January Non Farm Payroll Updates
The US Non Farm Payrolls must be close, obvious from the fact that the forex currency markets have almost gone to sleep. Most of the majors have drifted a little lower v/s the USD but little is the operative word with ranges modest. There were bits and pieces of data that prompted some small movements – China’s nonmanufacturing PMI a case in point with the ~3.0% drop in the index to 52.9 pushing EUR/USD 15 pips lower to $1.3114 and AUD/USD 30 pips lower to 1.0675. EUR/USD has made a better attempt at recovering and is $1.3130 although AUD/USD is back near the lows. USD/JPY has drifted higher to 76.15-20 and USD/CAD has never been more than 15 pips either side of parity. S&P futures are -0.2% and USTs are ~0.5 bps cheaper.
The day ahead:
the North American employment double header kicks off in Canada. We are looking for a firmer set of numbers than consensus – a 30,000 rise in employment and 0.1% fall to 7.4% in the unemployment rate (vs. cons: 22,000 / 7.5%). This is in contrast to our non-farm payrolls ‘guess’ where we expect a 130,000 rise in payrolls (cons: 150,000) and a 0.1% rise in the unemployment rate to 8.6% (cons: 8.5%). Part of the weakness is expected to come from the well-flagged jump in December courier hiring washing out of January’s numbers but we also expect weakness in traditional retail to push employment in that sector lower. The nonmanufacturing ISM (cons: 53.2 from 53.0) and UK services PMI (cons: 53.3 from 54.0) are also due, as are the revised Eurozone services PMIs. In Europe, there are few major scheduled events (there is a meeting of EU competitiveness ministers) but you would be brave to bet against a headline of “Greek PSI deal almost finalised” (or similar) appearing.
USD/JPY: Rhetoric has stepped up a little. FinMin Azumi overnight warned that his government would take “firm steps” against speculative, one-sided FX moves given they are “strongly concerned” that the current level of JPY does not reflect economic fundamentals. Separately, Economic Minister Furukawa told the Nikkei that the BoJ needs to think about ways to slow JPY appreciation. USD/JPY did not react to either set of comments. The MoF know that they will be fighting against the influence of lower treasury yields. The success of any actions will, therefore, be undermined if there is more Fed QE – so this could put them off. Indeed, it could be argued the need for intervention is more intense today than was the case 3 months ago .because EUR/JPY is about 7.0% more expensive than it was when the BoJ last made its presence felt. But, we have to remind our clients that JPY volatility has fallen sharply since the last bout of intervention, which will make further intervention VERY difficult to justify.
GBP: The NIESR released forecasts for the UK overnight. It expects a contraction of 0.1% in 2012 but a recovery of 2.3% in 2013 with the unemployment rate set to rise to 9.1% and inflation likely to fall to 2.2% in 2012. Today’s service sector PMI will give some clue as to how Q1 is unfolding though it should be noted that the PMIs were suggesting firmer growth than the -0.2% q/q initial Q4 GDP estimate. EUR/GBP is back from 0.8330 to 0.8300-05.
CHF: SNB acting chairman Jordan reiterated in an interview with the FT that the SNB remains prepared to buy unlimited quantities of FX to defend the 1.20 EUR/CHF floor. EUR/CHF moved from 1.2040 to 1.2054.
USD/CAD: If we do indeed see stronger Canadian and weaker US employment data, we are within ‘spitting’ distance of the 0.9964 low in USD/CAD and the 38% fibonacci level of 1.3110 in EUR/CAD.
AUD & NZD: The antipodeans are the worst overnight performers with AUD/USD retreating beneath hourly support of 1.0680 and NZD/USD slipping beneath support at 0.8310.
