The monthly employment report issued by payroll services company ADP suggests 170,000 new jobs were created in the U.S. for the month of January. This is somewhat lower than the 182,000 average taken from a survey of 40 economists.
Source: Reuters
February 1, 2012
January 31, 2012
Canadian Dollar Loses Steam on Weaker U.S. Outlook
After recently touching a 90-day high against its U.S. counterpart, the Canadian dollar’s advance appears to have stalled. The pause coincided with news that for the first time since last May, Canada’s economy shrank as Statistics Canada reported that the economy contracted by 0.1 percent for the month of November.
While manufacturing and several other sectors managed a gain for the month, a drop in oil and gas production more than offset the gains. November’s decline in GDP comes on the heels of a very weak gain in October making it all the more likely that the final quarter of the year will fall well below Statistics Canada projections.
Nevertheless, Statistics Canada, even after factoring in the slowing fourth quarter, still expects GDP to have expanded by 2 percent for the year.
The loonie, as the Canadian dollar is nicknamed, had earlier benefited from signs that Greece and its creditors were close to working out a deal to swap maturing debt with new debt offered at a significant discount to the bond holders. However, with confidence fading that a deal was as close as originally thought, optimism quickly waned.
After breaking through to parity last week, the loonie lost ground on Tuesday falling to C$1.0034 per U.S. dollar Tuesday afternoon. The retracement can also be linked to the latest U.S. consumer confidence update which shows a significant decline in January. The consumer confidence index fell from 65 in December to just 61 in January – a value of 90 is regarded as a healthy consumer confidence rating.
Should the weaker sentiment translate into lower U.S. consumer spending, the impact will have an immediate and negative impact on Canadian exporters who count on U.S. consumers buying 75 percent of all Canadian exports.
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January 17, 2012
Falling Consumer Prices Lifts Euro Rate Cut Speculation
A greater-than-expected decline in consumer prices in the Eurozone for the month of December has given rise to an increase in speculation for further interest rate cuts. Inflation in the 17 countries sharing the euro was 2.7 percent in December on an annual basis, revised down from an earlier estimate of 2.8 percent for the month, the European Union’s statistics office Eurostat said.
“The pressure is abating although the risks from energy are still there,” said Fabio Fois, an economist at Barclay’s Capital. “We think the ECB could bring rates as low as 0.5 percent in March,” he said.
Source: Reuters
January 6, 2012
Cross Border Dollars Temporarily Diverge
The ‘big’ dollar remains the go to currency. The market seems to be shifting away from wanting to own it solely as a risk aversion strategy, to one where the buck is being used as an investment currency while the EUR trades as the funding vehicle. Whatever the reason the currency has garnered further support after a stronger than anticipated payroll print. The dollars neighbor and largest trading partner, Canada, has lost some of its shine after its own job report saw the unemployment rate tick to an eight-month high (+7.5%). Friday was not the day to want to own this ‘growth proxy’ currency outright. The crosses have been working in its favor to at least stem its cross-border slide. Next weeks refunding requirements by Italy and Spain again will dictate all dollars direction.
Below are some other highlights of the week:
Americas
- US: ISM index rose to 53.9 in December (6 month high) from 52.7 the month prior (historical average about 51). Orders, production and employment were all up, a good sign that the US economy accelerated last quarter. Analysts note that “the data isn’t signaling a dramatic change in the hard data, which has consistently outperformed the indicators for some time”.
- USD: The FOMC minutes did not have a major impact on markets. The key new news was that the Fed will now publish Fed funds forecasts on a quarterly basis when it provides other economic projections (next round due after the January 24-25 meeting). Officials would provide forecasts for the first hike. However, with rates expected to remain near zero until the middle of 2013 is not much of a market concern.
- USD: Construction spending rose +1.2% in November after a -0.2% decline the month prior.
- USD: US factory orders grew for the first time in 3-months increasing by +1.8% in November from previous months to +$459.18b. Non-defense aircraft orders were up +73.9%; ex-transport orders up +0.3%; orders for non-defense capital goods ex-aircraft down -1.2%.
- USD: ADP saw an outsized jump in the employment report of +325k gain, far exceeding the median estimates of +178k. Historically, the print has technical issues and in the past has overshot the government by a wide margin.
- USD: Last week was the eight time in nine weeks that initial claims came in below the psychological +400k print. Claims fell by -15k to a seasonally adjusted +372k (a strong positive sign for an economic turnaround).
- CAD: Canadian producer prices (+0.2%) and the cost of raw materials (+3.8%) advanced in November ahead of market expectations, largely the result of higher fuel bills. A weak loonie also played a role in pushing industrial prices upwards.
- CAD: Purchasing activity expanded from November. The IVEY PMI was at 63.5 on a seasonally adjusted basis in December.
- USD: Crude supplies rose +2.21m barrels last week to +329.7m
- CAD: Canadian employment showed a stronger headline print (+17.5k) than consensus (+15k) in December. The unemployment rate ticked to an eight-month high of +7.5% (full-time -25.5k, part-time +43.1k). Average hourly wages +2.2%, y/y, but hours worked took a hit which is not good for GDP.
- USD: US payrolls beat all expectations, printing +200k job gains versus expectations of +155k. Even better, unemployment rate fell -0.2% to +8.5% and stronger than Novembers retreat because +176k became employed while only -50k stopped looking. In the revisions; November lost -20k, while October gained +12k, accumulating in a net loss of -8k for the two months. “Some of the strength in this report should be discounted because of an seasonal quirk in the courier category of payrolls (Fed-ex, UPS, etc). Jobs in this sector jumped 42,000 in December, repeating a pattern seen in 2009 and 2010 (see attached figure). We should see a payback in next month’s report.
December 16, 2011
Dollar to make the Turn ahead
The EUR certainly hogged most of the headline this week. It seems investors appear most bullish on the USD and JPY and overwhelmingly bearish on the EUR and AUD. US data continues to pleasantly surprise even with the Euro-zone believed to be entering or has entered its own recession. The FOMC meeting delivered no surprises. As expected, they kept policy unchanged with no mention of new communications strategies, discount rate cuts or of QE3. It was noted that key sections of the FOMC policy statement were identical to the statement issued on 2 November. With Europe under so much pressure it’s now a guessing game “when” QE3 is required!
Below are some other highlights of the week:
AMERICAS
- USD: US retail sales disappointed. Sales rose +0.2% in November, compared with the +0.6% expected. Ex-autos, sales rallied +0.2% versus +0.5%. Despite the previous months being revised a tad higher the overall print was a disappointment.
- USD: The FOMC meeting delivered no surprises. As expected, they kept policy unchanged with no mention of new communications strategies, discount rate cuts or of QE3. It was noted that key sections of the FOMC policy statement were identical to the statement issued on 2 November. With Europe under so much pressure it’s now a guessing game “when” QE3 is required!
- US: On Thursday, PPI, Empire State manufacturing and initial weekly job claims offered real encouragement on the health of the US economy.
- US: Jobless claims continue to trend lower (initial +366k, continuing claims +3.603m) and reinforce the recent generally positive tone to US data. The market remains weary that firings maybe ebbing, or is it because hiring is about to accelerate? Initial claims were at this level three and a half years-ago.
- US: Empire Manufacturing surprised higher and the details were firmer. New orders resumed growth this month; however, it’s too early to call this a “new” trend. The unfilled order backlog continues to get worked off and the reason why shipments are gaining.
- US: Wholesale prices rose slightly in November amid higher food costs, but the underlying rate of increase in PPI remained tame, indicating little inflationary pressure. PPI rose a seasonally adjusted +0.3%.
- US: Philly Manufacturing (10.3 vs. 3.6) continued to expand this month. In the details, employment stayed positive, but slowed a tad m/m. However, there were big gains in prices received, similar to the Empire report. “Optimism about the future is on the rise”.
- CAD: Canadian Capacity accelerated (81.3 vs. 79.9) to its highest level in four-years. Capacity use was closed off faster than expected in Q3 and the prior quarter was revised higher. Canada is still operating at a lower rate than its peak in 2000 (87%). Despite this, the BoC has been clear that a move toward “neutralizing rates will lag behind closing off spare capacity in part given global risks affecting the 2012 outlook”.
- USD: Consumer prices held flat in November (+0.0% vs. -0.1%) as a drop in energy costs offsets a slight rise in food prices and other items, underscoring weak demand.
- CAD: Overseas interest in Canadian assets dropped to +c$2.03b vs. +c$7.35b last.
- CAD: New Job insurance claims rose +4.2% in October, although long term jobless benefit claimants fell -1% in October and -20.3% on the year.
Yen is a Chosen One
As we round out the year there are only a few currencies that investors are gravitating towards, and one of them is the yen. The Aussie seems to have become afflicted by its strong association with China and her ‘softer’ data. The EUR is a story onto itself, a currency few are willing to handle. The Swiss has a central bank, the SNB, which investors believe they have successfully fine tuned the second guessing of both Hildebrand’s fiscal and monetary policies. The truth, even the SNB seems to be afraid of its own shadow. A “ceiling to be or not to be” is hurting the short Swiss positions at the moment. The SNB and BoJ have a tough battle ahead. Both Central banks have tried to think outside the box on how to dissuade investors from hoarding their respective currencies during times of economic stress.
Below are some other highlights of the week:
ASIA
- AUD: Housing finance unexpectedly rose (+0.7%), but the details were weak, the value of loans for investment fell -5.5%, mom, while owner-occupied home loans value fell -1.2%, mom. The trade surplus also fell to a seven-month low of +$1.6b in October. Higher beta currencies remain under pressure.
- CNY: Last weekend, Chinese data showed that their export growth fell to +13.8%, y/y, in November from +15.9%. On the flip side, import growth slowed but is still a robust +22.1% on the year. This has pushed the 12-month rolling trade surplus down to $154b from $163b in October.
- CNY: China’s President Hu over the weekend vowed to pursue a more balanced trade account with emphasis on increasing imports.
- The INR has come under pressure this morning on two news reports. The first indicated that the Indian government is backtracking from retail liberalization, and the second involved an admission from the commerce secretary that the value of exports has been overstated by slightly more than $1bn a month over the past eight months, adding to concern about the widening balance-of-payments deficit. We estimate that this cuts January-October export growth from 49%yoy to 44%yoy and increases the trade deficit by about 0.4% of GDP to about 5.4%.
- INR: India’s IP fell -5%, y/y, in October from +2%, and much lower than consensus of -0.7%. Growth is clearly slowing.
- AUD: The NAB Australia business confidence index was unchanged at 2 in November. Business conditions improved to 1 from -1, likely due to the RBA cut in November.
- PHP: Philippine exports growth rose to -14.6%, y/y, in October from -27.4%, better than the consensus forecast of -16.5%. Analysts note that the improvement in exports and seasonally strong remittance flows should support the PHP heading into year-end. Remittance flows will be missed in Q1.
- INR: Indian WPI inflation fell to 9.1%yoy in November from 9.7%yoy in October, just slightly higher than the consensus forecast of 9.0%yoy. We doubt this will be sufficient to lead the RBI to begin cutting policy rates at Friday’s policy meeting despite the sharp slowing in growth. With the trade deficit deteriorating, the rupee is likely to remain vulnerable to developments in Europe.
- CNY: The HSBC China flash PMI rose +1.3pts this month to 49 and in line with the seasonal trends. This would suggest that growth continues to slow but may not be heading into a “hard landing”.
- SGD: Retail sales rose a much higher-than-expected +8.5%, y/y, in October versus the consensus forecast of +1.3%. Analysts note that the latest government measures to cool the property markets and target slower GDP growth are likely to have an impact on inflation further down the line.
- JPY: The BoJ tankan report showed that business sentiment amongst large manufacturers fell to-4, worse than the expected-2. The effects of a high yen and a slowdown in overseas economies continue to weigh on Japanese sentiment. This is the first dip from the index into negative territory since the earthquake.
- INR: The currency is benefiting from the RBI’s measures to stem rupee weakness. Central Bankers kept rates unchanged and introduced measures to stem speculation in the INR. The tone in the policy statement has become more dovish.
- IDR: Fitch raised Indonesia’s sovereign rating to Investment Grade, moving ratings to BBB- from BB+. The market had been expecting this.
December 14, 2011
Sell EURs and Shut Your Eyes?
This month and year may be winding down, but the heat on the Euro-zone is certainly becoming more intense. Investors are trading up against some key support levels for the currency, levels that when breached could see another decent run to the downside. Historically, the risk reward of holding large positions this time of year tends not to be worth it. The aggravation and headaches of trying to comprehend some of the currency moves, which tend to be driven by lack of liquidity, year-end positioning and the turn, usually dissuades most from having larger positions. Mind you, this negative EUR run has technical ‘stamina’ and traders are required ‘to pay to play,’ otherwise we will end up talking about the ‘opportunity cost’ or the big one that got away!
All week investors have been concerned about the demand for periphery sovereign debt. This morning the market took down German and Italian product and is waiting for the Spanish issue tomorrow. The Germans sold +4.18b 2-year notes and paid the lowest yield (+0.25%) for 2-year product since the inception of the EUR. The bid-to-cover was 1.4 versus a four auction average of 1.1. The Italians on the other hand, in contrast, paid a Euro era record yield of +6.47% to sell +EUR3b five-year debt, adding to concerns that an EU summit last week had made little progress in tackling the region’s debt crisis. The country has done little to ally fears over its ability to continue to raise funds at sustainable levels. It’s estimated that they need +EUR220b’s worth of bonds next year. Tomorrow, the market has Spain to deal with, and their auction is not expected to yield any different results.
The Euro “high” returns have heralded fresh EUR sales this morning. Currently, option related bids are supporting the figure (1.30), however, further weakness cannot be ruled out with stop-loss hunting expected to be triggered below. This mornings Euro-zone factory output data disappointed, falling on the month (-0.1%) and registering its weakest annual gain in nearly two-years. Production rose +1.3%, y/y, the weakest increase in two-years and well below street estimates of +2.1%. Weakness in the Euro’s manufacturing base reinforces the regions concerns on the health of their economy. The auction results did provide some temporary EUR support, however, sustaining these gains remain a tough ask as selling strength is market preferred.
Yesterdays FOMC meeting delivered no surprises. As expected, they kept policy unchanged with no mention of new communications strategies, discount rate cuts or of QE3. It was noted that key sections of the FOMC policy statement were identical to the statement issued on 2 November. With Europe under so much pressure its now a guessing game “when” QE3 is required!
Other Links:
CAD and AUD at the mercy of Euro Rhetoric
October 25, 2011
Canadian Dollar Back to Parity with US Dollar
The Canadian dollar gained on its U.S. counterpart on news that Canadian retail sales rose more than expected in August to gain 0.5 percent for the month. The Bank of Canada is also expected to hold interest rates at 1 percent.
“We’re not expecting much from the Bank of Canada,” said Blake Jespersen, director of foreign exchange in Toronto at Bank of Montreal. “They’ll stick to the script. The bank will be somewhat of a non-event and Europe remains the focus.”
Source: Bloomberg
BoC keeps overnight rates at +1%
Some Key points in the Bank of Canada’s one page policy statement:
October 18, 2011
US Wholesale Prices Jump More Than Expected
An increase of 0.8 percent in the Producer Price Index for the month of September suggests inflationary prices in the U.S. remain a concern. Predictions for the month called for a PPI increase of only 0.2 percent but sharp hikes in the price of gasoline, food, and automobiles pushed the index much higher than expected.
“With the slowdown in global economic activity, it’s hard to make the case that prices will accelerate more meaningfully from here,” said Tom Porcelli, chief U.S. economist at RBC Capital Markets Corp. in New York, who correctly projected the increase in core prices.
Source: Bloomberg