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FX Markets press the pause button ahead of US non−farm payrolls

Fri, Jan 9 2009, 08:01 GMT
by Saxo Bank Strategy Team

Saxo Bank

But let's see how long it lasts...

MAJOR HEADLINES – PREVIOUS SESSION

• US Initial Jobless Claims 467k vs 545k expected

• US Continuing Jobless Claims 4.61m vs 4.48 expected

• South Korea cuts interest rates 50bp to 2.5%, as expected

• China Q4 business confidence slumps

THEMES TO WATCH – UPCOMING SESSION

Events Today:

• GE Retail Sales (Nov)(0700)

• UK Input/Output Prices (Dec) (0930)

• UK Industrial/Manufacturing Output (Nov) (0930)

• EU Retail Sales (Nov) (1000)

• GE Industrial Production(Nov) (1100)

• CA Unemployment Rate (1200)

• US Non-farm Payrolls (1330)

• US Unemployment Rate (1330)

• US Wholesale Inventories (1330)

Market Comment:

With minds firmly concentrated on the US non-farm payrolls numbers this evening, FX activity proved considerably muted in Asia, exacerbated by the looming long weekend in Japan.
After Weds’ ADP employment report set the scene, analysts are bracing for a dismal number, and a number above 600k is now being bandied around more frequently. The USD sat at a standstill, putting the brakes on a more dramatic slide, as yesterday’s initial jobless claims were not a bad as feared, although continuing claims rose to a 26-year high of 4.611 mln. However, we must be mindful of a surprise on the positive side and any number near 500 rather than 600 will see Wall St on helium and the USD on fire.
Elsewhere, data releases from the Euro-zone should continue to paint a dreary picture and emphasise the next move for the ECB. This is likely to limit EUR gains in the near-term. Today's batch of econ data out of the UK will serve to explain and confirm why the BOE cut rates to a 300-yr low of 1.5% yesterday, with Dec PPI input/output, Nov industrial and manufacturing production also on tap.

Further gloom for the global auto industry was previewed as South Korean automaker Ssangyong Motor Corp said it had filed for court receivership to cope with liquidity problems and avoid bankruptcy. The company and its top shareholder China’s SAIC Motor Corp had sought financial assistance from the S.Korean government and banks, looking for a bailout US-style. In addition, ratings agency Moody’s said it had put Honda’s Aa3 rating under review for a possible downgrade. Whilst on the topic of bankruptcy protection, the FT is carrying a story that Citigroup may suffer a USD1.4 bln loss on its loans to LyondellBasell, the chemical group that placed 79 of its subsidiaries under protection this week. Another setback for the US group’s recovery and will pressure its financial performance in Q4. Other banks with exposure include UBS, RBS, Goldmans and Merrrills, according to the FT.
Any hopes that China could help preserve global demand were given a setback as Chinese business confidence plunged in the final three months of 2008, a result of the mounting effects of the financial crisis weighing on exports and industrial output. The business confidence index fell 29.2 points in the fourth quarter to a record low of 94.6, with manufacturers hardest hit.

CHART: GBPUSD

1.5130 looks key to prevent a slide to 1.5000. However, 1.5000 seen holding for a strong rebound to o/n highs near 1.5350 and beyond.

Published on  Fri, Jan 9 2009, 08:06 GMT