Intraday Market Thoughts

Markets Steady As Focus Shifts To NFP

by Patrik Urban
Jan 6, 2012 13:02

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.


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