The US $ is lower in the O/N trading session. Currently it is weaker against 9 of the 16 most actively traded currencies, in a ‘subdued’ trading range. Yesterday, the ADP employment report showed an increase in private payrolls of + 106k for Mar. (market expectations of +135k) from an upward revision of +65k in Feb. Initial expectation for Friday’s NFP number is +135k. A handful of analysts believe that weather related factors might lead to extreme volatility for last months data. The US Non-Man. ISM index fell to 52.4 in Mar. vs. 54.3 for Feb. The breakdown of the report shows a modest decline in the new orders component (down to 53.8 vs. 54.8). The employment component also declined in Mar., as the sub-index eased to 50.8 from 52.2 in Feb. Maybe be an indicator for a surprise NFP number. The prices paid component rose to 63.3 vs. 53.8, probably justifying the recent Fed rhetoric. Traders are turning their focus to Fridays NFP data.
The US $ currently is trading lower against EUR +0.03%, CHF -0.02% and unchanged against GBP 0.00% and JPY 0.00%. The commodity currencies are stronger and the overall sentiment remains positive, AUD +0.03% and CAD -0.03%. Yesterday, the sharp contraction in the Canadian building permits data has not done the ‘loonie’ any short term favors (-22.4% vs. -8.4%). Traders wait for this mornings employment reports for further guidance. The short term fundamentals support the currency and investors continue to look for better levels to purchase the CAD$. The AUD$ rose to the strongest in more than a decade against the ‘greenback’ and the ‘yen’ as the price of metals continue to surge. Strong fundamentals supports a further rate hike (6.25%) and traders see a lot more room to the upside as the ‘interest differential debate continues’.
Crude is little changed ($64.59 up +21c) O/N. Oil continues to remain range bound after Iranian President Ahmadinejad said that the British naval personnel seized 13 days ago in the waters separating Iran and Iraq were pardoned as a ‘gift’ to the British. EIA reported yesterday that crude supplies surged 4.31m barrels to 332.7m last week (+500k was expected). Gas stockpiles fell 5.03m barrels to 205.2m (a drop of -150k was expected). Year to date supplies have slipped 9.7%, and refineries are operating at 87% of capacity. Gold ($678) rises O/N. Gold rose as traders speculate that a decline in the US$ will increase the appeal of ‘yellow’ metal as an alternative to the currency. Trader’s ‘short’ positions have technically been squeezed out in the past 24h adding a further bid tone to the commodity.
The Nikkei closed at 17,491 down -52. The DAX index in Europe was up +2 points at 7,076; the FTSE (UK) currently is 6,364, -1 point. The early call for the open of key US indices is lower. Yields of the US 10-year bond fell 2bp yesterday (4.63%) and are little changed O/N. Treasuries rose after industry reports on employment growth and service industries were weaker than forecasted yesterday. Traders seem to be setting up for a downside surprise in payrolls.
This morning UK factory production unexpectedly fell the most in more than a year for Feb. (-0.6% vs. -0.3%), led by a decline in transport equipment (a sign that manufacturing will most likely struggle affecting this years growth prospects). The BOE had seen the report before today’s rate announcement. This data is a good reason to take a pause on interest rates (5.25%). Traders have pared back their CBL positions (1.9737), and futures trading suggest there will one more rate ‘hike’ this quarter. The implied yield for June futures is currently 5.77%.
The Carry Trade is firmly back in play after the recent global equity meltdown. Investors risk appetite has returned. Higher yielding currencies are benefiting while the historical funding ones continue to under-perform (JPY, CHF). South Africa's rand continues to gain as rising global stock markets prompt investors to switch to higher yielding assets. The currency is the best performer versus the US$, the rand has gained as much as 0.4% percent to 7.149, its strongest since late Feb.
The ‘greenback’ continues to under-perform vs. EUR and JPY as signs of a US economic slowdown increase the likelihood that the Fed will ‘cut’ borrowing costs in the 3rd Q. recent fundamentals point to a slowdown in the economy, and traders are playing futures anticipating an ‘ease’. Analysts believed that any positive resolution to the recent Iran situation would be more positive for the US$, currently this has failed to materialize or the markets are more focused on tomorrows job data. People don't want to put big positions on before the payroll as it’s a holiday shortened day globally. It seems that the FI market is setting up for a downward surprise to the data.
On Tap:
7:00 am CAD Employment Change 12.0k vs. 14.2k
7:00 am CAD Unemployment Rate 6.1% vs. 6.1%
7:00 am GBP Interest Rate Statement 5.25% vs. 5.25%
8:30 am USD Unemployment Claims 314k vs. 308k
10:00 am CAD Ivey PMI 61.0 vs. 60.5
7:01 pm GBP NIESR GDP Estimate 0.5%
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