The devastating Japanese earthquake shows that Japan is no New Zealand, as the JPY strengthened on the earthquake news after an initial weakening. Meanwhile, outside of the USDJPY cross, the greenback remained strong ahead of what proved to be a strong US Retail Sales Report.
Canada Employment Report
Canada’s employment report was the opposite of Australia’s most recent report: it appears not so bad on the surface but looks pretty ugly under the surface (versus Australia’s appearing horrible on the surface, but looking less bad in the details). Overall payrolls came in only 10k below expectations at +15.1k overall, but this wasn’t perhaps a huge surprise after a +69.2k increase in Jan. which would be the per capita equivalent of something like +500k or more on US nonfarm payrolls. The internals showed a strong drop in full time employment, meanwhile, with the month registering a -23.8k vs. +31.1kin Jan., while part-time employment surged 38.9k in Feb. The overall unemployment rate failed to improve, and at 7.8%, is still where it was during the nervous days of the weak economy back in 2002-03, having now only fallen about 1.0% from the peak during the more recent crisis.
Canada’s employment report was the opposite of Australia’s most recent report: it appears not so bad on the surface but looks pretty ugly under the surface (versus Australia’s appearing horrible on the surface, but looking less bad in the details). Overall payrolls came in only 10k below expectations at +15.1k overall, but this wasn’t perhaps a huge surprise after a +69.2k increase in Jan. which would be the per capita equivalent of something like +500k or more on US nonfarm payrolls. The internals showed a strong drop in full time employment, meanwhile, with the month registering a -23.8k vs. +31.1kin Jan., while part-time employment surged 38.9k in Feb. The overall unemployment rate failed to improve, and at 7.8%, is still where it was during the nervous days of the weak economy back in 2002-03, having now only fallen about 1.0% from the peak during the more recent crisis.
Chart: USDCAD
As we write this, it is somewhat remarkable that USDCAD is only a figure off its recent lows despite this news, the sell-off in equities, and oil now off several dollars from its recent highs. The first real reversal for that pair comes with a move back above the 0.9820/50 resistance zone that provided support on the way down.
As we write this, it is somewhat remarkable that USDCAD is only a figure off its recent lows despite this news, the sell-off in equities, and oil now off several dollars from its recent highs. The first real reversal for that pair comes with a move back above the 0.9820/50 resistance zone that provided support on the way down.
US Retail Sales Report
The US Retail Sales report was an all-around strong one, with the headline coming in as expected and the ex Auto and Gas figure also beating on a month-over-month basis. Even better, all figures for January received a bump higher in the revisions, suggesting that US consumers still somehow are finding a way to spend beyond their means. How Is the market supposed to react to this data? Perhaps a smidgen of upside in risk appetite, but the bigger focus is on the all-powerful Bernanke and his FOMC and what dastardly plans they are cooking up (or what misguided research they are conducting, if we are to say it in a more mundane way) at the Eccles building in Washington.
The US Retail Sales report was an all-around strong one, with the headline coming in as expected and the ex Auto and Gas figure also beating on a month-over-month basis. Even better, all figures for January received a bump higher in the revisions, suggesting that US consumers still somehow are finding a way to spend beyond their means. How Is the market supposed to react to this data? Perhaps a smidgen of upside in risk appetite, but the bigger focus is on the all-powerful Bernanke and his FOMC and what dastardly plans they are cooking up (or what misguided research they are conducting, if we are to say it in a more mundane way) at the Eccles building in Washington.
Odds and ends
An incredibly powerful earthquake struck Japan in a relatively remote region of the country that often sees powerful earthquakes. There is extensive devastation and tragic loss of life, but there is no real comparison here with the NZ earthquake as this did not strike a major urban area and because there is no “rate angle” from the Bank of Japan. The sell-off in JPY crosses overnight underlines this, as the combined direction of risk and interest rates globally will still dominate. Apparently, there is also a higher risk of JPY repatriation on an event like this as the Japanese government and private entitite sell assets abroad to bring home the funds to pay for the damage.
An incredibly powerful earthquake struck Japan in a relatively remote region of the country that often sees powerful earthquakes. There is extensive devastation and tragic loss of life, but there is no real comparison here with the NZ earthquake as this did not strike a major urban area and because there is no “rate angle” from the Bank of Japan. The sell-off in JPY crosses overnight underlines this, as the combined direction of risk and interest rates globally will still dominate. Apparently, there is also a higher risk of JPY repatriation on an event like this as the Japanese government and private entitite sell assets abroad to bring home the funds to pay for the damage.
The mix of Chinese data was rather interesting, assuming it reflects to some degree the relative strength of data, as Industrial Production levels are still running out of control and inflation still high, while retail sales have decelerated markedly. This suggests that the Chinese regime still has a lot to do to get ahead of the curve – the situation in China is likely to be particularly critical for all markets in the coming 3-6 months as many signs point to trouble.
UK PPI data showed continued strong cost pressures on the input side, while the output prices are still markedly lower (a margin squeeze on producers). The core input data was very low relative to expectations, with the MoM at only +0.1% and the YoY lower than expected at +3.1% and generally trendless after peaking in the middle of last year. GBP was weak in response, with GBPUSD dipping below the key 1.6000 level briefly.
The yield on Greek bonds continues to rise to ever more farcical levels, with the 2-year rate hitting above 17% today as default is essentially baked into the cake. Yesterday, Merkel said that the Greeks need to be ready to sell state assets and that the Irish need to raise corporate taxes if they want Germany on board for supporting reduced interest rates on rescue packages.
Looking ahead
We suspect that the University of Michigan confidence number will take a distinct turn for the worse today. Other higher frequency surveys like ones from Gallup and the Bloomberg US Consumer Comfort Survey (the old ABC weekly survey) showed a dramatic swoon in confidence only a week or so after we were registering new highs in Confidence since pre-Lehman days. The market will want to brush this off as a temporary side effect of the Middle East situation and spike in oil prices, so the market impact is questionable. Still, we’ve had a lot of nervousness this week and many are pointing out that there is no POMO today (though there is one for the vast majority of days for the coming month according to the just released schedule of POMO purchases by the US Fed.) and we would point out that the volatility cat is out of the bag.
We suspect that the University of Michigan confidence number will take a distinct turn for the worse today. Other higher frequency surveys like ones from Gallup and the Bloomberg US Consumer Comfort Survey (the old ABC weekly survey) showed a dramatic swoon in confidence only a week or so after we were registering new highs in Confidence since pre-Lehman days. The market will want to brush this off as a temporary side effect of the Middle East situation and spike in oil prices, so the market impact is questionable. Still, we’ve had a lot of nervousness this week and many are pointing out that there is no POMO today (though there is one for the vast majority of days for the coming month according to the just released schedule of POMO purchases by the US Fed.) and we would point out that the volatility cat is out of the bag.
The next major event risk is next Tuesday’s FOMC meeting. Will we get anything new from the Fed from this one-day meeting? There have been a number of statements suggesting a bit more trepidation about the effects of QE2 and the hawks’ resolve and rhetoric seem to be hardening – so perhaps we see a dissenting voice? Maybe even two? Or do we get a hint on whether the Fed will consider tapering the QE2 bond buying or let it expire with a bang? We are getting close enough to the end of QE2 soon for the FOMC to need to drop further hints on how it plans to end the program.
Have a great weekend!
Economic Data Highlights
- China Feb. Producer Price Index rose +7.2% YoY vs. +7.0% in Jan. and +6.6% in Jan.
- China Feb. Industrial Production rose +14.9% YoY vs. +13.0% Expected
- China Feb. Consumer Price Index rose +4.9% YoY vs. +4.8% expected and +4.9% in Jan.
- China Feb. Retail Sales rose +11.6% YoY vs. +19.0% expected
- New Zealand Feb. Non-resident Bond Holdings out at 63.1% vs. ^3.3% in Jan.
- Germany Feb. Wholesale Price Index rose +1.1% MoM and +10.8% YoY vs. +9.4% YoY in Jan.
- UK Feb. PPI Input rose +1.1% MoM and +14.6% YoY vs. +1.5%/+14.4% expected, respectively and vs. +14.1% YoY in Jan.
- UK Feb. PPI Output rose +0.5% MoM and +5.3% YoY vs. +0.6%/+5.2% expected, respectively and vs. +5.0% YoY in Jan.
- UK Feb. PPI Output Corse out at +0.1% MoM and +3.1% YoY vs. +0.4%/+3.4% expected, respectively and vs. +3.2% YoY in Jan.
- Canada Feb. Net Employment Change out ta +15.1K vs. +25k expected and 69.2k in Jan.
- Canada Feb. Unemployment Rate was steady at 7.8% vs. a drop to 7.7% expected
- US Feb. Advance Retail Sales rose +1.0% MoM as expected and vs. +0.7% in Jan.
- US Feb. Advance Retail Sales ex Auto and Gas rose +0.6% MoM vs. +0.5% expected and vs. +0.5% in Jan.
Upcoming Economic Calendar Highlights (all times GMT)
- US Feb. University of Michigan Confidence (1455)
- US Jan. Business Inventories (1500)
- Japan Feb. Consumer Confidence (Mon 0500)
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