3 Numbers to Watch: Greece GDP, German ind. production, US jobs
Friday will be dominated by the aftertaste of the Japanese performance in the overnight markets. The general nervousness surrounding all the risk markets after the heavy sell-offs in stock markets and the USDJPY are likely to dominate the day. And even though markets ramped up nicely towards Thursday’s close, another attempt toward the lows to square the trading books ahead of the weekend could happen.
While the US employment report is clearly the day’s main event, I feel that this month it will not be that important. The recent rally in risk assets has been driven by the Abenomics, or Bank of Japan’s aggressive inflation targeting and quantitative easing. The BoJ’s QE is the latest, freshest source of liquidity pumping, just when the effectiveness of the Federal Reserve’s and Bank of England’s measures have begun to look weaker by the day. The European Central Bank seems to be content with 1.4 percent inflation and record unemployment, so there are no major central banks left to print. This could imply that the market has become too dependent on Abenomics, as the recent market moves are suggesting.
Other events of interest: Germany’s central bank, the Bundesbank, releases its semiannual economic forecasts at 06:30 GMT, and the European statistics office Eurostat releases the first estimate of the Q1 balance of payments of the euro area at 09:00 GMT.
Greece Q1 GDP, provisional (09:00 GMT): The consensus forecast is for ayear-over-year fall of 5.7 percent. While the Greek tragedy would not normally be a market mover, maybe this time it could be different. The IMF has just come out and admitted that it has made serious mistakes in its handling of the Greek bailout, and there have been statements that the Greek debt could be restructured as early as 2014. Bad numbers would strengthen the case for debt forgiveness, which would move the market’s attention to who actually would end up paying the losses - bilateral loans, the European Financial Stability Facility (EFSF) and the International Monetary Fund (IMF), probably in that order. The loss would be real, but already mostly priced in by the markets, and even Brussels would probably keep quiet over the losses hurting the debt ratios of the creditor countries. It could also decrease support for a federal Europe and further bailouts. Taking the Greek losses could be a turning point in the euro crisis.
Germany April Industrial Production (10:00 GMT): is expected to have fallen by 0.2 percent, after a nice 1.2 percent gain in March. While this is almost old news now, any bad data from Germany, which suggests the economy is slowing, is basically good news; The Germans won’t allow the ECB to get more aggressive until their domestic numbers deteriorate properly. For now, the ECB’s goal seems to be lowering the TARGET2-balances, or what the national central banks owe to each others via the ECB.
US May Employment Report (12:30 GMT): is expected to remain as average as possible, with 169,000 new non-farm jobs against a gain of 165,000 in April. The unemployment rate is expected to remain unchanged at 7.5 percent. It has been generally accepted that the economy must add 120,000 jobs every month in order to keep the unemployment rate steady because of population growth. The Federal Reserve Bank of Chicago has published a research article that revises this number to 80,000 because of people dropping out of the labour force and a lower population growth – and by the year 2016 it expects the number to drop even further to 35,000. The Wall Street Journal’s blog has more on this. MacroScope and Tim Duy both point to low inflation expectations and suggest that opportunities for the Fed to slow down QE are still not there, which would imply that payroll data should not be taken as seriously as it is currently viewed as a policy trigger.
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