Market Drivers for July 10 2014

AU unemployment jumps to 6.0% from 5.9% eyed

Chinese Trade softer at 31B vs, 35B eyed.

Nikkei -0.55% Europe -0.31%

Oil $101/bbl

Gold $1330/oz.

Europe and Asia:

AUD Employment 15K vs. 12K

AUD Unemployment rate 6.0% vs. 5.9%
CNY Trade 31B vs. 37B

GBP UK Trade 9.2B vs. -9B

North America:


USD Weekly jobless 8:30 AM

The dollar was better bid in Asian and European trade today as a combination of weak Australian employment data, poor UK Trade balance results and disappointing French and Italian Industrial Production reports provided a boost for the buck against most its trading partners.

In Australia the jobs report showed a gain of 15K versus 12K eyed but the headline number hid many problems in the Australian labor market. The gain in the jobs number was due solely to a pick up in part time employment. Full time jobs actually declined by -3K. Unemployment rate also rose by more than expected hitting 6.0% versus 5.9%.

As many analysts noted in reaction to the news, the latest CPI data out of Australia has been cooler than projected while the most recent jobs reports have missed the mark suggesting that the RBA could surprise the market with another rate cut if such trends persist into the second half of the year. This would especially be true if the Australian dollar exchange rate remains highly elevated as the RBA continues to be concerned about the deteriorating terms of trade Down Under.

Last night’s weaker than expected Chinese Trade Balance data which printed at 31B versus 37B eyed also pressured the Aussie as it indicated that Chinese demand is slowing faster than forecast. The pair slid to a low of 9360 in morning London dealing and could continue to drift lower in North American trade if speculative flows remain negative for the rest of the day.

In Europe the euro was listless throughout the night dropping to a low of 1.3630 amidst weaker than expected Industrial Production results from France and Italy indicating that the recovery in the region is halting at best. The ECB continued to reiterate its message that it remains in an accomodative stance but the rhetoric had no impact on trade.

The euro appears to be in state of suspended animation as traders look for fresh themes. There is little on the economic calendar to move prices for the rest of the week and the pair could remain in a tight 1.3600-1.3650 range as currency markets continue to consolidate.

In UK the Trade Balance data missed its mark as well with the deficit expanding to -9.2B versus -9.0 B projected and after revisions the total miss on the figure approached the -1B level. This was a considerable miss and is likely to impact BoE’s thinking as UK monetary authorities continue to express their discomfort with the high exchange rate of the pound.

As we noted yesterday, cable appears to have topped out ahead of the 1.7200 figure and today news is likely to add to the downside pressure as it creates the possibility that the rate hike may be delayed. Today the market will get the BoE monthly statement, but consensus view is that the MPC will not make any changes in policy right now, so the impact is likely to be minimal.

Lastly, dollar weakness does persist in one pair as USD/JPY continues to grind lower on the back of lower US rates and general risk off sentiment in the market. The pair has tumbled to 101.30 and is now coming close to the key yearly support levels of 100.75 from which it has bounced several times. The pressure is now coming from tumbling equity prices as much as lower bond yields and if the selloff accelerates as the day proceeds USD/JPY could try to test the key 101.00 figure.

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