Market shrugs off ugly employment data from Australia and Canada.
BoE on hold as expected as it monitors success of QE policies. US Trade Deficit is smallest in almost 10 years.
MAJOR HEADLINES – PREVIOUS SESSION
- Switzerland Mar. Unemployment Rate out at 3.4% vs. 3.5% expected and 3.4% in Feb.
- Germany Mar. CPI (final estimate) at 0.5% YoY as originally estimated
- Japan Mar. Machine Tool Orders out at -84.5% vs. -84.4% expected
- Sweden Feb. Industrial Production decline -2.2% vs. -1.9% expected
- Sweden Feb. Industrial Orders fell -3.4% vs. -0.7% in Jan. (and -30.0% YoY vs. -32.9% in Feb.)
- UK Mar. PPI Input/Output out at -0.4%/2.0% YoY vs. -0.7%/2.1% expected, respectively
- UK Feb. Visible Trade Balance out at -£7315M vs. -£7600M expected and £7821M in Jan.
- Germany Feb. Industrial Production fell -2.9% vs. -3.0% expected and -20.6% YoY vs. -21.7% expected
- Canada Mar. Unemployment Rate rose to 8.0% as expected and vs. 7.7% in Feb.
- Canada Mar. Net Change in Employment out at -61.3k vs. -50.0k expected
- UK BoE left rates unchanged at 0.50% as expected
- Canada Feb. International Merchandise Trade Balance at +0.1B vs. -1.2B expected and -1.2B in Jan.
- Canada Feb. New Housing Price Index fell -0.7% vs. -0.5% expected and -0.6% in Jan.
- US Feb. Trade Balance out at -26.0B vs. -36.0B expected and -36.2B in Jan.
- US Weekly Initial Jobless Claims out at 654k vs. 660k expected and 674k last week.
THEMES TO WATCH – UPCOMING SESSION
- US Fed's Stern to Speak (1615)
- US Fed's Hoenig to Speak (1700)
- Japan BoJ Meeting Minutes (2350)
Market Comment:
Australia and Canada both saw terrible employment reports today. Australia's job rolls shrank by almost 35k, the per capita equivalent of about -500k on US Nonfarm payrolls and Canada again notched another large decline in the employed that would equate to about a -550k decline in US payrolls. Note also the huge jump in the unemployment rate. Yet AUD and CAD are much firmer across the broader market as they seem to be catching a bid from a strong move in risk appetite ahead of the US open and rising interest rates. As with yesterday, we note that these two currencies are moving in the opposite direction of the JPY as AUDJPY and CADJPY seem to be the market's highest beta choices at the moment.
As we are writing this, the big US bank and overtaker (or is it undertaker?) of Wachovia, Wells Fargo, is reporting better than expected earnings. This has generated a deal of excitement in equities ahead of the US open, with the S&P surging well over two percent on this news. As the better commentators have pointed out lately, however, one of the chief inputs in creating the credit superbubble was obfuscation of accounting reality, and we have a hard time garnering any impression of the relative strength of banks from a Wells Fargo earnings report, since banks can still use all manner of accounting tricks to come up with just the result they want. Sure, WF may have done well on an operational level, but what about its mark to market practices on assets and true state of its solvency....
The ECB's Nowotny poured a bit of cold water on the EUR today with dovish comments on rates, saying that cutting the rate below 1% is still open for debate (even though he is personally against it). He also said it was a "sensible and efficient measure" to buy corporate debt. Due to the ECB's recent gradualist move from 1.50% to 1.25% rather than the expected 50-bp cut, many speculate that Trichet wants to pause at 1.00% for some time. Ueber-hawk Weber has spoken out against corporate debt purchases. The matter will become increasingly pressing as so much short term debt will need to be rolled in coming quarters. The next ECB meeting isn't until the 7th of May, so the market will continue to try to divine clues from the divergent ECB member opinions, with most emphasis place on comments related to potential QE measures. Regardless of ECB jawboning, EURUSD is sandwiched between two key moving averages (21 and 100) in what we can only describe as a pivot zone. Considering our background view that risk appetite will continue to find disappointment in the medium term and that new lows eventually await in equities, we look for a bearish resolution for the pair eventually as EURUSD is not even rallying with today's ebullient pre-New York equity open.The first key trigger is a close below that 100-day moving average and below 1.3115.
The BoE kept rates on hold as expected and has burned through about a third of its planned 75 billion in , a move that has netted almost no move in the yield on 10-year gilts as we noted yesterday. The bank stated today that it would continue with its purchases and had little else to say. Little reaction was seen in the market as directional moves seem hard to sustain in this market. EURGBP has come well off its lows below the 0.9000 threshold yesterday. The first key resistance comes in the 0.9150 area.
The US trade deficit for February was the smallest in almost 10 years. The largest single contributor to the improvement in terms of trade was a steep drop in imports from Asia, as the US consumption slowdown has drastically decreased trade activity. The Ex Petroleum trade deficit was a mere USD -12.3B dollars. While the trade trend is extremely important for the longer term viability of the USD, the improvement in trade deficits seems part and parcel of a shrinking US economy and the trend could reverse again once growth resumes if there are not clearer signs of changing patterns in global trade and some miraculous shift in energy consumption that would reduce the US's colossal energy import bill.
A long holiday weekend is soon upon us, with parts of Europe out of the office through Monday and most major Western markets closed tomorrow for Good Friday.
Chart: EURJPY
With the recent inability of this pair to maintain altitude at new highs above 134.50, we look for a resumption of the downside soon, with a local top on what appears to be a B-wave in Elliot Wave nomenclature somewhere between here and 135.00. The first key support test would arrive with a test of the 21-day moving average, currently coming in around 131.00. A stronger sell-off impulse would likely coincide with a stabilization of world bond markets and return of risk aversion.
