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.

The US Dollar continues to struggle as interest rates fears persist

There was further turmoil in the market late in trade yesterday as there were hints, again, that the Federal Reserve in America may start to taper or reduce the amount of Mortgage Backed Securities they purchase a month.
The US Dollar continues to struggle as interest rates fears persist
This sent the markets into a flurry of risk off activity with government bond yields increasing across Europe while major European indices lost over 1% on average.

This came after industrial output in the UK came in slightly better than expected across the board citing oil and gas production as a major factor.

Yesterday saw GB Pound/US Dollar rise over 1.56 for the second time in three days this was mainly dictated by the sharp rise in EUR/USD to 1.3315 to hit an almost 4 month high.

The GBP/EUR has continued to remain range bound and after earlier pressure it regained its composure to keep the trading range between 1.1690 – 1.1775.

After the recent flurry of positive data, before new governor Mark Carney takes the reins at the Bank of England, it is expected that today’s claimant count change will have fallen again, for the 7th month, in May in another positive sign that the UK’s job market is finding its feet as the nation continues to hire.

On the other side of the pond – as further hints about the Fed tapering the 85 billion worth of MBS purchased a month continuing to weigh on the greenback we have a quiet session ahead data-wise.

Without any strong positive news or data for the US it is likely the USD will continue to struggle today against GBP and EUR but mostly remain range bound between 1.5550 and 1.57 where key support and resistance levels.

As the legality of the Open Market Transactions continue into their second day in the German Constitutional Court, further negative news for the euro has struck with Greece being downgraded from a developed nation to emerging-market status as the local stock index has fallen 83% since 2007.

This morning’s data release saw inflation figures across the Eurozone’s 4 largest economies remain stagnant with France seeing a slight fall to 0.1% against expectations of 0.3%.

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.

US strong sales data continues

Risk sentiment improved again following strong US data.US strong sales data continuesDurable goods came in higher than expected and housing data indicated an improvement for the first part of 2013.

The only negative news coming from the US was that consumer confidence fell as consumers have become more pessimistic about short term economic prospects.

This could be as a result of an increase in taxes which has coincided with a rise in gasoline prices.

However the underlying economic data so far is still coming in robustly and this is supporting the equity markets and overall risk sentiment.

Last night, credit ratings agency Fitch put Cyprus on negative watch saying that “the shock resulting from the systemic failure of Cyprus’s banking system will have profound negative implications for the domestic economy, which heightens the risk for public finances”.

The market is certainly still digesting what the future implications of the bailout could be for depositors in other euro countries and this is weighing on the euro as contagion is feared.

Today we have speeches from Federal Reserve members and the markets will be looking for feedback on the Fed’s bond purchases in the light of an improvement in US data.

It is likely that they will reiterate that bond purchases will remain until a substantial and prolonged improvement in the labour market is perceived and the consensus will be that we are not there yet. Aside from this it is a relatively light data day as we head into the Easter weekend.

US fiscal cliff negotiations bring in wise money market volatility

As the wise money markets move into the New Year most of the focus turns towards the US markets.US fiscal cliff negotiations bring in wise money market volatilityPresident Barack Obama has had to race against time to save the deal on the fiscal cliff reforms- amidst rife opposition against the planned tax reforms and spending cuts.

Overnight, the US senate reached an agreement on a fiscal package which analysts speculate would reduce economic growth by more than a half a percent if implemented.

With the US Treasury hitting its ceiling on its $16.4 trillion debt limit, the US House did pass a bill as per Obama’s plan of increased taxation on households.

As per 2012 projections, the tax hike will bring in $620 billion in the next 10 years.

With the tax bill being passed, the next battle is likely to ensue on the spending cuts to be implemented, for the deficit reduction program.

To look back and review 2012, Italian and Portuguese bonds and European Stocks rallied through efforts by the European policy makers to contain the market turmoil that threatened to destroy the single currency region.

However, with most of the focus on the US, expect the single currency to continue to remain strong against the Greenback, in the short term, as EUR/USD moves towards the 1.33 level.

From the UK, Sterling has also managed to climb to 1.63 levels against the US Dollar, as optimistic markets bring in the New Year, on the back of the fiscal cliff developments.

The UK markets are also expected to be upbeat on the housing market which is expected to bounce back in 2013.

Fiscal cliff looms as US politicians still divided

The prospects for a fall off the US’s Fiscal Cliff appear to be growing.Fiscal cliff looms as US politicians still dividedUS President Barack Obama has used a last ditch White House meeting to urge Congress to back an interim plan to avoid the “fiscal cliff”.

He reportedly asked Republican and Democratic leaders to back tax cuts for those earning under $250,000.

They have only three days to reach an agreement before across the board tax rises and spending cuts take effect.

Analysts say sliding over the “cliff” could tip the US into recession and set back the global economic recovery.

President Obama cut short his holiday in Hawaii to resume the negotiations. The Senate returned to work on Thursday, with the House due back on Sunday.

Reports ahead of the meeting suggested the president would propose a limited package including the renewal of most expiring tax cuts, and a delay or replacement of some spending cuts.

But as the meeting at the White House began, US media reported that the president was making no new offer, instead seeking a simple vote on extending tax cuts for middle class Americans.

There was no word on whether Republican House Speaker John Boehner and Senate minority leader Mitch McConnell were open to a deal or had a counter offer.

Democratic Senate majority leader Harry Reid and senior House figure Nancy Pelosi were also at the White House.  Earlier, there was upbeat rhetoric from some senators.

Mr Obama’s plans to increase taxes on the wealthiest Americans have remained a point of division between the two parties since he won re-election in November.

Many Republicans oppose new taxes as a matter of principle, and are demanding cuts to what they see as deficit-inflating public spending, putting at risk healthcare and welfare benefit schemes popular with Democrats.

An alternative plan proposed by House Speaker John Boehner – which would have seen taxes rise only on those earning over $1m – failed in the House of Representatives late last week.

In the Senate chamber on Thursday, Mr Reid said the requirement to get at least 60 of 100 votes to move to a vote on any legislation almost certainly doomed any new plan unless Republicans gave it strong backing.

Wise money markets ended on a happy note

After the frustration from the lack of US Federal Reserve and European Central Bank (ECB) activity last week, the Non-farm payroll numbers supplied a happy boost for the wise money markets. Wise money markets ended on a happy noteThe firmer than expected rise in payrolls (163k) reduced concerns about the speed of jobs recovery while the growth in the unemployment rate (to 8.3%) kept some hope of additional Fed quantitative easing in the coming months.

Even the ECB’s decision and press conference last Thursday, have been understood as only postponing the inevitable, with firmer action likely from the central bank in the medium term. Against this background, investors will start the week in optimistic mood and risk assets are expected to extend gains early in the week.

Points of focus this week include two central bank meetings, Bank of Japan (BoJ) and Reserve Bank of Australia (RBA), and the Bank of England (BoE) Quarterly Inflation Report (QIR).  Major policy changes from the former two central banks are not likely although the BoJ may choose to eliminate the 0.1% minimum bidding rate on JGB operations.

As for the BoE QIR a dovish tone is expected which will help to support hopes of additional policy action in the UK, which in turn will mean that Sterling could underperform.

Headline numbers are pretty scarce, with US trade data, Q2 Non-farm productivity, German factory orders and industrial production releases across Europe.

Generally, we see little to undermine from the positive tone to asset markets.

The EUR/USD response to the US jobs data was particularly fascinating, touching a high of 1.2444 as stop losses were activated on the upside.

Additional euro gains will be tough to realise as speculative market positioning reveals that euro short positions have dropped to their lowest level in several weeks, suggesting less scope for extra short covering.

FED extends it’s Twist but holds fire on QE

As per yesterday’s FOMC meeting, the US economy has prompted the Federal reserve to continue its ‘operation twist’, their stimulus programme of buying longer term bonds and replacing the short term purchases until the end of the year. FED extends it's Twist" but holds fire on QEThis has come amidst a slowing employment and a fragile recovery of the US economy and coupled with an overall global slowdown emanating from Europe.

Money markets have not reacted very well to this measure, as they were expecting the Fed to come out with a more aggressive approach.

On the other hand, some saw it as a good sign that the US does not need to pull out all of its resources now and there remains ammunition for future action if deemed necessary.

Data expected from the US today are the unemployment figures, with initial jobless claims expected to be 380k as opposed to the previous figure of 386k.

Meanwhile, with attention keenly focussed on the US and the Eurozone grappling with its problems, the Pound has done reasonably well, being quite consistent and range bound between 1.5670-1.5750.

Despite falling inflation and growing concerns over the eurozone crisis, the MPC voted to keep rates on hold by a margin of 5-4, a close call, indicating that the MPC has moved closer to a fresh round of QE.

Retail sales out today in the UK are expected at 1.2% MoM and 2.0% YoY, which could see a lift in the Pound.

Back to the eurozone- and with the new Greece coalition in force, the PM Antonis Samaras is keen to deal with the bailout terms as they move ahead.

Further data expected today from Europe are the Spanish bond auctions and the French BTAN auctions.

ECB policy makers have backed the Eurozone’s bailout fund to buy the Spanish and Italian bonds which should help appease the markets in the short term as we await further clarity on Europe before or at the EU summit at the end of June.

FED twists again like it did in 63

The US’s Federal Reserve Board (FED) has attempted to twist the US long term and short term interest rates to help jump start the US economy.FED twists again like it did in 63However there is another twist- this ruse  won’t actually do much to help consumers, borrowers or the housing market.

The Fed will go on a bond-buying spree — again — in an attempt to drive long-term interest rates lower than they already are.

The much-anticipated plan, dubbed Operation Twist by observers, should help push rates lower, boost the housing market, make it easier for consumers and business owners to borrow and help create jobs. That’s the Fed’s theory and intention.

But analysts say Operation Twist barely makes a dent in the problem.

There is plenty of liquidity out there already, and interest rates are already extremely low. Interest rates are not the obstacle to growth.

After a two-day meeting, the Federal Open Market Committee announced it will sell short-term Treasury bonds and reinvest about $400 billion in long-term Treasury bonds by the end of June 2012. It will sell Treasuries maturing in three years or less to buy Treasuries maturing in six to 30 years.

“This program should put downward pressure on longer-term interest rates and help make broader financial conditions more accommodative,” the Fed says in its statement. “The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate.”

Operation Twist differs from QE1 and QE2, the two quantitative easing programs the Fed previously implemented, because it will not require the Fed to print new money to fund the bond purchases. With Operation Twist, the Fed will simply shift its investments around rather than increase the balance of its portfolio.

Mortgage rates have been at their lowest levels in six decades, but millions of homeowners can’t refinance at the lower rates because they don’t have enough equity in their homes. Many potential buyers, who would like to take advantage of the low rates, don’t qualify for loans or are afraid to commit to a mortgage in a shaky economy.

The Fed said it will try to keep mortgage rates low by reinvesting in mortgage-backed securities as mortgages are paid off and as Fannie Mae and Freddie Mac repay debts they owe to the Fed.

Even if lower rates were the answer to dragging the economy out of the hole, Operation Twist still wouldn’t be enough to get the job done because its impact on long-term rates will be limited, analysts say.

Given the severity of the current crisis and the high unemployment rate, the United States needs the gross domestic product to grow at about a 5 percent to 6 percent pace, but that does not seem to be in the cards.

With so much doubt surrounding the effectiveness of Operation Twist, you may wonder why the Fed chose this maneuver. Simply put, it’s because the Fed had to intervene to show investors that it has not lost control of the nation’s economic situation.

And among the few tools the Fed had left in it’s shed, Operation Twist was the least controversial one.

Operation Twist met the least resistance among Fed members mostly because it differs from QE1 and QE2, the two quantitative easing programs the Fed previously implemented. Operation Twist will not require the Fed to print new money to fund the bond purchases.

With Operation Twist, the Fed will simply shift its investments around, rather than increase the balance of its portfolio- much like rearranging the deckchairs on the Titanic.

The Fed has more than doubled the size of its Treasury bond portfolio to about $1.65 trillion since the financial crisis started three years ago, and the Fed embarked on a bond-buying frenzy.

With more than 14 million people out of work, the unemployment rate stuck at 9.1 percent and no signs of improvement in the labor market, the Fed felt the pressure to act.

Unemployment rates the key for money markets

The US Dollar continues to suffer as market hopes of additional US Fed stimulus including additional quantitative easing puts increasing pressure on the currency.Unemployment rates the key for money marketsThere may also be some indecision to buy US Dollars before tomorrow’s Non-Farm Payrolls.

Yesterday’s US ADP jobs data were not particularly positive, so this doesn’t bode well for tomorrow’s number.

The Fed FOMC minutes earlier this week suggested there are a few in the committee who are ready to take more aggressive action which would lead to a weaker Dollar.

Ahead of the jobs data today’s August ISM manufacturing survey will offer some direction for markets but if the forecast of a sub 50 outcome proves correct it will only play into expectations of more Fed stimulus leaving the USD to weaken further.

The Euro struggled against the Dollar to break through 1.45 this week but has continued to resist various peripheral bond worries without too much damage, a trend that has been present for the past few months. Despite the fall back, EUR/USD may struggle to sustain a drop below its 100-day moving average at 1.4362.

Sterling has had problems of its own to deal with and has failed to capitalise on any USD tone while losing ground against the EUR.

Data yesterday did not help, with consumer sentiment falling for a third straight month according to the GfK confidence index.

It appears that speculation of further Fed monetary stimulus may also be rubbing off on GBP, with potential for more UK QE likely to act as a weight on the currency.

MPC member Posen added fuel to the fire in comments that he made supporting the need for central banks to undertake more QE.

Sterling looks destined for more weakness in the short term, with support around GBP/USD likely 1.6111 likely to be tested. A below 50 reading for the August manufacturing PMI today, will only add to downside pressure.