U.S. DOLLAR: 10.2% UNEMPLOYMENT - THE NUMBER SAYS IT ALL
As disappointing as the NFP may have been, most markets took the number in stride. The dollar showed mostly mixed weakness on the day, while strengthening against the euro and the Canadian dollar. The aussie was the biggest victor of the day rising against the dollar by 0.84%, a signal that largely confirms that the risk trade remains fairly intact. On the other hand, the loonie took the largest fall on disappointing employment numbers. Stock markets swayed in and out of positive territory on disagreements over whether today’s events warranted a rally. The bulls won out, and pushed the Dow further above the 10,000 mark.
Employment Sparks Economic Fears
The strong rise in third quarter growth seen a few weeks ago seems inconsequential in the face of unemployment which has reached a quarter-century high. All in all, the Non-Farm Payrolls crushed much of the collective optimism that surfaced as a result of growth for the US economy. The monthly report remains a force that compels markets to take grips with reality. As unemployment circumvented the 10% boundary, non-farm payrolls slipped by a worse-than-expected 190k, with job losses spread evenly across the gamut of US industry. The number of people that have become unemployed has officially reached 7.3 million since the start of the recession. The NFP report showed that the average work week remained at a record low of 33 hours, suggesting that a lot more capacity can be refilled before businesses even contemplate renewed hiring. As evidenced by the recent surge in productivity, companies will be squeezing out every possible unit of production from the employees that have remained on board instead of bring on new ones. The weakness in employment has many implications for our economic health going forward. Obviously with less people earning income, consumer spending is likely to stay on its downward track, a trend that will be particularly problematic going into the holiday season. The result could only be weakness in retail sales and declining prospects for fourth quarter growth. However, it was the continued easing in the magnitude of the losses in NFP that have kept most markets afloat. It is the one positive outcome that can be drawn from the wreckage, but one in which that cannot nearly offset the effects of more job losses. Nevertheless, markets try to remain optimistic and hold on to the view that the trough in jobs has already passed as we can therefore expect a small but steady improvement on a month by month basis. Another report from today confirmed the consumers’ woes, as Consumer Credit fell for the eighth consecutive month.
What’s to come?
We have just been through a big week of employment reports and central bank decisions, so rightfully next week provides a break in which markets can grapple with the events of the past week. There are only a very few things that are worth noting for next week’s US event risks. The first of which is a minor report on IBD/TIPP Economic Optimism on Tuesday which will be followed by the governmental Monthly Budget Statement on Thursday. Friday will see the most important releases in the form of the Trade Balance and University of Michigan Consumer Confidence.
EUR/USD: SUCCUMBS TO MILD LOSSES
The euro faced some slight selling pressure in today’s trading, but has therefore proved its resilience considering the magnitude of the latest U.S. Non-Farm Payrolls report. Not much in terms of data was received from the region, except for German Factory Order which rose to 0.9% from last month’s 1.4%. Orders have officially strengthened for the last seven consecutive months. However, the numbers really prove their strength when considering that export orders made a strong advance, rising by 3.7%. This might suggest that global demand has been revived just enough to offset any negative effects of the strong euro. This is a good sign for the ECB who will have considerably more flexibility if evidence continues to mount that suggests the euro has not posed a significantly negative threat. In any event, European data from next week is sure to be more market moving. On Monday, we can expect the German Trade Balance, which could impress considering the jump in export orders, and Sentix Investor Confidence. On Tuesday, the German CPI and ZEW Economic Sentiment are set for release. Things really start to get busy on Friday with the release of both the Euro-zone and German preliminary reports on Gross Domestic Product. There is a lot hanging on these indicators, as everyone expects that the third quarter proved to be decisively more improved than the second. In any event, considering how the euro largely shrugged off today’s NFP, we could expect a more substantial rally to ensue off of next week’s data if an even marginal improvement is shown.
USD/JPY: INDICES CONTINUE TO FOSTER OPTIMISTIC SIGNS
The Japanese Yen appreciated against all major counterparts as investors scaled back on risk appetite after worst than expected job report from the U.S. USD/JPY once again penetrated the ever important psychological resistance of 90.00. Nonetheless, the trend of risk appetite seems to inhabit the atmosphere. Japan’s 10-year government bond finished a five-week decline, suggesting that investors are looking into higher yielding assets as global recovery persists. Needless to say, world’s second largest economy is slowly picking up steam in its own recovery. Coincident Index rose for the seventh consecutive time in September prompting government officials to upgrade assessment of the index. Japanese Cabinet Office declared that the trends are currently pointing that the “economy is in a stage of uptrend." Meanwhile, Leading Indicators matched the steepest rise of June appreciating by 3.2% to 86.4 in August. Overall better than anticipated economic condition indexes continue to foster optimistic signs of export based recovery prompted by continuing demand from China and other developing nations. Positive economic releases in the following week will bolster the notion of a swift turnaround in the economy. Early in the week, Current Account and Trade Balance expect to print much higher figure than in the previous months. Furthermore, Domestic CGPI, Eco Watchers Survey, and Consumer Confidence will be released.
May The Force Be With You.
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