The ability of stocks to edge higher again today suggests that the concerns over a pullback in risk appetite which was evident at the end of last week may have been overdone. Over the past month several US data releases have surprised on the upside. The surge in the employment component of the ISM manufacturing stands out but factory orders, retail sales, industrial production and Q3 GDP all suggest that the world's biggest economy is grinding its way out of recession. This afternoon's payroll's number has the capacity to set the tone for the next few weeks but the market appears to be cautiously optimistic that there will be a notable decline in the rate of job losses. The market is expecting 175K jobs to be lost; this would be the smallest number since August 2008. Any good news could be soured if the unemployment rate prints a 10% number, but the consensus expectations suggest that this will be avoided at least for the time being. EUR/USD has crawled back above the 1.4900 area this morning in tune with the modestly better tone in stocks. The EUR has also pulled back all of its overnight losses vs the JPY and the pound. Volumes today have been thin ahead of this afternoon's key data release.
Japanese data fed the perception that the global economy is turning the corner. The Sep coincident index matched market expectations of 92.5, this being the sixth consecutive rise. This news was in tune with comments from the BoJ's Yamaguchi who commented that the recovery will continue at a gradual pace but the tone was in contrast with the warnings from the Japanese PM that there is a risk that the economy may resume its deterioration.
Feeding risk appetite overnight was the latest statement of monetary policy from the RBA which predicted further gradual lessening of monetary policy and forecast GDP ''at a little more than 2% over the year to mid 2010''; a significant improvement on recent projections. AUD/USD spiked higher on the news towards the 0.9080 level before sellers emerged.
UK data failed to have much impact. Oct PPI input surged by a faster than expected 2.6% m/m. However, y/y rates remain subdued with the impact of the decline from last year peak's in oil prices still having an impact. On balance, the outlook for medium-term inflation remains subdued in the UK despite sterling weakness vs the EUR and despite the likelihood that the BoE will revise higher its near-term inflation forecasts in next week's Inflation Report.
This weekend's G-20 meeting has this morning being overshadowed by the forthcoming payrolls report. While the issue of fx is likely to be secondary to that of banking regulation during the weekend meetings, the gathering does provide a platform for further jawboning in support of the US Treasury's strong USD policy. Of particular interest is whether the Europeans complain further about the EUR bearing the brunt of the USD's downward adjustment. This will be an attack on the Chinese/USD peg and could be taken as indication that this will be a growing political theme in the New Year.
In addition to US payrolls, Canadian Oct labour data is also due today.