Straightforward Risk On After Upbeat ADP

Markets built higher US employment expectations after Thursdays ADP report easily surpassed expectations. Commodity currencies led the market with JPY and CHF trailing in a classic risk on move. Asia-Pacific trading will mostly be quiet but Japan releases a number of national accounts indicators at 2350 GMT.

The ECB met expectations by hiking rates a quarter point to 1.50%, noted inflation risks to the upside, something officials will monitor very closely, code words that mean further tightening is likely in the months ahead. The real surprise was a move by the ECB to temporarily suspend minimum credit rating requirements on Portuguese debt. This allows banks to continue to hold it as collateral.

EUR/USD was volatile. It plunged to 1.4222 after the ECB decision but hawkish comments from Trichet and the Portuguese ratings move sent it to a session high of 1.4367. The daily chart traced out a bullish hammer reversal.

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The ADP employment report boosted sentiment as it climbed to +157K from +36K in May. Its a number that suggests Fridays non-farm payrolls around 170K but we should warn that the standard deviation from NFP is 96K. The NFP consensus reads 89K but its clear that the market has built in expectations for something around 125K.

Markets gained further after S&P upgraded its outlook on California to stable from negative. Initial jobless claims were a non-factor at 418K versus 420K exp.

The S&P 500 gained 1% to close at 1353. Its the highest close since May 10. Crude closed in on $100 with WTI rallying $2 to $98.78. Copper gained 2% but precious metals were relatively unchanged (gold closed at $1532)

Asia-Pacific Preview

Japan releases data on bank lending, money supply and national accounts at 2350 GMT but the only one likely to have any effect will be the current account, which is expected to slip to 190B in May from 550B in April. A deficit may cause some hand wrangling in political circles but JPY is unlikely to make much of a move