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All on Hold Until US Non-Farm Payrolls Report

All on Hold Until US Non-Farm Payrolls Report


Currencies have traded in tight ranges over the past 24 hours or so as market participants take to the sidelines ahead of this afternoon’s release of the key US non-farm payrolls report for August (so much so that only half of the opening rates on the right have changed from yesterday). Indeed, this month’s release is certainly one of the more highly anticipated of the year, global data this month providing a mixed message at best. With risk appetite supported by some encouraging data over recent days, particularly the US weekly jobless claims figures which may have cooled any nervousness ahead of today, riskier currencies have been able to hold onto their gains against the Dollar and Yen earlier in the week. Though sentiment remains fragile. Consensus forecasts are showing a drop of 100,000 in the payroll, as the layoff of temporary census workers continues.

At its policy meeting yesterday, the European Central Bank again left its refi rate unchanged at 1%, where it has been pitched since May 2009. President Trichet noted that economic data for Q2 and Q3 have been stronger than anticipated, though the ECB still expects that economic growth will be moderate, with uncertainty prevailing in the period ahead. The entirely expected conclusion is that that interest rates will remain low, and that the ECB are in no rush to start tightening monetary policy.

This morning’s trading will be dominated by the UK PMI Services survey. The stunning rise in March this year to within a couple of points of its all-time high (which itself is a bit of an exaggeration as the numbers only go back to the beginning of 2006) set the tone for a more general increase in business and investor confidence through the Spring and early Summer but we’ve already seen more than 5 points drop from this measure to its lowest level since June of last year. All this has taken place with little comment or concern as market sentiment has been dominated by the stunning Q2 GDP figures. As the days get shorter, the light fades and the morning dew on the grass lays just that little bit more heavily, though, so we might reasonably expect a little more apprehension and nervousness from the business community. Of course it’s possible that a meaningful attempt to lower the unsustainable public borrowing requirement and the subsequent sharp decline in market interest rates will lead spontaneously to an increase in private sector confidence. More likely, however, is that the more immediate concern of where the next contract or order is coming from – especially amongst those service sector firms which until now have relied on Government munificence – will lead to the delay or cancellation of investment and hiring plans, the inevitable result of putting the fiscal house in order over the coming months and years. The big and immediate unknown, however, is the extent to which those Survey respondents left behind as their colleagues went on holiday in August will have decided that the economic glass is half-empty rather than half full…….

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