little activity was seen in Asia after an early round of stops hunting/triggers in the EUR. The USD edged a tad higher on the index, up 0.12%, but players were happy to trade in tight ranges after most positions for the week had likely been wiped out in last night’s u-turn. Europe has a limited data slate for today, with PMI data from the UK, Germany and Europe the main attraction. PMI data of late has tended to surprise to the upside and there is every chance that this phenomenon will continue though current forecasts are for an almost unchanged reading across the board. Next Analysis:
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