Wise Money waiting for key US data on Friday

Today we have US employment data which will give us a taster as we build up to the key non farm payroll data on Friday.

wisemoney US employment data which will give us a taster as we build up to the key non farm payroll data on Friday.

Feedback from the labour market is the highest consideration, as the FOMC judge whether it is appropriate to increase interest rates. On Friday the payroll data is expected to come in at a healthy 175k, and average earnings are likely to increase by 0.2%.

We could also see the unemployment rate fall slightly to 4.8% from 4.9%. If we see positive US data this week, it will build expectations for a September rate hike and lead to USD gains.

Eurozone inflation softer for August

In the Eurozone, CPI for August (y/y) has come in slightly softer than expected at 0.2% vs 0.3% expected. In addition, the unemployment rate for July has been confirmed at 10.1% which is in line with forecast. This morning the euro has been on the back foot and disappointing inflation data will not help this trend.

Pound finds tentative momentum

The Pound has managed to pick up this morning against the euro and the USD. Following a better run of UK data this week, the pound is finding some tentative momentum. Tomorrow we have UK Manufacturing PMI, and on Friday Construction PMI to give further feedback for the UK economy.

Sterling performs well thanks to record UK jobless

Sterling had a much better day trading yesterday against all its major currency pairings, as the UK Jobless Claims total fell to a record 1.64 million.

Sterling had a much better day trading yesterday against all its major currency pairings, as the UK Jobless Claims total fell to a record 1.64 million.

The numbers from April to June showed that the total fell by just over 50,000, with official figures indicating 31.75m people (74.5%) are currently in work.

Wages with and without bonus’ also showed gains, as the current claimant count for July displayed an 8,000 drop in actual claimants since the surprise Brexit vote.

Conversely Fed Reserve hints at interest rate hike

The minutes of July’s Federal Reserve meeting has hinted at another interest rate hike before the end of the year, but there was a clear division between members.

The FOMC looked to be nearing another move, as job growth and the sharp market recovery (post Brexit) has been a major factor; but a low inflation figures lack of rise, and staying towards its 2% target is still a concern.

With unemployment levels in the US below 5%, one Fed Member, Esther George, wanted a further hike in rates as ‘the economy is at or near full employment’.

Money news to come

Today we see GBP Retail Sales, Eurozone Construction Output & Consumer Price Index, along with Initial Jobless Claims and Continuing Claims.

US Non Farm Payroll data released

The Non-Farm Payrolls is arguably the most important release of each month but this month it will be the most vital indicator for the future direction of the US Dollar.
US Non Farm Payroll data released
Ben Bernanke and the FED hinted for months that the improvement outlook in the US labour situation could trigger a scaling back of Quantitative Easing. September has become to be known as SepTaper as a tapering of the asset purchase programme could be a real possibility.

The US dollar, stocks and treasury yields indicates that many investors are still unsure there is enough reason for the Federal Reserve to taper asset purchases in September and the Non-Farm Payrolls today could provide vital clues.

According to most economists a 150,000 reading or better will be enough for the FED to scale down QE. According to the consensus, the market is expecting a reading of 180K and if past NFP releases are any guide, anything below consensus could spark a US Dollar selloff. There is a strong argument for a bullish number.

Service sector activity expanded at its fastest pace since January 2006 and interestingly, the employment component of the report rose to its highest level in 6 months. The ISM index rose from 56 to 58.6 in the August. Jobless claims dropped to 323k from 332k and continuing claims also declined by 43k to 2.95 million. The only disappointing data came from the manufacturing sector where job growth slowed slightly despite an increase in activity.

Over in Europe, the ECB kept interest rates unchanged. Draghi started yesterday’s press conference talking about the gradual signs of recovery, but he warned of downward risks. Draghi conceded, while answering one of the questions, that he doesn’t exclude the possibility of more rate cuts again if market interest rates move in an unsatisfactory way.

The ECB has been uncomfortable with the rise in the market interest rates and he has used forward guidance to reduce volatility to contain the market’s overreaction to the recovery. The ECB raised its 2013 GDP forecast to -0.4% from -0.6% but lowered next year’s forecast to 1.0% from 1.1%. Widespread improvements in U.K. data contrast sharply with mixed economic reports from the Eurozone.

The Bank of England has also left monetary policy unchanged yesterday. We will have to wait two weeks to see if the MPC members are comfortable with a much improved outlook for the UK economy.

Reserve Bank of Australia cuts interest rates by 0.25%

Asian stock markets have gained for the second consecutive day as the Reserve Bank of Australia cut its benchmark interest rate by 0.25% to 2.75%.Reserve Bank of Australia cuts interest rates by 0.25%The Canadian Dollar also strengthened against most of its counterparts as a government report showed building permits rose more than expected in March.

The bank holiday in the UK left the Pound at relatively similar levels to closing trade on Friday as we open against the US Dollar at 1.5540, as Sterling faces heavy resistance just before the 1.56 level and has failed to break it in its recent surge.

Shop price inflation slowed sharply in April to its lowest level in over 3 years as retailers slashed prices to lure business activity, in the UK.

With a relatively quiet week for Sterling, markets look forward to Thursday’s Interest rate decision though it is likely to be of much consequence, as rates are expected to be on hold at the current level.

We start the week in the UK with the focus still on the big release on Friday’s US non-farm payrolls data coming out at 165,000 which was slightly higher above market expectations of 150,000.

On the back of this month’s US employment figures, the previous months’ numbers were also revised to a higher level (March revised to 138,000 and February to 332,000). This has reduced the unemployment rates in the US down to 7.5% which is the lowest since 2009.

The dollar had a brief yet volatile surge against all of its counterparts as markets have continued with the sentiment that the current policies of Federal Reserve’s quantitative easing program can be cut back at any time, as deemed fit.

The dollar surged against the Japanese Yen, most notably to a high of 99.15, and sitting at 99.35 in opening trade this morning as strong resistance takes over just ahead of the 100 level. With a fairly quiet economic calendar for today for the US, the markets continue to trade on news from Europe.

The Euro, on the other hand, after falling to lows of 1.3020 against the Greenback has managed to claw back some of its gains and stands at the 1.31 level.

The main reason for weakness in the euro was last week’s ECB announcement that interest rates were slashed by 0.25% to stand at a low of 0.5%.We had a release of European PMI index which was revised to 46.9 from 46.5 but that did not augur well for the troubled economy as growth remains below the crucial 50 level, as fear resurfaces that the bloc will fall into a further recession in the coming quarter.

ECB cuts interest rates

The big news yesterday was Super Mario-  ECB chief, dropping interest rates by 25 basis points at the ECB monthly meeting.ECB cuts interest ratesThe move was widely expected in the market which is why there was not a huge reaction in the aftermath, with GBP/EUR nudging up 60 pips or so. The larger move was EUR/USD which after trading over 1.32 came back to just over 1.30.

I think the market was hoping for more details on how the ECB will help to extend to credit to SME’s across the euro zone, but as usual Mario talked a great deal with zero content, I guess we will find out more about the plans in planned speeches and press leaks during this month.

In terms of the euro moving forward, the rate cut should allow GBP to push towards the 1.20 level over the next couple of months. This should be accelerated by today’s non-farm payrolls which are expected to be softer than originally forecast.

The Dollar has in recent months begun to trade like a normal currency, away from the Risk-on/risk-off paradigm that dominated US Dollar trading over the past few years. That is why a disappointing NFP number should see the Dollar weaken slightly, however don’t be surprised to see GBPUSD ramp up as we move towards the number.

Eurozone PPI is also due this morning at 9am – recent individual country PPI’s have been dire so expect the theme to continue with currency area wide number as well.

UK economy in a better place

Following UK GDP surprising on the upside last week and coming in better than expected the Pound looks nicely positioned for further gains.UK economy in a better placeA key facet of the data is that it helped the UK to avoid a triple dip recession. Growth is going to be a key driver of currency movements going forward as economies around the globe search for growth.

We saw this in the markets with the Pound snapping higher against the USD and the Euro and continue its good run on Friday. The better than expected UK data comes against a backdrop of disappointing data from the US and China in particular and this was another reason the Pound rallied.

We saw disappointing German data last week in the form of PMI data and also the German IFO survey. Recently there have been more calls for a rate cut in Europe and recently the head of the Bundesbank Weidmann mentioned that if underlying data suggested so then a rate cut would follow.

The weaker PMI data and the IFO survey have now lead to most economists expecting a 25 basis point rate cut on Thursday. This should weaken the Euro against its major currency peers including the pound and the US Dollar.

A rate cut is not definite and the ECB always keep their cards close to their chest so all eyes will be on the announcement on Thursday.

Some have argued that a rate cut alone will not be enough to drive growth and we could see additional measures announced by the ECB to assist struggling peripheral economies, if so this could supportive of the euro.

US preliminary GDP came in weaker than expected on Friday at 2.5% against an expectation of 3.0%.

The weaker data in essence supports the view that the FOMC will keep their foot on the gas in relation to asset purchases and this in turn supports a weaker USD. We have lots of data this week including the big non farm payroll number on Friday and in addition the Federal reserve interest rate decision on Wednesday.

We are not expecting too many surprises from the Federal Reserve and if anything they are likely to offer a slightly more dovish tone than previously which will support a weaker US Dollar.

The Pound is hit by higher unemployment

It was a bad start to the day yesterday for the Pound after it was confirmed that UK unemployment edged higher to 7.9%.The Pound is hit by higher unemploymentThe Pound dropped against the US Dollar and the euro on the data which followed confirmation on Tuesday that inflation has remained stubbornly high, with higher unemployment and inflation providing a negative mix.

We also had confirmation of the Bank Of England minutes which once gain gleaned a divided committee with a vote of 6-3 to keep QE as it is. Today we have UK retail sales data which is also expected to disappoint and could spell further weakness for the pound.

The fall in the Pound yesterday set the tone for an extremely volatile day in the money markets.

Later in the day the euro was rocked by comments from ECB member Weidmann the Bundesbank president who stated that the ECB could cut rates if data suggested this was necessary.

Given that economic data has been weaker lately this set the precedent that a rate cut could be on the cards. The Euro fell sharply against the USD on the comments and has maintained its lows so far in today’s trading.

Economic data outside Europe has also started to turn negative such as in China and the US and this adds to the view of a rate cut at the next meeting.

The overall sentiment with weaker economic data of late has led to a risk off sentiment in the markets. Equities have fallen and the slide in EUR/USD emphasizes this trend which looks set to continue through today.

Focus for today will be on Europe and feedback from Italy which seems to have come to agreement on a presidential candidate with Franco Marini looking likely to get the nod.

In addition the markets will also be looking at any feedback from the G20 meeting which starts in Washington and in particular for any criticism of Japans recent policy actions.

Dollar struggles after poor US employment figures

It was a bad end to the first week of April for USA with initial jobless claims rising on Thursday and the Non-Farm Payroll figure coming in at 88,000 vs consensus estimates of 200,000 on Friday.Dollar struggles after poor US employment figuresThis singlehandily hit the stock markets, as a sign that stability has still not returned to America, and also weakened US Dollar to a low of 1.5362 on GBPvUSD, EURvUSD rose above 1.30 for the first time in over 3 weeks with GBPvEUR remaining relatively unchanged in the 1.17’s.

In the UK after last week’s better than expected Services PMI growth we have the UK Trade Balance on Tuesday that will show a larger deficit, as expected from George Osborne’s Spring Budget although Manufacturing and Industrial production is expected to show minimal growth versus February’s contractions.

David Cameron is travelling around the EU (Madrid, Paris and Berlin) to discuss a trade orientated plan for the 27 Member State this week with reformed spending controls to increase the attractiveness of the area and try to keep the European coffers under control.

In the US the earnings season gets underway this week with 1 Quarter figures being drip fed to the markets throughout the week.

Wednesday, sees the release of the FOMC Meeting Minutes from last month’s meeting which will give an insight into the panel’s thoughts on the US recovery and perhaps an insight into the end of their monetary stimulus.

Thursday will see initial jobless claims revision from last week to sit around 365k. Friday, US Retail Sales are expected to show minimal growth of 0.1% versus last month’s unexpected 1.1% figure.

In euroland– a quiet week ahead after Mario Draghi weakened the single currency last week on more negative, dovish notes on the outlook for the eurozone.

Sterling weaker as manufacturing slows and inflation soars

Sterling weaker as manufacturing slows and inflation soarsThe wise money markets have opened this morning with considerable weakness in the euro against the US Dollar, as news has filtered out that European unemployment figures reach a record high in February.

The numbers have racked up to a staggering 19.07 million people who were unable to find work in the 17 member bloc, 33,000 higher than in January.

Greece and Spain are the 2 countries with the highest jobless numbers at 26.4 per cent, however, in sharp contrast Germany and Austria have over 95 percent of the workforce employed.

We also had PMI manufacturing data out from the region which came out much lower than expected compounding the fears over the stability of the recovery of the euro bloc.

The figure came out at 47.9 for February and has dipped even further to 46.8 for March, indicating the quickest decline for 18 months. Not a single country in the region managed to break the level of 50, which marks economic expansion.

Due to consistent negative data out from the Eurozone, the EUR/USD pair is testing the 1.28 level in early trade.

From the US, on the contrary, there was much better news as factory orders came in at a 3% expansion as compared to the last month, and economic sentiment is fairly positive for the Greenback.

Meanwhile, the story of Cyprus continues to drag on with news that the Troika has granted some budgetary concessions while the Finance Minister has resigned.

From the UK, we have opened with Sterling coming under pressure as well against the Greenback breaking the 1.51 level and the euro as it slides below the 1.18 level.

This was mainly due to poor PMI manufacturing data which came out at 48.3 compared to expectations of 48.7, showing that the UK manufacturing sector has contracted for a second straight month even though the economy is set to narrowly avert the triple dip recession as per the British Chambers of Commerce.

Trading well above the 1.52 level yesterday against the US Dollar, Sterling was forming as a strong resistance level, but disappointing data saw a reversal of recent gains that was then accelerated by stronger data out of the US.

The British Retail Consortium also pointed out that UK shop-price inflation accelerated in March by 1.4% as importers feel the impact of a weaker Pound.

Euro watches Italian bond auction with caution

In what is a quiet start the day in the European session investors will be looking for impetus from German CPI figures which are likely to confirm year-on-year inflation rate at 1.5 percent, the lowest since 2010.Euro watches Italian bond auction with cautionThe recent soft price growth allows the European Central Bank room to introduce stimulus, to counterbalance the Eurozone downturn.

However the ECB appears unlikely to act whilst political instability in Italy dents its policy agenda.

As a result, the data’s influence on the single European currency is likely to be restricted and therefore a bond auction of one year Italian bills could be of keen interest.

A rise in typical yields or a major fall in the bid-to-cover ratio, a measure of demand, will suggest a return to growing sovereign risk jitters and could weigh heavily on the Euro.

Meanwhile, UK Industrial Production is seen posting a nominal 0.1 percent monthly increase over the same period.

A release accurate with projections would fall in line with recent trend averages, presenting little direction to traders on future BOE policy and Sterling could survive unscathed.

Priced-in stimulus bets have been swelling over the past five weeks and Sterling has duly declined. Speculative positioning is at its most net-short in four months, suggesting prices may be susceptible to an improvement with any positive news.

Continuing the UK theme and house sales hit their highest level in more than two-and-a-half years last month but we should not assume we are at the start of a housing boom, according to the Royal Institution of Chartered Surveyors (Rics).

They expect a rise in future sales and despite inquiries from prospective buyers had remained stagnant since January’s cold weather.

The market has undoubtedly been supported by the Funding for Lending scheme, which was intended to boost lending by offering low-priced funds to mortgage and loan providers.

Nevertheless, the number of sales is still about half the total seen in 2007 before the financial crisis hit, according to figures from HMRC.

The market has had little impetus in recent years, although a number of government systems have supported the market for new homes. However the problem remains that borrowers find it tough to obtain the deposit necessary by lenders to secure a home loan.