Monday August 9, 2004 - 10:46:34 GMT
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US OPEN MARKET POINTS 08-09-04
Friday’s shockingly weak NFP number hit the FX market like a neutron bomb with the dollar collapsing 170 points in 10 seconds as interbank dealers quickly removed all liquidity from the market. In it’s wake, the report destroyed the growth argument of the dollar bulls and incinerated whatever remnants of credibility Alan Greenspan had left. The data was horrible on all counts. Not only was the actual number of 32K payrolls well below the consensus forecast of 240K, but the figures for May and June were revised downward by a total of 61,000 jobs. Overall, the 3 month average for payrolls now stands at 106,000 jobs per month. The economy must generate 150,000 jobs per month just to absorb new entrants into the labor force which effectively means that the US economy is creating a deficit of 45,000 new unemployed workers each month despite the headline decline in the unemployment rate from 5.6% to 5.5%.
The USD bullish thesis which is build on the belief of continued US economic growth and strong consumer demand in the second half of the year, will now be sorely tested. It’s difficult to see how demand can grow with oil stubbornly staying at $45/bbl and job growth stagnant. July’s numbers from Wal-Mart which accounts for about 8 percent of all non-auto retail sales in the United States, increased by 3.2% or only 1% in real terms -- hardly an encouraging sign for the back-to-school season. The “indefatigable US consumer”, may be finally losing steam. HSBC reports that household debts grew by more than 10% in the first quarter and now add up to more than 115% of disposable income. There is simply no more spare capacity for additional spending. This data weighs very negatively on future US growth and makes mockery of Mr. Greenspan’s recent Congressional testimony that June’ s lull will be ”short-lived”.
This week all eyes will be on the FOMC meeting set for Tuesday. Despite the weak payroll report the market still expects a hike of 25bp and will be carefully monitoring the tone of the Fed statement that follows the release. We will examine the implications of the Fed hike in more detail in tomorrow’s note. Meanwhile the overnight markets are quietly digesting Friday’s move with the yen enjoying support from better than expected Machinery Orders number (3.9% vs. consensus 0.8%) and the pound gaining strength from renewed carry trade interest and strong ODPM housing report (13.9% vs. 13.0% expected) which could lead to additional BOE rate increase at the September meeting of the MPC.
Key Overnight Developments
- JPY Machinery Orders up a strong 3.9% vs. 1.0% expected as demand from China drives the number to record highs
- GBP ODPM Housing prices still firm 13.9% vs. 13.0% expected raising the possibility of more BOE hikes
FX Spot Overnight
- EUR trading 2055-2085 as dealers digest the NFP number
- JPY finds strength off Machinery number and trades to 110.15 but oil woes bring the cross back to 110.65
- GBP tests 8400 and finds bid to 8440 off the ODPM data
- CHF trades 2520-2560 off EUR/USD dynamics
12:30GMT – (8:30 AM EST) CAD Building Permits m/m (Jun) Expected at 4.3%, Previous –9.5%
14:00GMT – (10:00 AM EST) USD Wholesale Inventories (Jun) Expected at 0.6%, Previous 1.2%
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