US Un-Enjoyment Finally Seeing Profit Taking
Saxo Bank | Jun 03, 2012 03:42AM ET
A very ugly US employment report put an exclamation point on this week’s bloodbath in risk, but the subsequent reaction suggests that the some risk takers want to make a stand here.
Another round of very weak PMI’s out of Europe, almost across the board, in fact, save for resilient Norwegian figure. The Swiss PMI dropped to 45.4 and the UK manufacturing PMI slipped all the way to 45.9 after 50.2 in April and vs. 49.7 expected. Elsewhere in Europe, the sovereign spreads were fairly quiet, though they are still at very elevated levels. In Canada, the March GDP was weaker than expected and USD/CAD spiked all the way to 1.0440+ before pulling back.
Chart: EUR/USD
The sell-off in EUR/USD got even steeper during the last down-leg – when already steep sell-offs get steeper still, this is usually a sign that at least a temporary climax is near – at least in terms of time if not price.
US Un-Enjoyment
The US employment report was a quite the dud, as not only did payrolls fall significantly short of expectations, but the unemployment rate ticked up to 8.2%, the first rise in the rate since last June. As well, both private and nonfarm payrolls saw negative revisions to their April data to the tune of -43k and -38k, respectively. The unemployment rate ticked up to 8.2% despite the fact that the household survey actually showed a gain of +422k for the month of May. This is explained away by a jump in the participation rate to 63.8% from 63.6% previously. Interpreting the employment statistics is clearly an art more than a science.
Looking Ahead
Watch out for the ISM up shortly in the US – the reaction off this number is likely to determine whether risk tries to take a further stand today after the post-payrolls bounce or if we are to melt further into the weekend.
The declines in the market this week have everyone looking for intervention of some sort. Looking at broad risk indicators, we are very close to the 200-day moving average in the S&P500, where some risk-takers may try to take a stand. Certainly, the gold market is holding up remarkably well, as investors there are awaiting the inevitable easing move to come and what it will mean for the devaluation of fiat currencies. The Fed has played the game of staying in neutral while promising to do something if conditions warranted. In previous months/years, the Fed might have been quicker to move in this situation. This time around, I imagine there are important political considerations that will mean Bernanke will wait until the market bloodshed is particularly gruesome before reacting.
Get The News You Want
Some fishy price action in the JPY crosses as it appears that the Bank of Japan may have swung into action on the spike higher in the JPY after the release of the US employment report. If the market can’t take care of things itself and/or bond yields don’t find a low soon, the likelihood of further BoJ intervention at these levels and lower in USD/JPY (sub 78.00) is extremely high and will inevitably warp the action in other currency pairs in the likely event of intervention.
Looking ahead to next week, we have the RBA and BoC up early in the week, as well as all of the services PMI’s from around the world on Tuesday, so there will be plenty to chew on in terms of economic data. The question is what, if anything will instill confidence in this market, which can hardly keep this kind of mood going for much longer – these volatility spikes can continue to unimaginable levels in terms of price, but in terms of time, they usually climax very quickly once they’ve reached an energy level like they have at present.
Economic Data Highlights
- Australia May AiG Performance of Manufacturing Index out at 42.4 vs. 43.9 in Apr.
- China May Manufacturing PMI out at 50.4 vs. 52.0 expecte and 53.3 in Apr.
- China May HSBC Manufacturing PMI out at 48.4 vs. 49.3 in Apr.
- Sweden May Swedbank PMI out at 49.0 vs. 49.3 expected and 50.2 in Apr.
- Norway May PMI out at 54.9 vs. 54.0 expected and 53.6 in Apr.
- Spain May Manufacturing PMI out at 42 vs. 43 expected and vs. 43.5 in Apr.
- Switzerland May Manufacturing PMI out at 45.4 vs. 47.4 expected and 46.9 in Apr.
- Italy May Manufacturing PMI out at 44.8 vs. 43.4 expected and 43.8 in Apr.
- UK May Manufacturing PMI out at 45.9 vs. 49.7 expected and 50.2 in Apr.
- Eurozone Apr. Unemployment Rate out at 11.0% as expected and vs. 11.0% in Mar.
- Canada Mar. GDP out at +0.1% MoM and +1.6% YoY vs. +0.3%/+.1.9% expected, respectively and vs. +1.7% YoY in Feb.
- US May Change in nonfarm payrolls out at 69k vs. 150k expected and 77k in Apr.
- US May Change in Private Payrolls out at +82k vs. +164k expected and +87k in Apr.
- US May Unemployment Rate out at 8.2% vs. 8.1% expected and 8.1% in Apr.
- US May Average Hourly Earnings out at +0.1% MoM and +1.7% YoY vs. +0.2%/+1.8% expected, respectively and vs. +1.8% YoY in Apr.
- US May Average Weekly Hours out at 34.4 vs. 34.5 expected and 34.5 in Apr.
- US Apr. Personal Income rose +0.2% MoM vs. +0.3% expected
- US Apr. Personal Spending rose +0.3% as expected
- US Apr. PCE Deflator out at 0.0% MoM and +1.8% YoY vs. +0.1%/+1.9% expected, respectively and vs. +2.1% YoY in Mar.
- US Apr. PCE Core out at +0.1% MoM and +1.9% YoY vs. +0.2%/+1.9% expected, respectively and vs. +2.0% YoY in Mar.
- US May ISM Manufacturing (!400)
- US Apr. Construction Spending (1400)
- US May Total Vehicle Sales (2100)
- China May Non-manufacturing PMI (Sun 0100)
- US Fed’s Kocherlakota to speak (Sun 1800)
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