Forex Trading involves high risks, with the potential for substantial losses and is not suitable for all persons. Past performance is not necessarily indicative of future results.
Kathy Lien
Director of Currency Research, GFT
Currencies and equities are up strongly this morning following the improvement in U.S. manufacturing activity. Incoming economic data suggests that there may not be as large of a divergence between the recovery in the U.S. and abroad as previously thought.
To the market's surprise, the latest numbers show that manufacturing sector activity in the U.S. accelerated in the month of August with ISM rising from 55.5 to 56.3. The national release completely bucked the trend of the regional reports by showing more strength than weakness. It is extremely encouraging to see the employment component hit 60.1 (up from 58.6), matching its 26 year high and points to a similar improvement in manufacturing sector payrolls. After a series of disappointments and pessimistic comments from the Federal Reserve, investors really wanted some good news. However the underlying components were mixed with prices, production, inventories, imports and employment rising but new orders, backlog of orders, supplier deliveries and new export orders declining. This suggests that the acceleration in activity was due in large part to domestic and not external demand. Yet even though there are still many reasons to be concerned about the outlook for the U.S. economy, the manufacturing ISM report provided warm comfort for both currency and equity investors. The acceleration in manufacturing activity in the U.S. and China alleviates some of the fears for a global slowdown and a double dip recession in the U.S.
However the real test of the economy will be Friday's non-farm payrolls report. If Friday's non-farm payrolls show a substantial increase in private sector payrolls, the rally in risk will be sustained, but a further deterioration would verify the Fed's concern for sluggish growth over the next few months which could lead to further dollar weakness.
Of all the major economies, the U.S. is still one of the most vulnerable. Even though there are also worries about the negative impact that fiscal austerity programs in Europe will have on Eurozone growth, German officials have taken the bold step this morning of suggesting that it may be time to remove some easing measures as the recovery grows strength. This sentiment is unique especially in the context of Japan, where plans for additional fiscal stimulus are underway.
This morning's leading indicators for non-farm payrolls provided a mixed outlook for labor market. Challenger Grey & Christmas reported a 54.5 percent drop in job cuts in the month of August which brought total layoffs to the lowest level in more than decade. However ADP reported a 10k decline in private sector employment which points to a negative private sector payroll report. We still believe that the private sector saw net job growth in the month of August, but the latest figures raises the risk of a dollar negative report on Friday.
Meanwhile, the euro and Australian dollar are up substantially this morning thanks to better than expected Chinese PMI numbers, strong GDP numbers in Australia and comments from Chinese Premier Wen who said "China and western countries should work together to enhance the world’s confidence in the euro and the European Union’s economy." There is no better vote of confidence for a currency than support from China and with the Chinese behind the euro, 1.26 may have been the bottom.
Kathy Lien
Director of Currency Research, GFT
Currencies and equities are up strongly this morning following the improvement in U.S. manufacturing activity. Incoming economic data suggests that there may not be as large of a divergence between the recovery in the U.S. and abroad as previously thought.
To the market's surprise, the latest numbers show that manufacturing sector activity in the U.S. accelerated in the month of August with ISM rising from 55.5 to 56.3. The national release completely bucked the trend of the regional reports by showing more strength than weakness. It is extremely encouraging to see the employment component hit 60.1 (up from 58.6), matching its 26 year high and points to a similar improvement in manufacturing sector payrolls. After a series of disappointments and pessimistic comments from the Federal Reserve, investors really wanted some good news. However the underlying components were mixed with prices, production, inventories, imports and employment rising but new orders, backlog of orders, supplier deliveries and new export orders declining. This suggests that the acceleration in activity was due in large part to domestic and not external demand. Yet even though there are still many reasons to be concerned about the outlook for the U.S. economy, the manufacturing ISM report provided warm comfort for both currency and equity investors. The acceleration in manufacturing activity in the U.S. and China alleviates some of the fears for a global slowdown and a double dip recession in the U.S.
However the real test of the economy will be Friday's non-farm payrolls report. If Friday's non-farm payrolls show a substantial increase in private sector payrolls, the rally in risk will be sustained, but a further deterioration would verify the Fed's concern for sluggish growth over the next few months which could lead to further dollar weakness.
Of all the major economies, the U.S. is still one of the most vulnerable. Even though there are also worries about the negative impact that fiscal austerity programs in Europe will have on Eurozone growth, German officials have taken the bold step this morning of suggesting that it may be time to remove some easing measures as the recovery grows strength. This sentiment is unique especially in the context of Japan, where plans for additional fiscal stimulus are underway.
This morning's leading indicators for non-farm payrolls provided a mixed outlook for labor market. Challenger Grey & Christmas reported a 54.5 percent drop in job cuts in the month of August which brought total layoffs to the lowest level in more than decade. However ADP reported a 10k decline in private sector employment which points to a negative private sector payroll report. We still believe that the private sector saw net job growth in the month of August, but the latest figures raises the risk of a dollar negative report on Friday.
Meanwhile, the euro and Australian dollar are up substantially this morning thanks to better than expected Chinese PMI numbers, strong GDP numbers in Australia and comments from Chinese Premier Wen who said "China and western countries should work together to enhance the world’s confidence in the euro and the European Union’s economy." There is no better vote of confidence for a currency than support from China and with the Chinese behind the euro, 1.26 may have been the bottom.
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