... and EURUSD could break trendline support around 1.2728.


MAJOR HEADLINES – PREVIOUS SESSION

HEADLINES:

  • US Q4 Non-farm Productivity at 3.2% vs revised 1.5% prior

  • US Q4 Unit Labour Costs +1.8% vs revised +2.6% prior

  • US Initial Jobless Claims (Feb1) at 626K vs revised 591k prior

  • US Dec factory Orders -3.9% vs revised -6.5% prior

  • JP Moody’s downgrades Toyota rating to Aa1 from Aaa, outlook negative

  • AU RBA slashes 2009 growth f/c to just +0.5%


THEMES TO WATCH – UPCOMING SESSION

Events Today:

  • Swiss Unemployment (0645)

  • Denmark Industrial production(0830)

  • Norway manufacturing Production (0900)

  • UK Industrial Production(0930)

  • UK Manufacturing Output (0930)

  • UK Input/Output Price Index (0930)

  • German Industrial Production (1100)

  • Canada Unemployment (1200)

  • US Non-farm Payrolls (1330)

  • US Unemployment Rate (1330)

  • Fed’s Yellen speaks (2245)

  • Fed’s Fisher speaks (0145)

Market Comment:

US data releases yesterday reverted back to their more normal weaker bias after having shown some surprises earlier in the week. Although Q4 productivity data was better than expected (+3.2% q/q vs +1.5% f/c), this was more than offset by a worse factory goods orders number (-3.9% m/m vs -3.1% f/c) while initial jobless claims rose to 626k, up from a revised 591k the previous week, the first time it has risen above 600k since 1982.

Despite the soft data, US stocks recovered from early weakness to finish deeply in the black (DJIA +1.34%, S&P +1.64% and Nasdaq +2.06%) on hopes that the US stimulus package would cushion the downturn and on market talk that the SEC would relax some accounting rules. In addition, Senate Banking Committee Chairman Stephen Dodd hinted at changes in mark-to-market rules. This prompted a sharp u-turn in the banking sector which had been -4.7% as a group at one stage.
Newswires were also suggesting that Timothy Geithner would be able to present his comprehensive financial system plan on Monday, giving the positive closing sentiment a further shot in the arm.

Asian bourses took the baton from Wall Street and were firm throughout the session, with the occasional knock-back finding buying interest, and this should start European bourses off on a positive note.

The Asian morning was dominated by the RBA’s quarterly statement on Monetary Policy which contained an aggressive downgrade to 2009’s growth forecast. Growth was slashed to barely above zero 0.5% from 1.75% in its previous November statement. The downgrades to growth came despite major fiscal and monetary stimulus in recent months, including a second stimulus package worth AUD42 bln announced earlier this week. Gov Stevens noted that the stimulus packages, combined with the sharp fall in the AUD should help cushion the economy but would not be sufficient to offset all the downward pressure from external influences. The AUD experienced a bit of selling pressure on this but rebounded after a commentary from a leading Australian bank suggested the RBA would be on hold at its March meeting and this week’s 100bp cut would be the last of this magnitude. Front-end yields edged 20bp higher and are currently pricing in a 55bp cut at the next meeting.

Some activity in JPY crosses during the Tokyo lunch after Moody’s announced a downgrade to Toyota’s credit rating. The agency cut the car-maker’s rating to Aa1 from Aaa and cut its outlook to negative citing the rapid decline in developed market car sales and its profitability outlook. In response, Toyota announced plans to cut fixed costs by 10% but confirmed cuts to 2008/09 sales and operating profit profits(losses). JPY crosses pushed lower in anticipation of a lower Nikkei open after the lunch-break but there was no follow-through with Nikkei closing +1.6%. JPY crosses held steady at slightly lower levels.

Highlight of the European session will be the US non-farm payroll numbers for Jan. While the ADP private hiring report for January that was released Wednesday was not as dire as December’s colossal 693k, coming in at 522k, the numbers were still large and affirmed by last night’s increase in jobless claims to Feb 1 of 626k from last week’s 592k. Analyst polls are looking for a deterioration in the non-farm payroll layoffs to 540k from 524k last month. As a result the unemployment rate is expected to rise to 7.5% from 7.2% last time. Prior to the US releases we will see German industrial production numbers for December, not expected to be good and should put more pressure on the ECB for next month’s meeting. The same expectations are for UK production data, which is seen falling 7.8% y/y on the industrial side and -8.5% y/y for manufacturing.