Daily Forex Analysis by Finexo.com 01/04/2010

Past Events

• USD ADP Non-Farm Employment Change, out at -23K versus expected 40K, prior -24K (revised)
• CAD GDP m/m, out at 0.6% versus expected 0.5%, prior 0.5% (revised)
• EUR Unemployment Rate, out at 10% as expected, prior 9.9% (revised)
• EUR German Change, out at -31K versus expected 10K, prior -1K (revised)
• EUR CPI Flash Estimate, out at 1.5% versus expected 1.1%, prior 0.9%

Upcoming Events

• USD Unemployment Claims (1230 GMT)
• USD ISM Manufacturing PMI (1400 GMT)
• EUR German Retail Sales (0600 GMT)
• GBP Manufacturing PMI (0830 GMT)
• GBP Halifax HPI (Tentative)

Market Commentary

In the US the ADP Non-Farm Payroll has shown that companies there unexpectedly cut payrolls in March. The 23,000 decline was the smallest in two years and followed a revised 24,000 drop the prior month, data from ADP Employer Services showed today. Over the previous six months, ADP’s initial figures have overstated the Labor Department’s first estimate of private payroll losses by as little as 2,000 in February to as much as 151,000 in November.

A March payroll gain in line with the median estimate is due to the fact that the ADP’s figures aren’t influenced by weather and don’t include government payrolls which will reflect the hiring of temporary workers to conduct the census. The government has been hiring thousands of workers to conduct the regular 10-year U.S. Census, but those jobs are temporary. ADP includes only private employment and doesn’t take into account hiring by government agencies.

Analysts feel that companies are still hesitant to add workers until they are convinced that the economic recovery has taken hold. Joel Prakken, chairman of Macroeconomic Advisers LLC in St. Louis, which produces the figures with ADP said “the economic recovery has not been long enough or strong enough along the way yet to produce the kind of rapid employment that people are hoping for.”

Tomorrow’s release of Non-Farm Payrolls is expected to show growth of 200,000 nonfarm jobs for March. Some economists are even predicting gains of up to 250,000. If the forecasts prove accurate, it would be the largest expansion since November 2007 and only the second advance in the past 27 months.

Although government statisticians try to account for season factors, severe snowstorms throughout the country skewed the data in February. In fields such as retail, construction and transportation, workers missed time and companies delayed hiring decisions. As a result, some of the increase in hiring that should have taken place in February got pushed into March.

Before Non-Farm Payroll data is released tomorrow American unemployment claims are due to be published later today. The figures have been improving in recent weeks dropping from 496K to 442K. Another drop in claims would raise expectations ahead of tomorrow’s release however the figures are expected to remain almost unchanged.

Also due out later today is the manufacturing report issued by the Institute for Supply Management. The ISM report for March is projected to rise to 57.4% from 56.5%, according to a MarketWatch survey. Readings above 56% are viewed as consistent with strong growth in manufacturing.
In trading yesterday the US Dollar fell 0.62% against the Euro to close at EUR 1.3507. It gained 0.73% on the Pound to close at GBP 1.5182.

North of the border, Canada’s economy expanded at the fastest pace in three years in January, led by manufacturing, wholesaling and construction, adding to evidence that the country is recovering more quickly than policy makers expected.

Gross domestic product increased 0.6% from December, the fifth straight gain and the biggest since December 2006, according to data from Statistics Canada. The report suggests first-quarter economic growth is still coming in faster than the Bank of Canada predicted, after output expanded at the highest quarterly rate since 2000 in the October-December period. Investors have raised bets that Governor Mark Carney will increase his key interest rate in the next few months on signs of quicker inflation and growth.

Carney has pledged to keep his key lending rate at a record low 0.25% through June unless the inflation outlook shifts. He also said March 24 the commitment is “expressly conditional” on inflation, and said that a key measure of inflation has increased faster than expected.

The central bank predicted the economy will grow at a 3.5 % pace this quarter and a 4.3% rate in the April- June period before slowing through next year. Canada’s 5% growth in the fourth quarter exceeded the Bank of Canada’s 3.3 % estimate. Gross domestic product was 1.3% greater in January than in the same month a year ago. The country’s first recession since 1992 ended in the third quarter of last year.

In a separate report, Statistics Canada said that non-farm payrolls were unchanged at 14.53 million in January from December, and down 1.1% from the year-earlier month. Prime Minister Stephen Harper has said job creation is a top priority for his government this year.

The Loonie climbed up 0.39% against its American counterpart yesterday to close trading at CAD 1.0157.

In Europe the unemployment rate across the 16-nation Euro Zone hit 10% in February, the first time it has reached double figures since the euro was introduced. The jobless figures, from the Eurostat agency, showed large variations between nations in the Euro Zone. The unemployment rate was 19% in Spain, whereas in the Netherlands, the rate was just 4%.

Separate figures showed Euro Zone inflation hit a 15-month high in March, rising to 1.5% from 0.9% in February. The inflation figure was higher than expected, with analysts blaming recent rises in energy prices for the increase. However, inflation still remains below the European Central Bank’s inflation target of just below 2%, and analysts do not expect the bank to change its key interest rate from 1% for several months.

The rise in the unemployment rate is being seen as a further sign that the Euro Zone’s recovery from recession remains slow. The Eurostat figures showed that 15.749 million people were unemployed in the Euro Zone during February, up 61,000 from the month before. Across the 27-nation European Union, the unemployment rate rose to 9.6% in February, from 9.5% in January.

Separate figures from Germany on Wednesday indicated that unemployment there was falling. Federal Labor Office figures showed the jobless total fell by 31,000 in March to a seasonally adjusted total of 3.382 million, with the unemployment rate dropping to 8% from 8.1%. “This… brings some hope that the much-needed recovery in German consumer spending could yet materialize,” said Jennifer McKeown, senior European economist at Capital Economics.

In trading yesterday the Euro gained 0.62% on the US Dollar closing at EUR 1. 3507. Against Sterling it dropped 0.12% closing the day at GBP 0.8894.

In the UK the monthly manufacturing PMI is due to be released later today. In the past five months it has been above the crucial 50 point mark, indicating economic expansion. This time it is expected to edge up from 56.6 points to 56.8 points. This will be a big market mover for the Pound.

Written by Finexo.com