ECONOMETER

The weaker than forecast November US ISM non-manufacturing, a negative UK press report about the problems in Dubai and caution ahead of the US jobs report have dampened risk appetite overnight though there is expected to be little action until the release of the US jobs report today, with some USD short covering likely ahead of the release.  The jobs data could add to disappoint, with data this week including the ADP jobs report, and the employment components of the ISM surveys consistent with a worse than consensus (-125k) reading.  

It was encouraging however, that jobless claims revealed a further decline (457k) to its lowest since November 2008 indicating further improvement in the jobs market, though the data will have little bearing on today’s payrolls data which as noted above will likely disappoint expectations.  A below consensus may fuel some increase in risk aversion and a slightly firmer USD though markets are most likely to settle into ranges in the near term. 

The JPY may make up some lost ground against the background of weaker equity performance.  Amidst the confusing messages on the JPY over recent weeks officials appear to be giving stronger hints at intervention, leaving the currency on the back foot over recent days.  The drop in the JPY may prove temporary however, if official rhetoric is not followed up by action; USD/JPY is likely to struggle to break through resistance around 88.60.  

Following the BoJ’s disappointing JPY P10 trillion operation announced this week attention turns to the announcement of new government stimulus measures which were reportedly expected today.  This may also prove disappointing however, as there appears to be disagreement between coalition partners on the size and composition of stimulus.  Finance Minister Hatoyama was expected to announce additional spending of up to JPY 4 trillion.  

There was no surprise that the ECB left the refi rate unchanged at 1% yesterday but some surprise in the steps to withdraw provision.  The ECB announced that the interest rate on the December 12-month tender will be indexed to the refi rate and that the full allotment at most of the ECB’s refinancing operations is extended until 13 April 2010 only. As much as ECB President Trichet tried to play down the perception that the steps were a signal of a tighter policy markets are unlikely to interpret it this way. 

Despite the shift in the ECB’s stance EUR/USD pared gains after reaching a high around 1.5141 but failed to test resistance at 1.5150 which is likely to provide strong resistance in the days ahead, reflecting the fact that markets had priced in a hawkish shift by the ECB already.   Going forward, if the market perceives the ECB as prematurely shifting towards a more hawkish stance against the EUR could suffer rather than find any support from such actions