Friday, July 2, 2010

Non−Farm Payrolls


Forex Special 

Change in Non-Farm Payrolls M/M (June) Exp. -130K (Prev. +431K, April +290K)
Morgan Stanley -90K         BNP Paribas -150K
JPMorgan -90K                   Credit Suisse -170K
Goldman Sachs -100K        Deutsche Bank -150K
Bank of America -125K      HSBC Markets -155K
Citigroup -130K Barclays   Capital -100K

Stimulus 2.0 Time?

It looks increasingly likely that today’s jobs report will show that more jobs have been lost in June than created. As such, in crude terms, the non-farm payrolls data is about to suffer its own double-dip just like the housing data did once the tax-credit program was allowed to expire. A fact worth noting: since the passage of stimulus in February 2009, 48 out of 50 states have lost jobs. Still, much of that decline will be attributed to the government laying off temporary workers that were hired on the 2010 Census program.
The sovereign crisis that has emerged in Europe has prompted the Fed to turn cautious and the major risk is that the troubles in Europe’s periphery will have a similar effect that the sub-prime crisis had on the broad banking system and economic growth. In turn, the recovery in the jobs market that was evident in early half of the year has now stalled and the four week avg. of new claims remains roughly around 460,000 for some time now. Also, the latest consumer confidence data not only failed to meet market expectation but also printed a reading lower than the low-end estimated range. As such, despite the pick-up in corporate profits, companies continue to prefer operating at lean conditions and are wary of adding more staff. Finally, this week’s weaker-than-expected ADP report which showed private-sector payrolls at a mere 13K vs. Exp. 60K, indicates that risks are tilted to the downside for today’s NFP report.
Unemployment Rate M/M (June) Exp. 9.8% (Prev. 9.7%, . April 9.9%)

Steady As She Goes…

The unemployment rate is also expected to edge higher and move ever so closer to the 10.0% mark. In terms of market reaction, in spite of softer economic data in the US, the USD seems to have decoupled from the riskaverse trade correlation. As a result, a disappointing jobs report will cause further USD weakness and instead the risk averse trades will be most evident in the JPY and the CHF pairs. In terms of other asset classes, a bleak report from the BLS will enivitably prompt a sharp spike higher in t-notes, which benefited recently amid risk aversion on the back of sovereign concerns in Eurozone and potential spill over into US economy. Consequently, equities, especially financial and consumer related stocks will post decent losses, since those sectors are closely related to consumer attitude.

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