Stress Test Results Likely to Improve Risk Sentiment

* The dollar traded mixed on Thursday ahead of US nonfarm employment data. US initial jobless claims and nonfarm productivity were better than expected. Estimates for US payroll losses have been revised down following the ADP and initial jobless reports. Significantly, better employment data is likely to pressure the dollar and help the stock market. The Federal Reserve told the 19 US largest banks that they need to raise $75 billion in capital by November, a more upbeat verdict on banks’ health than markets had feared. The stress test results are likely to ease concerns over the US banking sector. The yen fell despite declining US equity prices. The Dow lost 102.43 points to 8,409.85. Sterling fell, testing support, after the Bank of England maintained its benchmark interest rate at a record-low 0.50% but increased quantitative easing by adding £50 billion to its program of asset purchases. The euro rose after the European Central Bank cut its key rate 25 basis points to a record-low 1.00% and surprised markets by announcing it will purchase ?60 billion of covered bonds. The Canadian dollar fell modestly ahead of Friday’s Canada’s employment data.

* The AUD/USD shot through the 0.75 handle after better-than-expected Australia’s employment data. The pair has rallied since breaking the 200-day moving average on April 30. The AUD/USD has been supported by better risk sentiment and global growth outlook. The RSI indicates the pair is getting overbought and may need some price consolidation before moving higher. The long-term trend is higher and the short-term term will be determine by the equity market, which is also overbought and may need some consolidation before breaking its resistance.



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Financial and Economic News and Comments

US & Canada

* US nonfarm productivity increased at a 0.8% annual rate in Q1 2009, as our forecast, after a downwardly revised 0.6% decline in Q4 2008, data from the Labor Department showed. Nonfarm productivity rose 1.8% y/y. Real compensation per hour in the nonfarm sector rose at a 6.6% annual rate in Q1, up 4.4% y/y. The increase in worker efficiency helped ease expenses. Unit labor costs in Q1 advanced more than anticipated at a 3.3% rate, following Q4’s 5.7% rise. Unit labor costs increased 2.4% y/y.

* US initial jobless claims, posting the fourth decline in five weeks, unexpectedly fell 34,000 to 601,000 in the week ending May 2, the lowest level since late-January, following the prior week’s upward revision to 635,000, data from the Labor Department showed. The 4-week average of new jobless claims fell for a fourth consecutive week, by 14,750 to 623,500, the lowest since mid-February. Continuing claims in the week ending April 25 rose 56,000 to 6,351,000, the highest level since records began in 1967, following the preceding week’s upward revision to 6,295,000. The insured unemployment rate rose to a 26-year-high 4.8% from 4.7%.

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* US consumer credit dropped a more-than-expected $11.1 billion in March, the most since records began in 1943, to $2.55 trillion, after falling a revised 8.1 billion in February, data from the Federal Reserve showed. Consumer credit fell 5.2% y/y, the largest since 1990.

Europe

* Germany’s seasonally adjusted factory orders unexpectedly increased 3.3% m/m in March, the first gain in seven months and signaling the German recession is easing, following February’s upwardly revised 3.1% m/m decline, according to the Federal Ministry of Economics and Technology. Factory orders dropped less-thanexpected 26.7% y/y, following February’s upwardly revised 38.0% y/y plunge.

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* Switzerland’s consumer prices rose a more-than-expected 0.9% m/m in April after declining 0.3% m/m in March, data from the Federal Statistical Office showed. The CPI declined a less-than-expected 0.3% y/y, following March's 0.4% y/y fall.

* The European Central Bank cut its benchmark interest rate 25 basis points to a record-low 1.00%, as forecast. ECB President Jean-Claude Trichet announced the central bank will purchase ?60 billion ($80 billion) of covered bonds even though Deutsche Bundesbank President and ECB Governing Council member Axel Weber had campaigned against that measure.

* The Bank of England maintained its key interest rate at a record-low 0.50%, as expected, and will add £50 billion ($75 billion) to its program of asset purchases.

Asia-Pacific

* Australia’s employment in April unexpectedly increased 27,300 to 10,798,900 after March’s downwardly revised 37,200 decrease, data from the Australian Bureau of Statistics showed. Full-time employment rose 49,100 to 7,672,700 and part-time employment declined 21,800 to 3,126,200. The unemployment rate unexpectedly fell to 5.4% from 5.7%. The participation rate decreased to 65.4%, as forecast, from 65.5%.

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* New Zealand’s unemployment rate rose to a 6-year-high 5.0% in Q1 2009, Statistics New Zealand said.

FX Strategy Update



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Source: Hans Nilsson

07.05.2009