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The “Calm” Before the Storm!
By Mike Conlon | April 1, 2010
Today will be an interesting day for the markets as the US stock market is closed tomorrow for Good Friday. Traders may be positioning themselves ahead of the Non Farm Payrolls number due out tomorrow, which is expected to show a gain of 184K jobs vs. a loss of 36K last month. As I have mentioned ad nauseum, this number is of extreme importance as the market will use this figure to determine whether the US is beginning economic expansion, or still in decline.
In other regions, the Pound is higher on better than expected UK manufacturing numbers, and the New Zealand dollar is lower after an IMF report stated that the Kiwi was “over-valued”.
Today we are expecting the US ISM manufacturing number, which will signal how far along we are in economic recovery.
In the forex market:
Aussie (AUD): The Aussie is higher this morning on renewed optimism over global recovery and risk-taking despite the fact that the trade deficit widened more than expected. Also adding to pressure on the Aussie was that manufacturing growth slowed last month, which may further contribute to sentiment that the RBA may hold on rates next week. However with oil above $84 a barrel, there is no doubt that commodity inflation is picking up. Futures and swaps are showing a 65% chance that the RBA will raise rates next week, though that figure is bound to change after NFP tomorrow.
Kiwi (NZD): The Kiwi is lower this morning despite risk appetite after an IMF report that reported that the Kiwi may be overvalued by “10-25%”. They also said that New Zealand should make spending cuts to return to economic surplus sooner. However it should be noted that part of this assessment was based upon an assumption that the US may tighten, which unfortunately may be economic fantasy.
Loonie (CAD): The Loonie is screaming this morning with oil above $84 a barrel and NFP on tap. The Loonie is only 100 pips away from parity with USD, and could get there tomorrow with a good NFP reading. No other news out of Canada. And frankly the Bank of Canada is happy for that.
Euro (EUR): The Euro is mixed this morning as German retail sales figures came in worse than expected in a sign that the Euro zone’s strongest economy may be weakening. In addition, the “rescue plan” for Greece appears to not be working as its primary function was to reduce Greece’s borrowing costs which as of today, is not happening.
Pound (GBP): The Pound keeps trucking along as signs are showing that the UK economy is improving. The UK Factory Index rose to a 15-year high as exports improved dramatically, no doubt in part of recent Pound weakness. In addition, the conservative party is increasing its lead at the election polls which many believe will bring the UK back to fiscal responsibility.
Dollar (USD): The Dollar is lower today as risk appetite is higher going into the 10 AM ISM Manufacturing number and in advance of tomorrow’s NFP. Should the number come in above analyst expectations of 184K, then we could see some major risk-taking (dollar weakness). If the number comes in positive but below analyst expectations, then we could see some mild-risk taking (mixed dollar). Should the number come in negative, we could see some MAJOR risk-aversion (dollar strength). Part of the problem is that the stock market is closed tomorrow and won’t reopen until Monday. A bad reaction could push equity futures lower over the weekend which could in turn cause a lower (much) open on Monday. So that is the basic scenario. However, with oil above $84 and possibly going higher, commodity inflation may force the Fed to move on rates sooner than later which could cause some dollar strength. Regardless of which way the number goes, expect to see some major movement.
Yen (JPY): The Yen is mostly lower today as the Japanese Tankan index sentiment rose to its highest levels since 2008. This index represents manufacturing confidence as exports have been stronger than expected. So the familiar story of Japanese stocks up, yen down as investors seek yield through carry trades is in full effect.
Tomorrow’s NFP is a unique situation for a couple of reasons. With stock markets closed for Good Friday, and the number expected to be positive for the first time in who knows how long (sorry too lazy to look up—but you get the idea) this could be THE pivot point in world markets.
Now I’m not trying to be Debbie Downer here, but my experience in the markets has taught me that sometimes when things look too rosy in the markets, that just might be the case. This situation could set up to be the “perfect storm” if the numbers don’t come in as expected. I feel like there might be not enough pessimism in the marketplace despite all of the inherent risks facing the market.
March can be a tricky month for stocks, and we’ve seen some of the more spectacular moves down occur (2008, 2009 come to mind). In addition, today is April Fool’s Day which brings out my superstitious nature. Now I’m not saying that the NFP number will be bad tomorrow, however I’ll be sitting this one out and content to let the market do what it does.
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Topics: What To Look At In The Market | 1 Comment »
April 2nd, 2010 at 2:58 am
Are you sure about these sentences ?
“Should the number come in above analyst expectations of 184K, then we could see some major risk-taking (dollar weakness). If the number comes in positive but below analyst expectations, then we could see some mild-risk taking (mixed dollar). Should the number come in negative, we could see some MAJOR risk-aversion (dollar strength)”
As I checked, I think a number above +184k would cause dollar to strengthen!!
please look at the previous numbers and market reactions to these numbers.