After a period when the traders needed to focus on broad macro and political winds affecting equity and currency markets, it is now time to return to the mundane analysis of the numbers. This is not to say we will not return to the day when the debate over the size and scope of Washington government will again become contentious, but that day has been postponed.
Economics provide a snapshot of the current level of activity; however, the numbers can be confusing. Sometimes they seem to be unrelated to current events. In a market-driven economy, it takes time, perhaps a lot of time, for price to alter supply or demand.
An example might be an auto manufacturer, currently located in a high labor area like Ontario. If that manufacturer had just retooled his production facility, he may continue employing the expensive local labor, sometimes for years, rather than transferring production to a more efficient plant.
As the numbers unfold, the story is interesting, but often more complicated than we suspect. A decision made years ago may be the cause of today's change.
Since this is the first week in the month, it is time for the unemployment numbers. In Spain, the unemployment number continued to grow, but slightly less than expected. As anticipated, the German unemployment rate remained unchanged at 6.9%. With Spanish unemployment above 25%, how long will the Spanish tolerate the austerity Germany dictates?
In the U.S., there were mixed reports today. The U.S. ADP Employment Change showed there were 215K private sector jobs created last month. This is a good number, well above the anticipated 140K. The ADP report, while interesting, is usually not a precursor for the U.S. government's Non-Farm Payroll Report. The ADP numbers cover the private sector only, unlike the NFP.
On Friday, the NFP will be released, anticipated to show 152K new jobs. In recent months, a large percentage of the new jobs have been in the government. The total U.S. unemployment rate is expected to remain unchanged at 7.7%.
Earlier today, the U.S. Initial Jobless Claims number came in at 372K. This is the highest it has been since the last week of November. Later today, the latest Fed Open Market Committee Meeting Notes will be announced.
Yesterday, we noted it appeared to us the rally in the EURUSD (FXE, UUP) had stalled, and a retreat to the 1.3120 area might be expected. We got this partially correct, as the pair sold off, but by more than we expected. With the 1.31 handle now violated, where is the next support? NFP report days can often result in unexpected volatility. We intend to wait for the number, and will consider selling the market on a rally to 1.32, or buying a sell-off to the 1.30 handle. As always, manage your money.