Forex Market Outlook 11/4/11
Today is "jobs Friday" as we are awaiting the Non-Farm Payrolls report which is expected to show that the economy added 100K jobs, 125K in the private sector and the unemployment rate to remain steady at 9.1%. These are hardly attractive numbers, yet anything remotely close to these will be seen as positive by the markets.
What might be a decent (but unfortunate) prognostication of our jobs figures is the Canadian employment report that came out earlier this morning. Canada produced dismal numbers, showing that they lost 54K jobs when they were expected to have added 15K, and the unemployment rate moved higher to 7.3% vs. an expected 7.1%. This is certainly not good at a time when global recession fears are increasing. Take a look at the chart of the day to see how the market reacted to the Loonie.
The only positive about "jobs Friday" is that it momentarily takes our attention away from the Euro zone debacle. Yesterday as I noted in an update, new ECB chief Draghi reduced interest rates by 25bp in his first official act, preferring to battle economic woes through rate policy rather than quantitative easing.
However it was his speech following the announcement that caused the Euro to tank as he said that the Euro was definitely facing a "mild recession" which could be construed that he sees big problems on the horizon. This assertion could be confirmed by the release of Euro zone PMI figures that all came in lower than expected. In addition Germany, the stalwart economy of the Euro zone, showed that factory orders fell 4.3% vs. an expectation of a gain of .1%. This pushed the YoY figure down to 2.4% from an expected 7.5%. That's a pretty big miss.
This sentiment is also not lost on the RBA in Australia, who just reduced their growth targets after lowering interest rates earlier this week.
While the economic landscape may be deteriorating, the G-20 is doing its part to hold things together. The undressing of Papandreou caused him to back away from the referendum on the debt deal, but he and his government still face the confidence vote later today. There is all kinds of speculation about what may occur, from his resignation regardless of vote to a new transitory coalition being formed.
One thing though that is certain after all of this political quagmire: Greece does not want to leave the Euro zone. While I have been calling his moves "idiotic" over the past few days, they may turn out to be pretty shrewd after all is said and done. While the game of chicken he played was rather crazy, he essentially is making Greeks decide what it is they really want. While no one over there likes the austerity that is required to remain in the Euro zone, the alternative is far worse. It probably would have been better though had he given EU leaders advance notice of his intentions.
**Update** Non-Farm Payrolls just came in showing a gain of 80K, 104K in the private sector but the unemployment rate ticked lower to 9%. The market is reacting somewhat favorably to these figures as I mentioned that it just needed to be close this morning. Whether or not this is enough to sustain a rally into the close is another story entirely.
For it may be difficult to take risk into the weekend ahead of the Greek confidence vote as the scenario is unlikely and even if Papandreou wins, there's no telling what may happen over the weekend, including his resignation.
With a recent weak Dollar and interest rate reductions around the globe, inflation fears are starting to increase. Gold shot up yesterday on the Euro rate reduction and may be invoking some of its inflationary hedge properties rather than its risk vehicle status.
With the overhang of risk in the markets emanating from both the Euro debt crisis and the US debt debate, my opinion is that markets are trading lower on fear alone. With the flush of cash moving around the globe, we would be a lot higher if not for these crises.
The US debt commission has largely escaped notice but lets not forget that they have a dead-line of roughly two weeks to get a deal done and if they can't come to an agreement, automatic cuts kick in and another potential credit downgrade could be forthcoming.
So my bias is definitely to the upside, though I will proceed cautiously as one never knows what politicians may do. If you don't believe me, look no further than Greece.
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