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The Dire ADP employment reports hurts the USD

Thu, Jan 8 2009, 07:28 GMT
by Saxo Bank Strategy Team

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At the same time, Obama went on CNBC and promised to spend $1.3T - more than the previous talked about $775B on stimulus.

MAJOR HEADLINES – PREVIOUS SESSION

• US Challenger Layoffs at +166.3k (+274.5% m/m)

• US ADP employment -693k vs -495k expected

• AU Nov Trade balance AUD 1.45b vs 2.0b expected

• AU Nov Building approvals -12.8% m/m vs -1.0% expected

THEMES TO WATCH – UPCOMING SESSION

Events Today:

• CH CPI (Dec) (0645)

• GE Trade/Current Acct balance (Nov)(0700)

• EU Consumer/Business Confidence Index (Dec) (1000)

• EU Final GDP (Q3) (1000)

• EU Unemployment (Nov) (1000)

• GE Manufacturing Orders (Nov) (1100)

• UK BOE MPC Meeting Decision (1200)

• US Initial Jobless Claims (1330)

Market Comment:

The dire ADP private sector employment report rocked the greenback and a reported calculation makeover to make the data more predictive of the non-farm payroll number has left analysts rushing to review forecasts for Friday’s number. Revisions are tending to push to prediction over the 600k barrier, challenging the record 602k decline in 1974. If the disastrous forecasts become reality, President-elect Barack Obama will need to ensure that his stimulus package is “spent wisely”, otherwise the collective hopes that it could be enough will dissipate rapidly. Still in the US, Fed’s Hoenig confirmed what most observers know already, that the outlook for the US economy in H1 is “grim”.

USD losses were not broad-based however, with commodity-linked currencies suffering as commodities hit the skids, with the CRB index falling for the first time this year. AUD was under pressure o/n and was hit by poor data this morning. The Nov trade surplus slumped to AUD1.45 bln vs AUD2.0 bln f/c and AUD2.96 bln in Oct while at the same time building approvals slumped 12.8% m/m, implying that any benefit for the mortgage market from the recent rate cuts are slow to filter through. AUD continued its retreat during the Asian session down to 0.7000 support. However, the USD is expected to maintain its softer bias into the non-farm payrolls, just in case, and further weakness may be forthcoming from a NYT article suggesting that China may be keeping more of its money at home amid the global slowdown, possibly slowing its purchases of US Treasuries.

Matching Australia’s poor trade performance, further evidence of a slowing global economy, if it was needed, came from Taiwan, whose exports recorded their biggest drop on record, falling 41.9% y/y in Dec. Taiwan central bank reacted immediately, slashing rates by 50bp at an unscheduled meeting.

Rate cuts will be heavily in the spotlight in Europe, with the BOE rate decision keenly awaited.
Expectations are for a rate cut of between 50bp and 100bp, though this prospect has not dented sentiment towards the GBP to a great extent. A UK Times article states that Chancellor Darling is also considering going down the quantitative easing route as interest rates approach zero and their effectiveness as a policy tool is diminished. However it was noted that this would require a close working relationship between the Treasury and the BOE.

BOJ governor Shirakawa was on the wires during the Asian session, commenting that the bank could still do more to stabilize financial markets, even though its efforts to buy commercial paper was already helping to improve conditions. Targeting FX rates specifically, PM Aso was more vocal, saying that any sharp drop in the USD is very negative for Japan. USDJPY was confined to a tight range following the comments.

CHART: EURUSD

1.3545-55 flat-lining 55-MA support on hourly charts likely to limit downside for EURUSD. 1.3670-80 needs to be overcome for a test of o/n high at 1.3646 and declining 200-MA at 1.3840 lvl. Weaker USD environment into Fri’s NFP report to lend support.

Published on  Thu, Jan 8 2009, 07:32 GMT

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