Market Drivers for August 2, 2013
Aussie PPI very weak unit break 8900
UK PMI Construction soars 57 vs. 51.6 eyed
Nikkei 3.29% Europe 0.07%
Oil $107/bbl
Gold $1287/oz.

Europe and Asia:
AUD PPI 0.1% vs. 0.5%
CHF SVME PMI 57.4 vs. 53.1
JPY Monetctary Base
EUR Euro-Zone PPI 0.0% vs. 0.1%
GBP Construction PMI 57 vs. 51.6

North America:
USD Change in Non-farm Payrolls 8:30
USD Change in Private Payrolls 8:30
USD Unemployment Rate 8:30
USD Personal Income 8:30
USD Personal Spending 8:30
USD Factory Orders 10:00

High beta FX was divergent ahead of the US NFP report later today with European currencies mildly bid against the greenback while Aussie slid to yet another fresh yearly low as it broke the key 8900 level. The Asian and European trade was mainly driven by the latest economic data, as markets remained unusually lively despite the looming NFP report.

In Australia, the PPI data printed much cooler than expected coming in at 0.1% versus 0.5% eyed as wholesale price pressures effectively disappeared. The news sent the Aussie tumbling as low inflation readings offer the RBA more scope for rate cuts without any concern about price increases.

The low level of producer price inflation only underscores the weak demand in the Australian economy which is adjusting to the decline in growth in China. The chance of an RBA rate cut has only increased, adding further pressure on the Aussie which cracked the 8900 level for the first time this year.

In Europe, the news on the economic front was better with Spanish unemployment declining by 64.9K, this was a bit worse than the -80K forecast, but still showed a sizeable reduction in jobless rolls.

Meanwhile in UK the construction PMI data blew out its estimates printing at 57 versus 51.6 eyed – its best reading in more than 3 years. This is the second upside surprise from UK this week and if next week’s PMI Services report prints at similar levels, any anticipation of additional accommodation from the BOE is likely to disappear. Cable traded to a high of 1.5175 in the aftermath of the report but remained capped by the 1.5200 level ahead of the NFP data.

With US data posting solid upside surprises this week, market expectation of a strong NFP report has now become conventional wisdom. Given the strong readings in ADP, ISM Manufacturing and the weekly jobless claims any reading of 160K or less will be viewed with disappointment.

However, the most accurate predictor of the NFP – the employment component of the ISM Services report will not be released until Monday, so traders have limited visibility into today’s labor data. There is also a chance that some of the more bullish data this week could have been subject to seasonal factors. In any case, a print of 175K or so is largely baked into the market at this point, and only a very large print of 225-250K or so could rock prices in North American trade.

If the US NFP data does post an unequivocally strong jobs numbers, the pressure on the Fed to begin tapering by September will grow exponentially. USD/JPY which has recovered well over the past day will likely pierce through the 100.00 and may even challenge the 101.00 level if the NFP prove true to expectation.

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