Market Drivers Jan 08, 2015

Chinese market stabilize as markets eye NFPs
UK Trade data slightly larger
Nikkei -0.39% Eurostoxx 0.56%
Oil $33/bbl
Gold $1099/oz

Europe and Asia:
AU Retail 0.4% vs. 0.4%
UK Trade data -10.6B vs. -10.5B

North America:
USD NFPs 08:30

CAD Employment 08:30

CAD Building Permits 08:30

Chinese equity markets finally calmed on the last trading day of the week tempering volatility across FX as authorities suspended circuit breakers and allowed stocks to trade freely.

The Shanghai opened higher, then reversed its gains only to settle into a positive close in choppy low liquidity trade. The roller coaster moves were felt throughout the Asian session in FX as yen, aussie and euro all seesawed in response, but they all eventually settled into a typical pre-NFP slumber by the start of European trade.

The eco calendar was generally barren with only AU Retail Sales and UK trade data on the docket. AU Retail Sales were in line at 0.4% versus 0.4% eyed and the prior month number was revised higher to 0.6%. The Australian consumer remains remarkably resilient despite the turmoil in China, as the slowdown in mining has not really hit the services sector yet.

The slowdown in China may be having an impact on housing as Construction PMI dipped below the 50 boom/bust mark for the first time in 4 months. The AIG Index came in at 46.8 showing a clear cooling in activity and that trend is likely to continue for the foreseeable future. It’s difficult to tell whether RBA feels compelled to act on rates just yet, and several analysts have actually pushed any rate cutting predictions to March from February deadline. Next week the market will get the AU employment data which will be the much more important data point for policy maker to consider. In the meantime Aussie will likely to move mainly on risk flows as the bulls try to prop up the 70 cent support level.

With the dust settled in Asia, the focus in FX moves squarely to North America and the NFP report due at 13:30 GMT. The market is looking at essentially a 200K reading to ,match last month’s results. ADP points to a slightly higher read as it hit a 5 year high and the ISM Non-Manufacturing employment subcomponent also shows a rise. But as our colleague Kathy Lien pointed out, “ Even if payrolls beat by 50K, it won’t be enough to change the market’s minds about the odds of further Fed tightening in this type of market environment. It probably won’t change the Fed’s minds either because there are 2 more NFP reports before the March meeting. For us, average hourly earnings will be the main focus of the labor market report. If wages rise then there’s some hope but if they slow, then expect equities and USD/JPY will bleed more losses.”

Going into the report and pop in the headline and wages data will likely push USD/JPY to a test of 119.00, but if the numbers miss the pair could easily test 117.00 on fears that the Fed will not move on rates for the foreseeable future.

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