Dean FX May 5th | NFP Surprise?

The USD$ is weaker in the O/N trading session. Currently it is lower against 11 of the 16 most actively traded currencies in a ‘subdued’ trading range ahead of the employment figures.

Yesterday’s data does not paint a pretty picture for this mornings NFP release. Last week’s decline in initial jobless claims seems to have been a ‘once off’ as claims this week printed a +380k number (the highest in 4-weeks), which does not bode well for the unemployment rate in today’s NFP data.

Continuing claims also pushed through the 3m mark, moving back up to levels not seen in 4-years (pushing consensus towards a -100k decline). But, other data revealed that personal spending continues to move higher and beat expectation (+0.4% m/m vs. +0.2% m/m).Perhaps this may be due to the populous starting to spend their US tax rebates, by default this number should fall over the next few months.

Personal income (+0.3% vs. +0.4%) are in line with the current weak economic environment. Income continues to slow as the world battles higher food and energy prices.

On the inflation front, core-PCE deflator showed acceleration (+0.2% vs. +0.1%), but with consumers beginning to limit spending, one can expect this number to taper off.

April’s ISM manufacturing report showed that the sector failed to grow m/m, (+48.6). New orders and production have slowly been declining while prices increase; perhaps ‘pass-through’ pricing may be the norm in the short term.

Growth in export orders continues to support the manufacturing sector, but companies who purchase their materials overseas; the greenback is having an opposite effect.

The US $ currently is lower against EUR +0.4%, GBP +0.49%, CHF +0.02% and higher against JPY -0.35%.

The commodity currencies are mixed this morning, CAD +0.12% and AUD -0.23%.

The loonie demise is finally playing catch up as predicted. Yesterday the CAD$ weakened the most in nearly two months as traders speculated that the weakening Canadian economy will force the BOC to further cut borrowing costs at its June 10th meeting (3.00%), while the US Fed may stop reducing its key rate (2.00%). Reports this week show that the economy has contracted, coupled with weaker commodity prices, investors can expect future short term pressure on the currency as it underperforms right across the board. Interest differentials will play front and center for the medium term. Traders continue to be better buyers of USD on dips, while corporate Canada like to sell on rallies.

The AUD$ fell as traders continue to speculate that the country’s export earnings will decline as the prices of raw materials slid the most in two months ().9316).

Crude is higher O/N ($113.12 up +60c). Crude oil remains under pressure and continued its downward spiral yesterday as the greenback rose to a five-week high vs. the EUR, thus curbing the appeal of commodities as an alternative investment.

This weeks EIA has shown little mercy for the black-stuff prices. The report revealed that US supplies rose more than forecasted. Stocks climbed +3.85m barrels to 319.9m w/w (that’s more than the 900k expected). Supplies of distillate fuel (a category that includes heating oil and diesel) unexpectedly increased. Distillate stocks jumped +1.13m barrels to 105.8m, the biggest gain since Jan. Gas inventories on the other hand dropped -1.48m barrels to 211.1m. It was the 7th straight decline. Stockpiles are 2.6% above the 5-year average.

Crude-oil inventories have now climbed in 13 of the past 16 weeks. With a pause in geo-political concerns, the black stuff technically takes a breather and has allowed fundamentals to play the upper hand.

Over all, gold trades under pressure and has broken technical support barriers ($856) as the USD$ resurgence vs. the EUR reduced the appeal of the yellow metal as an alternative investment.

The Nikkei closed at 14,049 up +282. The DAX index in Europe was at 7,031 up +83; the FTSE (UK) currently is 6,151 up +64. The early call for the open of key US indices is mixed.

Yields of the US 10-year bond eased 3bp yesterday (3.76%) and are little changed O/N. Treasuries rose yesterday, pushing the 10-year note’s yield to new weekly lows, as an increase in initial jobless claims and slowing income growth bolstered concern that the economy is losing momentum. This morning’s NFP number could ignite a strong appetite for FI product.

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