Data is USD negative, but recent correlations suggest that risk aversion should boost the greenback.


MAJOR HEADLINES – PREVIOUS SESSION

  • Japan Aug. Jobless Rate out at 5.5% vs. 5.8% expected and 5.7% in Jul.

  • Japan Aug. Household Spending rose 2.6% YoY vs. -0.2% expected

  • UK Sep. Nationwide House Prices rose 0.9% MoM vs. 0.7% expected

  • Norway Sep. PMI out at 47.4 vs. 47.0 expected

  • UK Sep. PMI Construction out at 46.7 vs. 48.1 expected and 47.7 in Aug.

  • EuroZone Aug. PPI out at +0.4% MoM as expected

  • US Sep. Change in Nonfarm Payrolls at -263k vs. -175k expected and -201k in Aug.

  • US Sep. Unemployment Rate rose to 9.8% as expected and vs. 9.7% in Aug.

  • US Sep. Average Hourly Earnings rose 0.1% MoM vs. 0.2% expected

  • US Sep. Average Weekly Hours fell to 33.0 vs. 33.1 expected and 33.1 in Aug.


THEMES TO WATCH – UPCOMING SESSION

(All times GMT)

  • US Aug. Factory Orders (1400)

  • US Fed's Fisher to Speak (2035)

  • US Treasury Secretary Geithner to hold G-7 News Conference (Sat 1530)

  • Australia Sep. AiG Performance of Service Index (2230)

Market Comments:

Equities were hammered yesterday by a combination of rather ugly data relative to expectations, news that CIT group, a large small business lender, may have to file for bankruptcy, and on Bernanke's wording about the need to rein in fiscal profligacy for the sake of preserving the USD's value. An interesting Bloomberg opinion piece by Jonathan Weil out yesterday also pointed out that a bankruptcy like that of Georgian Bank, the second largest Atlanta-based lender, suggest we are "flying blind" on how bad he situation is at many banks. The most troubling aspect of this bankruptcy? The FDIC will have to cough up 45% of the bank's assets to insure depositors - the highest percentage of the 10 largest bank failures this year. As well, this bank was not even on the Fed's list of 416 "problem" banks. Very disturbing reading and the negative noise level on the economy seems to have been increasing of late in general.

Some verbal support for the USD came late yesterday from Treasury Secretary Geithner, who said that a strong dollar is very important to the US and the rest of the world needs to believe that the Americans will be more thrifty in the future. The market is going to need an awful lot of convincing, it appears, even if Geithner said "I really mean that". Today, the Treasury announced that it will be offering up a mix of $79 billion in treasuries next week, including $20 billion in 10-year notes and $12 billion in 30-year T-bonds. Yesterday, the 10-year fell below an interesting support level in yield at 3.25%, while the t-bond dropped below 4.00% for the first time since late April. These moves supported the JPY, which blasted stronger especially vs. the high beta commodity currencies yesterday.

More support for the USD came with the risk aversion triggered by today's rather dour US employment report, which showed a worse than expected -263k jobs lost, and the unemployment rate rising to 9.8% as expected.
Further evidence of a weak jobs market came with average hourly earnings rising only 0.1% MoM and 2.5% YoY, which is the lowest rise in earnings since the 2003-04 time frame. As well, average weekly hours for those actually working dropped back to its lowest level ever measured, suggesting plenty of spare capacity.

Watch for the G-7 in Istanbul this weekend for confirmation that the forum has lost its pre-eminence to the G-20. Japnd the unemployment rate rising to 9.8% as expected. an's Finmin Fujii said that he had no plans to discuss the strong Yen at the meeting. But various individual officials may have a strong word or two to say about developments in currency markets. Geithner is to hold a press conference Saturday.

As we wait for the market to decide whether to keep up the risk aversion after today's payroll report, we keep our eyes on the 1.4450 level in EURUSD and the very interesting 985 area in the Dec. Gold future, as this is one of our favorite barometers of USD sentiment. The S&P 500 is also trading right at its 55-day moving average and EURJPY has just broken below its 200-day moving average as well at the moment. We seem to be trading at important pivot points in several risk-sensitive markets. Stay tuned for further developments.