02 February 2011 at 14:06 GMT
The USD is still on the ropes after the ADP non-event. But do we range trade until the other side of the ECB and US employment reports now? Also, USDJPY is teetering at important levels here.
Euro went a bit weaker in most crosses after the S&P ratings agency cut its rating of Irish debt further. Is this really a surprise? Despite the downgrade, there was hardly a reaction in the bond market and spreads in bonds and in CDS’ on sovereign debt have all been easing while the short end of the curve has been rising in Europe, a combination that has put EURUSD as high as 1.3860 overnight. It will be up to risk appetite and the ECB to throw some serious cold water on rate expectations if we are to see the EUR more markedly weaker here in the near term.
ADP number
The ADP number was out showing a 187k increase in US payrolls, better than the 140k expected, but far lower than the 297k we saw from this survey for December payrolls (revised down -50k to 247k, so the “surprise today is a net -3k, not much . But after last month’s huge discrepancy in the ADP data versus the official Nonfarm Payrolls data (which was a mere 103k), the market will be reluctant to take away from this. There’s also a weather factor this month, which some suggest means we should put more weight on the household survey. As we’ve said countless times in the past, we’d like to see a solid and consistent improvement in jobless claims below 400k before we suggest that real improvement is evident. The dropping participation rate has been somewhat disguising how bad the US job market remains.
QE3 on the way?
Yesterday, talk of QE3 emerged from a Fed official – the source, of all governors, was the KC Fed’s Thomas Hoenig, the famous dissenter to so many of the FOMC monetary policy statements last year, when he was a voting member of the committee. Hoenig said that the Fed might look at extending its bond-buying program beyond June if the data is “disappointing”, but he continue. It’s hard to tell how seriously we should take his words, but the statement does reflect a serious opinion of what the FOMC might be capable of going forward. It certainly doesn’t help the USD’s chance of staging a recovery, particularly when the world has gone gaga over commodities and equities and risk again.
Chart: USDJPY
USDJPY has pushed lower to interesting levels, namely the rising trendline from the 80.23 low. Remember that the all time low for USDJPY back in 1995 was only slightly below the big 80 level.
Egypt
We’re the last place to watch for important updates on Egypt, but our general impression is that the market is being a bit to quick to write this situation off as “problem solved” – at least the equity and FX markets have been. Crude oil remains rather nervous and another acceleration in prices like the one we’ve seen already could be enough to derail risk simply by itself. This is still a very fluid situation and we need to watch it carefully.
US Car Sales
US car sales ticked up to their highest level since the Cash for Clunkers program expired in August of 2009, and before that since the month of the Lehman bankruptcy, suggesting a solid level of consumer demand for big ticket items. Before we take away too much from that number, however, we have to realize that the average US vehicle is now 10.2 years old, and the market may not have even risen to replacement levels. The average annualized sales rate for 1995-2005 was closer to 12.5 million.
Looking ahead
The USD weakened sharply yesterday and crossed a few technical lines in the sand that were important for the near term view. Let’s see if we hold through the next couple of days of important event risks.
On that note, we might see a bit of nervousness today and reluctance to push this market further in the immediate term, now that we have moved to such extremes ahead of key event risks like the ECB and US ISM Non-manufacturing survey tomorrow and the US employment report on Friday. We also need to consider that China is totally sidelined for the next week due to Chinese New Year festivities.
Tonight we have the Australian services survey. The manufacturing survey released Tuesday was very weak once again, and the services survey may show a similar development, the question being whether copper and risk are leading Aussie by the nose at the moment. Copper reached a new all time high yesterday. Also up tonight we have the Building Approvals data for December, which come after an enormous slowdown in November. The housing bubble Down Under will pop at some point, but when?
We’ve also got New Zealand employment data up as NZDUSD has arched to its highest levels overnight since last November.
Economic Data Highlights
- US Weekly ABC Consumer Confidence out at -41 vs. -43 expected and -44 last week
- US Jan. Domestic Vehicle Sales out at 9.59M vs. 9.42M expected and 9.46M in Dec.
- Australia Dec. HIA New Home Sales out at -0.6% MoM
- UK Jan. PMI Construction out at 53.7 vs. 49.5 expected and 49.1 in Dec.
- EuroZone Dec. PPI out at +0.8% MoM vs. +0.7% expected
- US Jan. Challenger Job Cuts out at -46.1% YoY vs. -29.0% in Dec.
- US Jan. ADP Employment Change
Upcoming Economic Calendar Highlights (all times GMT)
- US Weekly DoE Crude Oil and Product Inventories (1530)
- New Zealand Q4 Unemployment Rate (2145)
- New Zealand Q4 Employment Change (2145)
- US Fed’s Duke to Speak (@230)
- Australia Jan. AiG Performance of Service Industries (2230)
- Australia Dec. Building Approvals (0030)
- Australia Dec. Trade Balance (0030)
- China Jan. China Non-manufacturing PMI (0100)