By Dean Popplewell
NFP, you cannot disappoint us, especially after yesterday’s run of U.S. data being well received. Euro asset classes so far this morning remain little changed as investors remain cautious ahead of the granddaddy of U.S. reports - employment. It was only yesterday that stronger U.S. economic data happened to give a directionless market somewhere to go. Previously, traders had been staring into the abyss, held directionless by Sandy and the lack of Wall Street participation. Now that the market has come back on line, the single unit has found a few more reasons to falter. So far, better U.S. consumer confidence numbers, an expanding manufacturing sector and a positive ADP headline print has give a sector of the viewing trader gallery more confidence ahead of the key payroll report.
Market consensus has settled on another subdued +125k rise in payrolls, very much consistent with the pace of the last six-months. The softness in U.S. durable goods orders, improvement in productivity, and weakness in earning is expected to support this soft streak further. However, yesterday’s ADP release suggests some upside risk to that estimate. Some analysts remain wary that the new improved ADP survey methodology still is not seen as an accurate predictor for NFP. It has been suggested that the revised ADP has an average absolute miss of +/-47k since the recession. Do not be surprised to see an uptick in revision for the unemployment rate, back to +7.9% from 7.8%. Traders should expect a consensus, or an improvement on consensus to be supportive for risk sentiment.
Heading North, across the U.S. border and into Canada, it too has its own employment reports to deal with this morning. Will it be more good news for the loonie? Traders are waiting for the October report. Market consensus expects a +10k headline number, accompanied by an unchanged +7.4% unemployment rate. Governor Carney’s hawkish rhetoric in last week’s policy guidance suggests that the data could end up having a limited loonie impact in the presence of a stronger-than-expected print. A weaker reading and traders can prepare for the worse, a currency eying parity again.
The eurozone manufacturing PMI remains well below the expansion 50 print watermark (45.4 vs. 46.1, m/m), indicating that contraction in the manufacturing sector continues. Euro activity has shrunk for the fifteenth consecutive month in October, as exports weakened, indicating that the region has deteriorated at the start of Q4. Of note, Germany the anchor of Europe saw its manufacturing PMI confirmed with 46 better than the flash estimate of 45.7, but worse than the September print of 47.4. These prints come as no surprise, with little in the way of stimulus and a continent focusing on fiscal austerity can only choking progression for now. The market is looking at the ECB for further cuts to help.
This EUR leakage has seen this week’s previous EUR longs stop and reverse levels triggered below 1.29. The Bulls have become Bears and are short after losing for being long the single unit for most of this week. The overall scope is for further losses down towards 1.2825-30, the 30-day lower Bollinger band. Through that level and we could see acceleration. Today’s high, around 1.2945-55, should continue to weigh in the short term. Above here and the intraday Bears will have it wrong again!