Daily Analysis for Monday, Aug 6th
All Eyes on the US Job Report | |
| Trichet announced yesterday that 'strong vigilance' still is needed in Europe, suggesting that we will see a hike in September. Stay alert today at 12:30GMT for the US job report - NFP is key! | |
MAJOR HEADLINES – PREVIOUS SESSION
- NO Unemployment Rate (JUL) out at 2.1%, while 2.0% expected, 1.8% prior.
- EC Euro-Zone PPI MoM/YoY (JUN) out at 0.1%/2.3%, while 0.3%/2.3% expected, 0.3%/2.3% prior.
- UK Interest Rates (AUG) out at 5.75%, while 5.75% expected, 5.75% prior.
- ECB Interest Rates (AUG) out at 4.00%, while 4.00% expected, 4.00% prior.
- US Initial Jobless Claims (JUL) out at 307K, while 310K expected, 301K prior.
- US Continuing Claims (JUL) out at 2525K, while 2548K expected, 2545K prior.
- US Factory Orders (JUN) out at 0.6%, while 1.0% expected, -0.5% prior.
- US EIA Natural Gas Storage Change (JUL) out at 77, while 74 expected, 71 prior.
- AU AiG Performance of Services Index (JUL) out at 56.0, while 54.9 prior.
- AU TD Securities Inflation MoM/YoY (JUL) out at 0.6%/3.0%, while 0.2%/2.6% prior.
- SZ CPI MoM/YoY (JUL) out at -0.6%/0.7%, while -0.6%/0.7% expected, 0.1%/0.6% prior.
- E-Z Retail Sales MoM/YoY (JUN) out at 0.4%/0.9% vs. 0.8%/1.4% expected. Prior figures revised to -0.7%/0.1% (from -0.5%/0.4%)
THEMES TO WATCH – UPCOMING SESSION
The return of carry trades and USD weakness?
In the recent week the major ongoing theme has been credit market turmoil and risk aversion, hurting especially the carry trades and emerging markets. Majors have been relatively stable despite the fact that US figures have disppointed more or less across the board. One thing to keep in mind though, was that the pending home sales printet better-than-forecasted figures, suggesting that we may see a temporary relief in the fragile housing market. Of course the focus point of this week is today's July job report, where the change in the nonfarm payrolls is the key thing to watch for. The ADP report - the proxy for the nonfarm figure - revealed on Wednesday a figure of 48K, which is far lower than the survey, conducted by Bloomberg, suggesting a figure of 127K. Estimates ranges from 60K-178K and we are expecting a number lower than consensus, giving another confirmation that the USD should weaken from here , is the fact that the labor market also shows weakening signs, relieving pressure on inflation. On Tuesday, we saw the monthly PCE Core figures coming out a tad weaker than forecasted supporting the Fed's expectations that it will fall gradually towards their comfort zone at around 2 pct.
In Europe, the ECB kept rates at 4.00 pct. as expected but signaled once again the need for 'strong vigilance', suggesting that we will see a rate hike in September. UK's benchmark rate was also kept at 5.75 pct. as expected, but we continue to favor the GBP as the fundamental data (eg. this weeks mortgage approvals) still suggests further inflationary pressure. We expect the possibility of going to 6.0 pct. as very high.
The JPY has, as one of the more riskier currencies, been subject to big movements, but the fundamental data still does not support a rate hike in Japan (next meeting is at the 23th. of August). The JPY (or carry trades in general) strengthened considerably as credit market jitters gave rise to a reduction and profit taking of risky assets. However, the real unwinding has not begun and we do not see initiating beginning prior to the Bank of Japan will commence their rate hiking cycle. The APEC meeting in during the week did signal that more flexibilty is needed in currencies to reduce imbalances in the global economy and Japan should continue reforms with regards to fiscal consolidation.
From a trading point of view, we are expecting EURUSD to test 1.3770 if the US job report is below expectations, but otherwise, we expect the range 1.3610-1.3710 to be in play. GBPUSD have further upside if 2.0379 is broken for a test for 2.05 to the upside. To the downside 2.0160 is short term key support.
With regards to JPY-crosses 117.60 is key support in USDJPY, and 119.50 is key resistance and short term rapid movements cannot be excluded.
Overnight News Bullets
-
UK PMI Services July, out at 57.0 vs 57.5 exp.
- UK Official Reserves (changes) July, out at $503M vs a prior reading of -$90M.
- US Change in Non Farm Payrolls July, out at 92K vs 127K exp.
- US Unemployment rate July, out at 4.6% vs 4.5% exp.
- US Change in Manufact. Payrolls July, out at -2K vs -15K exp.
- US Average Hourly Earnings July, out at 0.3% in line with exp. YoY out at 3.9% vs 3.8%.
- US ISM Non-Manufacturing July, out at 55.8 vs 59.0 exp.
- CA Ivey Purchasing Managers Index July, out at 54.6 vs 57.0 exp.
- NZ Labor Cost All Wages Priv QoQ, Q2 out at 0.8% vs 0.7 exp.
- NZ Labor Cost Private Sector QoQ, out at 0.7% in line with exp.
- JN Leading Eonomic Index June, out at 80.0% in line with exp.
- JN Coincident Index June, out at 77.8% in line with exp.
UK PMI Services July, out at 57.0 vs 57.5 exp.
Market
- FX: JPY very strong in Asia, with the dollar continuing weaker on back of Friday's data.
O/N Data Heat map:
| EU | US | JP | UK | SZ | AU | CA | NZ | NO | SE | FR |
| 0 | - | 0 | - | 0 | 0 | - | + | 0 | 0 | 0 |
Calendar
Today's Highlights:
| Time (GMT) | Region | Release | Consensus |
| 08:00 | NO | Unemployment rate AKU (JUL) | 2.6% |
| 08:30 | UK | Industrial Production MoM/YoY (JUN) | 0.1% / 0.8% |
| 08:30 | UK | Manufacturing Production MoM/YoY (JUN) | 0.2% / 1.0% |
| 10:00 | GE | Factory Orders MoM/YoY (JUN) | -0.6% / 10.5% |
| 23:01 | UK | NIESR GDP Estimate (JUL) | Prior 0.7% |
| 23:01 | UK | BRC Retail Sales Monitor (JUL) |
|
This and Next Week’s Highlights:
| Date | Region | Release |
| 7 Aug | NZ | ANZ Commodity Price |
| 7 Aug | SW | Budget Balance, String of CPI’s |
| 7 Aug | NO | Industrial Production, Industrial Production Manufacturing |
| 7 Aug | GE | Industrial Production |
| 7 Aug | JN | Machine Orders, Money Supply M2, Broad Liquidity, Bank Lending incl Trusts, Bank Lending Banks ex-Trust |
| 7 Aug | US | Nonfarm Productivity Unit Labor Costs, Fed's Open Market Committee Meets on Interest Rates, FOMC Rate Decision, Consumer Credit, ABC Consumer Confidence |
| 8 Aug | AU | House Price Index, Home Loans, House Price Index, Investment Lending, Foreign Reserves |
| 8 Aug | FR | Trade Balance |
| 8 Aug | GE | Trade Balance, Current Account, Imports, Exports |
| 8 Aug | JN | Eco Watchers Survey: Current, Eco Watchers Survey: Outlook, Machine Tool Orders, Net Stocks Investment, Net Bonds Investment |
| 8 Aug | NZ | Unemployment Rate, Employment Change |
| 8 Aug | SZ | Unemployment Rate |
| 8 Aug | UK | Bank of England Quarterly Inflation Report |
| 8 Aug | US | MBA Mortgage Applications, Wholesale Inventories, DOE U.S. Crude Oil Inventories |
What's going on?
-
The USD was taking a big beating in the late hours Friday with EURUSD now about to make new highs and USDJPY now trading below 118. Key support at 115.60.
- The market will probably not pay much attention to today’s figures. We expect the bearish events to pick up steam today. Treasuries should be supported and the USD should continue to weaken with risky/high-yielding currencies.
FX
| EUR | USD | JPY | GBP | CHF | AUD | CAD | NZD | NOK | SEK | PLN |
| + | - | + | + | + | 0 | + | - | + | 0 | 0 |
FX Trading Strategies
| Pair | Supp. | Resis. | Comments |
| GBPUSD | 2.0400 | 2.0472 | Cable made a strong reversal Friday on back of a weaker dollar. The pair has some wood to chop in the 2.0460-2.0470 area which is the highs from Aug along with 38% retracement (from 2.0653-2.0180). Buy the break of 2.0475 target left open, but 2.0700 shold be confirmed with a break. Stop at 2.0450 offer. |
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