As with the first Friday of every month, the main highlight for last Friday was the US employment data. This data set was even more interesting than it has been in the last few months though owing to the sharp revision to the previous month’s data. The headline number was that America lost 131,000 non-agricultural jobs last month as government payrolls fell by 202,000 but only 71,000 fresh jobs were created in the public sector. All of these figures were much worse than forecast and the revisions to previous months did little to help the US Dollar, which declined across the board after the data as traders; nervous of the declining US economic figures, sold the US Dollar and bought other safe haven assets.
The Japanese Yen seems to be the main recipient of this flow and it hit a 15 year high against the US Dollar just to emphasise the point. However, the Bank of Japan meets this week to discuss interest rates so any more movement may be a tad muted ahead of that meeting. Sterling and the Euro were also stronger by the end of the day. This week brings the US interest rate decision and whilst we can’t envisage any change in the base interest rate, we won’t be at all surprised if the Federal Reserve’s Open Market Committee discusses extensions to their asset purchase plans; more likely the length of time that these will be in the market rather than the size of the quantitative easing ‘pot’ itself. Either way, the US Dollar could well have a week it would prefer to forget but it should be remembered that US Dollar weakness is precisely what the President would wish for in his quest to boost US exports.
In the UK this week, we get the Bank of England’s inflation report which is being seen as a proxy view of the Monetary Policy Committee’s views a week before we get the minutes of their last meeting. There must be a degree of nervousness amongst the BOE as inflation remains stubbornly high but growth is definitely lacking. They are walking a delicate dividing line between stifling the fragile growth and allowing inflation to rage away and at the moment they are erring on the side of higher inflation in order to allow any growth that does exist to flourish.
As well as garnering some strength from the decline of the US Dollar, the Euro was also boosted by impr0oved economic growth data from Italy and Spain in the 2nd quarter of 2010. These were only preliminary estimates but it is encouraging nonetheless. And the week also brought improved sentiment towards Greece’s embattled economy as well as a decline in German industrial production which was not as bad as most forecasts. Less bad news is clearly seen as good news so the Euro did quite well even before the US employment data. This Friday bring the Eurozone wide Q2 economic growth data so that will be very closely watched to see if the Italy and Spain story is common across the region.
It might have been missed in all the excitement over the US data but Canada also released its employment report on Friday and the numbers were not good. The fall of 9,300 jobs was small compared to last month’s 93,000 increase but it marks a break from 6 months of straight growth and that is worrying for Canada. The Canadian Dollar lost a little ground along with its US counterpart and that is clearly good news for those moving to or importing from Canada.
Canada may also be affected by the decision by the Chinese authorities to cease production in 2,000 companies. This move is ostensibly in pursuit of China’s environmental policies but the closures also help to slow the economy as China has stated it wishes to do. That may also have a direct effect on commodity prices and the level of demand for exports from Australasia and Canada. The Australian Dollar is likely to ease on the news and may be rocked by this week’s employment data which may be a tad poorer than recent releases.
So the scene looks set for another week of ducking and diving, bobbing and weaving and this and that. I will try to keep you abreast of all those developments as we progress through the week. In the meantime, to those who rode the roller coaster naked over the weekend, well done.........not for the nakedness you naughty exhibitionists but for the £22,000 you all raised for charity. Good going guys. Lady Gaga sort of joined in as she crowd surfed virtually naked at the Lollapopalooza festival in Chicago but the 'doing it in the buff' thing was taken to the extreme when Vladimir Ladyzhensky died during the world sauna championships in Finland. Trying to stay in a pine box when the temperature is up around 110 degrees C (230 degrees F) is clearly not a good idea....madness in fact. It is clearly safer on a roller coaster.