Let the three-ring circus of interpretations begin. G-20 this weekend unlikely to discuss currencies.
MAJOR HEADLINES – PREVIOUS SESSION
* Switzerland Aug. CPI fell -0.8% YoY vs. -0.7% expected
* Canada Aug. Unemployment Rate rose to 8.7% vs. 8.8% expected
* Canada Aug. Net Change in Employment rose +27.1k vs. -15k expected
* US Aug. Change in Nonfarm Payrolls out at -216k vs. -230k expected. Jul. revised down to -376k from -247k
* US Aug. Unemployment Rate jumped to 9.7% vs. 9.5% expected and 9.4% in Jul.
THEMES TO WATCH – UPCOMING SESSION
(All times GMT)
* US Treasury Secretary Geithner to Hold Press Conference in London on G-20 (Sat 2030)
* Australia Aug. AiG Performance of Construction Index (Sun 2330)
Market Comments:
The US employment report was a mixed bag once again - this time with a slightly better than expected change in nonfarm payrolls (though slightly worse if we take into account the negative revision for July), but an unemployment rate that jumped much higher to 9.7% rather than the 9.5% expected. The knee-jerk response in risk appetite was that this was a positive reading overall, but we know how quickly kneejerk responses can change (and indeed the market is rapidly doing a double take on the data as we are writing this). One of the most notable post-data responses was a remarkable jump in USDJPY, which rocketed almost a figure off of a post-release downtick. This is very interesting and reminiscent of last month's reaction. Are we going to see a repeat today? EURUSD is also ticking back lower after an attempt to rally after the numbers. Nothing decisive just yet. Hard to see the market getting a super-positive vibe off this data in terms of risk... but stay tuned.
Canada's employment data for August was a huge upside surprise, with a large positive number of jobs added rather than subtracted from the payrolls for the month.
The data has been a bit erratic of late, with July data showing a much large drop than expected. A little more granularity in the data shows that full-time employment actually dropped for the month by -3.5k vs. a +30.6k rise in part-time jobs. Manufacturing jobs also dropped -17.3k for the month. The gains were mostly in the finance and retail sectors. The unemployment rate actually rose slightly to a new high for the cycle at 8.7% as the labor force expanded by more than the number of jobs added. Confused? We are too - essentially this was a mixed to slightly positive report.
US Same Store Sales recorded a drop of -2.0% year-on-year yesterday, a sign that the slowdown in retail is slowing. The next couple of months of this data point are likely to improve sharply since retail sales fell off a cliff in the September to January time frame last year - making it easier for year-on-year data to look more relatively positive. This reminds us that many of the year on year comparisons will be tough to analyze in coming months before the data "settles out" due to the nature of the shocking deleveraging that took place last fall/winter. The same goes for inflation comparison, as oil went from 145 dollars a barrel mid summer to 35 dollars a barrel by the beginning of the year and has recently been as much as double the price from the lows.
The focus at the G-20 this weekend is unlikely to settle on exchange rates as the statements emerging from the various countries heading into this weekend have centered on calls for bank reform to avoid future systemic crises like the one we are still trying to work our way out of. Calls to maintain stimulus measures have also been forwarded - particularly by the EU. As usual, therefore, the meeting is not likely to generate much of note for the currency
market.
Chart: EURUSD
The EURUSD as we are going to press - keysa re the 1.4177 low earlier thi week and the 55-day moving average just below there (red line), below which the pair has not closed since April.
Analysis by:John Hardy
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