Traders seem to want to pare back positions ahead of tonight's crucial non-farm payrolls


MAJOR HEADLINES – PREVIOUS SESSION

  • CA Jun. Building Permits out at +1.0% m/m vs. -3.0% expected and revised +17.5% prior

  • US Initial Jobless Claims out at 550k vs. 580k expected and revised 588k prior

  • US Continuing Jobless Claims out at 6310k vs. 6291k expected and revised 6241k prior

  • US Jul. ICSC Chain Store sales out at -5.0% y/y vs. -5.1% prior

  • AU AiG Performance of Construction Index out at 39.5 vs. 42.6 prior


THEMES TO WATCH – UPCOMING SESSION

(All times GMT)

  • Swiss Unemployment (0545)

  • GE Trade Data (0600)

  • Norway Industrial Production 0800)

  • UK PPI Input/Output (0830)

  • GE Industrial Production (1000)

  • CA Unemployment Rate (1100)

  • US Non-farm Payrolls (1230)

  • US Unemployment rate (1230)

  • CA Ivey PMI (1400)

  • US Consumer Credit (1900)

Market Comments:

The Bank of England grabbed the headlines yesterday when it surprised markets with a GBP50 bln expansion of its pool of funds available for its asset purchase plan to bring the total to GBP175 bln, GBP25 bln above the previous ceiling. In addition, the Bank gave an extremely dovish assessment of the state of the UK economy, saying the recession was deeper than previously thought. The comments poured cold water on the bullish sentiment that had been building following recent better-than-expected business surveys. The Bank also indicated that weak lending was probably a major factor in the decision, saying that despite easing credit conditions, lending to businesses had fallen and money growth remained weak. GBP was forthrightly knocked off its perch as the “punish the printers” trade re-emerged.

The decision from the ECB was more main-stream, with the ECB leaving rates well alone and commenting that current levels were “appropriate”, though admitting that the economy will likely remain weak for the rest of the year.

The market also had another “taster” ahead of tonight’s non-farm payroll and unemployment release. Initial jobless claims came in better than expected with a 550k figure rather than 58k expected. This was the lowest level in four weeks and the second-lowest since early January yet the impact on equity and currency markets was extremely muted with risk-squaring and position trimming the more influential drivers. On a more depressing note, continuing claims ticked up and were higher than expected, though some consider the distortions due to seasonal auto plant shutdowns are still at play. A quick look ahead to today’s non-farm payroll release and it is shaping up to be the best in some time. Median forecasts in recent surveys suggest a loss of 325k jobs, though some pundits are calling as low as -150k, though we a erring on a more pessimistic number, closer to the 450k mark. Unemployment is expected to tick up to 9.6% from 9.5%.

Position trimming appeared to be the order of the day in Asia, although currencies stuck within established ranges, albeit at the bottom-end of them, and hovering just above key support levels in many cases. The quarterly Monetary Policy Report from the RBA provided some short-term volatility and interest during the morning. Basically echoing the themes that have dominated since last week, the tone of the statement was decidedly hawkish, though noted that current low levels of interest rates were appropriate. The RBA saw growth accelerating in China and tentative signs of a turning point in the US economy. It maintained its inflation forecasts at the lower end of its 2-3% band through to 2011 but provided a mild upgrade to its growth forecasts: 0.5% in 2009, 2.25% in 20101 and 3.75% in 2011. This compares with projections of -1.0%, +2.0% and +3.75% respectively in its May statement. AUD staged a fleeting rally up to 0.8425 but was soon back down below 0.84 again shortly.

Into Europe, we see German trade data, industrial production and Swiss unemployment. Canadian unemployment data accompanies the US release during the North American session, but the US report will undoubtedly grab the headlines.

Nice weekend.