US ADP Employment Shocks Risk

FX Update: US ADP Employment Shocks Risk

An interesting mishmash of activity overnight, with the JPY flailing to new lows virtually across the board on the last trading day of the year before the US ADP release saw a violent reversal in that development ahead of the US open today. We'd be reluctant to jump on the weak JPY train here in the shortest term simply due to the timing. The JPY crosses likely need another wave of global bond selling to continue to find fuel for their rally into today, a wave of selling that has not been so far evident today (in fact, we saw strong bond buying after the US ADP release). Some end of month flow analyses suggest that there may be pressure to rotate money out of equities and into bonds for the March fixing due to the large rally in equities for the month.

Elsewhere, the Aussie took a broad beating on extremely weak Retail Sales. This news comes as the RBA is  on tap with its interest rate decision next week, a meeting for which the market has felt it received rather hawkish guidance of late. So the data didn't sit well with Aussie bulls. The Feb. building approvals number was also weaker than expected.

The German unemployment level was much better than expected, perhaps helping to put a shine on the Euro again, as EURUSD recovered sharply from a new 3-day low and made heady gains against the JPY and the suffering Aussie. Still, all bets are off for any fundamental reasoning behind today's moves, as the market jockeys for positioning needs imposed by the end of month/quarter fixing.

Greece tries to issue more debt
Greece tried to issue a billion Euros worth of 12-year debt today, an issue that was woefully undersubscribed and only managed to raise EUR 390 million. Besides outright worries about the fragility of Greek's finances, there may be something else at play here in investors' unwillingness to scoop up Greek debt - the EuroZone authorities and their efforts to crack down on speculators in Greek CDS'. A provocative look at this from ZeroHedge can be found here. With all of that, Greek debt spreads widened in early Europe but were actually back in in line with yesterday's closing levels as of this writing. Now it appears that Greece is planning to issue dollar bonds in an attempt to cover the $15.6 billion dollar hole it must fill by the end of May.

Chart: EURAUD
One of our favorite charts to watch at the moment due to the sentiment extremes the two currencies represent. Last Friday's EU Summit conclusion saw a squeeze on the shorts that was impressively wiped away, but then the ugly Retail Sales data from Australia saw another rally in the pair after it touched new lows. The last break in the stochastics trendline failed to yield a respectable rally - could the next one prove more profitable for the contrarians?

ADP report
The US March ADP employment change report was very disappointing, coming out negative rather than solidly positive. This sets up expectations for a negative employment report on Friday, considering that the last three ADP numbers in a row have been excellent predictors of the Nonfarm payrolls change. Bloomberg consensus expectations are running at +185k before today, quite a gap from the -40k reported by the ADP today! This data is rubbing the bond bears the wrong way and seeing some interesting attempts at a reversal in the JPY cross rally as of this writing just after the data release.

Looking ahead
USDCAD is making a run for the recent lows for the cycle as oil prices are trading at their highest level since the 2008-09 financial crisis and on a slightly stronger than expected GDP figure for Jan. (with an equally offsetting downward revision for Dec. we might add). CAD is beginning to feel very expensive, but in a risk bubble, things can stretch to remarkable levels.

 We'd rather see where the market stands after the close tomorrow than try to draw any conclusion from today's action due to all of the fixing flows, etc., that we have been discussing ad nauseum. Beware the Japanese Q1 Tankan survey set for release tonight.

Economic Data Highlights

• US Weekly ABC Consumer Confidence fell to -45 vs. -44 last week
• UK Mar. GfK Consumer Confidence fell to -15 vs. -13 expected and -14 in Feb.
• Japan Mar. Nomura/JMMA Manufacturing PMI out at 52.4 vs. 52.5 in Feb.
• Australia Feb. Private Sector Credit grew 0.4% MoM and 1.6% YoY vs. +0.4/+1.5% expected, respectively and vs. +1.3% YoY in Jan.
• Australia Feb. Retail Sales fell -1.4% MoM vs. +0.3% expected
• Australia Feb. Building Approvals fell -3.3% MoM vs. +2.1% expected
• Japan Feb. Labor Cash Earnings fell -0.6% MoM vs. -0.1% expected
  New Zealand Mar. NBNZ Business Confidence fell to 42.5 vs. 50.1 in Feb.
• Japan Mar. Small Business Confidence rose to 45.8 vs. 42.3 in Feb.
• Japan Feb. Housing Starts fell -9.3% YoY vs. -1.0% expected and -8.1% in Jan.
• Germany Mar. Unemployment Change fell -31k vs. +7k expected
• Germany Mar. Unemployment Rate fell to 8.0% vs. 8.2% expected and 8.1% in Feb.
• EuroZone Feb. Unemployment Rate out at 10.0% as expected and vs. 9.9% in Jan.
• EuroZone Mar. CPI estimate rose 1.5% YoY vs. 1.1% expected and 0.9% in Feb.
• Switzerland Mar. KOF Swiss Leading Indicators rose to 1.93 vs. 1.90 expected and 1.90 in Feb.
• US Mar. ADP employment change fell -23k vs. +40k expected
• Canada Jan. GDP out at +0.6% MoM vs. +0.5% expected

Upcoming Economic Calendar Highlights

• US Mar. Chicago PMI (1345)
• US Feb. Factory Orders (1400)
• US Mar. Milwaukee NAPM (1400)
• US Weekly DOE Crude Oil and Product Inventories (1430)
• US Fed's Lockhart to speak (1630)
• US Fed's Duke to Speak (1630)
• Australia Mar. AiG Performance o Manufacturing Index (2230)
• Japan Q1 Tankan Survey of Large Manufacturers (2350)
• Australia Feb. Trade Balance (0030)
• China Mar. PMI Manufacturing (0100)
• China Mar. HSBC Manufacturing PMI (0230)