Intraday Market Thoughts Archives

US NFP rose 200K in Dec, posting their 15th consecutive monthly increase. Private payrolls rose 212K to post their 22nd straight month rise. The unemployment rate dropped to 8.5% to post its lowest level since Feb 2009. The overwhelmingly USD-favourable news maintained the greenback on the upside, especially as equities moved lower, erasing all of their post-data gains. Reporters have attributed the pullback to renewed Ezone debt concerns but that is not necessarily accurate, as markets have already witnessed such pattern (not exactly typical), whereby across-theboard strength in US jobs boosts the USD along w/ equities, until the US currency holds out for commodities and equities to take the risk trade lower. We saw this in July 2009 and Dec 2009 when US Nov jobs similarly showed an unexpectedly low unemp rate and higher than exp increase in payrolls. Equities may be attempting to regain the mornings highs but the USD has other plans against all major currencies, particularly euro, which is now testing 1.27 and enters what could be its 3rd monthly decline, the longest losing streak since summer 2010. THURSDAYs Premium trades saw 2 trades hit all targets, 3 remained unfilled, 3 in progress and both oil shorts stopped out. View, which remained unfilled, and which are in progress here: http://ashraflaidi.com/products/sub01/access/?a=578 Nonsubscribers can click here: http://ashraflaidi.com/products/sub01/access/?a=578

AL

German factory orders fell; Eurozone retail sales declined; Swiss deflation intensifies; Canadian labor data mixed. Market turns to NFP, unemployment rate and hourly earnings.

The greenback is little changed as traders await the NFP report. Major European equity indices are higher by about 0.2% to 0.5%.

EURUSD is steady despite German factory orders that fell 4.8% in November after surging 5% in October. Other data does not provide a reason for optimism either - Eurozone retail sales declined -0.8% in November after they grew 0.1% in October. The annual figure worsened considerably as it declined -2.5% from previous -0.7%. The unemployment rate remained steady at 10.3%. EURUSD trades right below the 1.28 figure.

Swiss CPI declined -0.2% in December after a decline of the same magnitude in November which translates to a deflation of -0.7% y/y, more intense than previous -0.5%. Worsening deflationary pressures should underpin EURCHF but the pair trades lower around 1.2175.

Canadian net change in employment during December was 17.5K (exp. 17.8K) after a surprising -18.6K decline seen in November. The unemployment rate ticked higher to 7.5% from previous 7.4%.

In other news, banks deposited a new record amount EUR 455 bln to ECB overnight deposit facility as risk off sentiment continues to dominate the markets. Italian 10 year yield reached to 7.15% with 10 year Italian-German spread at 524 bps. There is no sovereign bond issuance today.

The NY session will bring eagerly awaited December NFP report at 8:30 am ET that is expected to improve to 152K from previous 120K. The unemployment rate is seen marginally higher at 8.7% after falling rapidly to 8.6% in November. Hourly earnings should rise 0.2% after falling 0.1%.

Considering the recent fundamental improvement (ISM and PMI indices, consumer confidence etc.) and yesterday's strong ADP report the likelihood of a solid print is high. However, given the high expectations, it is possible that a print in line with expectations could be seen as disappointing and therefore bad for the USD.

Market volatility could also increase at 9:00 am, 12:40 pm and at 1:00 pm when FOMC members Dudley, Duke and Raskin deliver speeches at various economic forums.

Eurozone retail sales and jobs data awaited, Swiss deflationary pressures expected to remain a concern, German factory orders risk further declines. US payrolls under focus after record ADP rise.

The uncertainty playing out across Europe in recent months has not unsurprisingly seen consumers keeping their hands firmly in their pockets, a fact borne out by yesterdays preliminary German retail sales plunging by 0.9% in November, against an expectation of a rise of 0.2%. Thursday's premium trades are in progress.

Today November Eurozone retail sales unlikely to fare better, with expectations of a slide of 0.4%, with the yearly figure expected to show a slide of 0.9%.

The November unemployment rate isnt expected to improve either, staying at 10.3%, and with December economic confidence figures all expected to remain low this morning, confidence in Europe is unlikely to improve anytime soon.

Swiss CPI for December is expected to show further deflationary pressure with a decline of 0.1%, translating to a 0.6% decline year on year. A continued decline in prices would place SNB under further scrutiny with respect to its policy on the peg, and given the damage to SNBs Hildebrands reputation by his wifes scandal of taking advantage of ultra cheap FX rates, markets may see this as an opportunity to test the SNBs mettle on this policy.

German factory orders for November are expected to reverse some of their sharp rise in October of 5.2%, with a decline of 1.6% expected.

In the US the main focus will be on todays December non-farm payrolls data after yesterdays surprise blow-out ADP number which came out at a record 325k. It remains to be seen if todays non-farm payrolls data will be similarly good, but expectations have been raised, with minimum expectations of 150k from Novembers 120k.

The details of Thursday’s Premium trades on EURUSD, USDCAD, AUDUSD, Gold, US crude is found here: http://ashraflaidi.com/products/sub01/access/?a=578 Nonsubscribers can click here: http://ashraflaidi.com/products/sub01/access/?a=578

Todays ISM show US PMIs the only G10 nation to avoid contraction in this business index. Just as the cacophony of 1.0 correlations was uttered by most market players, the daily correlation between EURUSD and S&P500 falls near from as high as 0.79 in May. In fact, the last 3 weeks have seen the DAILY correlation between EURUSD and S&P500 turn NEGATIVE. This can be seen with the naked eye by charting both assets. Since late November, we mentioned the falling correlation between EURUSD & equities, signalling that euro is no longer a reflection (or a follower) of risk appetite-- a relationship, it pursued over most of the last 4 years. Direct access to today's Premium piece http://ashraflaidi.com/products/sub01/access/?a=578 Nonsubscribers can click here: http://ashraflaidi.com/products/sub01/access/?a=578

AL

German retail sales dropped; Eurozone industrial orders rose and PPI declined; UK PMI hit 5-month high; French bond auction saw lower bid to cover ratios. Market turns to ADP, jobless claims and ISM non-manufacturing. Canadian data will include RMPI and Ivey PMI. Ashrafs Thursday Intermarket Insights will be posted at the open of the US stocks session.

The greenback is higher against all majors in the ongoing session. The biggest relative strength losers are NZD and AUD. Major European equity indices are lower by 1% to 2.1%.

EURUSD fell sharply after German retail sales declined -0.9% in November from previous -0.2% which is considerably below market expectations of 0.2% growth. Eurozone industrial orders that rose 1.8% in October after declining -6.4% in September (1.6% y/y) were not able to stop common currency's decline as it slid to a low at 1.2830. Eurozone November PPI declined to 5.3% from 5.5% y/y indicating that even consumer inflation should continue to slow and come closer to ECB's 2% target.

UK PMI services rose to a five months high at 54.0 in December from 52.1 which is significantly above expectations of 51.6. The business expectations component fell to 63.5 from 67.4 but activity and new work both increased at the fastest pace since July. The improvement in both manufacturing and services PMI reduces the probability of an increase of the Asset Purchase Facility. The MPC meets next Thursday. EURGBP dropped to 0.8253, lowest since September 2010.

France sold EUR 7.963 bln (EUR 7-8 bln target) worth of bonds with various maturities today. The largest auction, EUR 4.02 bln 2021 OAT resulted in a slightly higher yield 3.29% from 3.18% and bid to cover was 1.64, considerably below previous 3.05.

The New York session starts at 8:15 am ET with ADP report that is anticipated to decline in December to 176K from previous 206K followed by jobless claims at 8:30 am that are seen lower at 375K from previous 381K. Today's ADP is likely to have a larger impact than usual as traders will look for hints on the first 2012 NFP release that is due tomorrow.

ISM non-manufacturing due at 10:00 am is expected to rise in December to 53 from November's 52.

Canadian data include raw materials price index at 8:30 am seen at 0.1% in November after contracting -1.2% in October followed by Ivey PMI at 10:00 am expected to decline slightly to 57.5 from 59.9.

Risk trades struggled into the European close but rebounded through the remainder of US trading on Wednesday. JPY and USD led, CHF and EUR were the worst performers. The upcoming Asia-Pacific session features second-tier economic data on Australian housing and trade. Ashraf's Intermarket Insights will return to normal frequency next week. There will be only 1 edition of the Premium Intermarket Insights this week.

The trading day began with a risk averse tone after Italys Unicredit struggled to raise $9.8B, sending shares nearly 14% lower. A report that Spanish banks may need 50B euros also weighed on sentiment. US economic data was light but early news was disappointing with factory orders gaining 1.8% compared to the 2.0% expected.

Sentiment bottomed as European markets closed. US trading was also boosted by ICSC, which hiked its estimate for December retail sales, saying they may have increased 4.5% year-over-year. The bounce pushed AUD/USD back to nearly unchanged levels on the day

WTI crude hit $103.70 the highest since May after EU foreign ministers said they want to tighten sanctions against Iran. Frances foreign minister said an embargo on oil products could be announced Jan 30.

The S&P 500 closed unchanged at 1277. Gold continued its rebound, hitting $1618 after analysts at Citi reiterated a $2400 target.

Asia-Pacific Preview

A series of lower-tier indicators will be released in starting at 2230 GMT with Australias AiG performance of services index. The prior reading was 47.4. Shortly afterwards, reports on Japans monetary base and Australian home sales are unlikely to move the market. A report that could have an impact is Australian trade balance at 0030 GMT. The consensus is for a A$2.0B surplus.

Eurozone CPI Slowed; German PMI services revised lower; Eurozone PMI revised higher. Overnight ECB deposits at a new record. German auction sees lower yield, UK construction PMI rose. Market turns to US factory orders.

The greenback is higher across the board in the ongoing session. The biggest losers today are CHF and NZD. Major European equities are lower by -0.6% to -1.5%.

After staying at 3% for the past three months, annual Eurozone CPI slowed in December to 2.8%. Other Eurozone news include German December PMI services that was revised lower to 52.4 from initial estimate at 52.7, Eurozone PMI services that was revised higher to 48.8 from 48.3 and Eurozone PMI composite which was also revised higher to 48.3 from 47.9.

Overnight deposits at the ECB reached a new record high on Tuesday at EUR 453.18 bln suggesting that banks do not want to lend to each other, partly due to fear of exposure to periphery debt and prefer to park their excess cash at the ECB. The use of the deposit facility that pays 0.25% has been elevated since August 2011.

Germany sold EUR 4.057 bln 10 year bonds, slightly below EUR 5 bln target. The average yield was lower at 1.93% from previous 1.98% and bid to cover improving slightly to 1.3 from 1.1. EURUSD did not respond to the announcement and continued to trade around 1.3030.

In the UK, construction PMI rose to 53.2 in December from 52.3 in November and considerably above expectations of 51.7. Mortgage approvals reached the highest since 12/2009 in November at 52.9K, marginally higher from previous 52.8K. On the release, EURGBP fell from 0.8345 to 0.8320.

The only data release for the US session is November factory orders which are seen higher 1.9% from previous contraction -0.4%. The data is due at 10:00 am ET.

Risk assets rallied in the first true trading day of 2012. NZD and AUD were top performers with USD and JPY lagging. The date calendar for

the Asia-Pacific region on Wednesday is vacant.

The ISM manufacturing index rose to a six-month high of 53.9 from 52.7, beating the 53.2 consensus estimate. Sub-indexes for employment and new orders were strong. Unfortunately, similar indexes in Europe, China and the UK have been moving in the other direction.

EUR/USD squeezed higher to 1.3060 before US markets opened but subsequently fell back to 1.3011 just as US traders arrived at their desks. Afterwards, it was a slow march higher amidst the backdrop of positive risk appetite. The high of 1.3076 came after the FOMC minutes and was the highest since Dec 28.

The FOMC minutes announced that policymakers will make their own Fed funds rate forecasts public starting on Jan 25. The upcoming statement will include the forecast for Q4 and the next few calendar years.

The risk of such a move is that the Fed signals a longer timeframe before raising rates, a USD negative. The minutes also said conditions could warrant a further easing but noted improvement in the jobs market.

The S&P 500 gained 1.5% to 1277. Gold gained $38 to 1605/oz. Brent gained $5 to $112 and WTI climbed $4.20 to $103.

Adam Buitton

Swiss PMI Jumped; German labor market improves; UK manufacturing PMI better than expected. Market turns to ISM manufacturing, construction spending and FOMC minutes. Ashraf will return in full operational mode on Jan 9th.

The greenback is lower across the board. Relative strength winners are NZD and AUD, closely followed by CHF. Major European equities are mixed between -0.65% to 1.2%.

Swiss SVME PMI printed solid 50.7 in December, higher than expected 45.4 and significantly stronger than previous 44.8. This is the first print above the 50 level after five months of declines. However, considering the deteriorating economy, this could be a one time aberration. EURCHF declined on the news from 1.2196 to current 1.2153

Positive German data also contributed to better sentiment, underpinning the Euro as unemployment declined by -22K in December and the unemployment rate declined to 6.8% from 6.9%.

In the UK, manufacturing PMI rose in December to 49.6 from previous 47.7. Nevertheless, today's result still indicates a sector contraction. GBPUSD jumped on the release from 1.5567 to 1.56 as a PMI decline to 47.4 was expected.

The US session will bring ISM manufacturing that is expected to rise to 53.2 in December after November's rebound to 52.7 and ISM manufacturing prices that are seen higher at 47.9 from 45.

November construction spending is anticipated to reach 0.5%, slightly lower from previous 0.8%. All three indicators are due at 10:00 am ET.

The minutes from the December 13th FOMC meeting are due at 2:00 pm ET.