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US Unemployment Tops Ten Percent |
Non Farm Payrolls Disappoint
US non-farm payrolls were released this morning, coming in with a
worse-than-expected decrease of 190,000 jobs for the month of October.
This is the second month in a row that the data has posted a negative
surprise, which is adding to the recent uncertainty permeating global
markets as to the prospect of further growth in the near term. The NFP has
largely been ignored by investors over the past couple of months as equity
markets continued their torrid run of form since last March’s lows—even on
worse-than-expected results. Equity markets haven’t let today’s reading
slip through the cracks, however: the momentum the Dow has been gaining
over the past couple of days has been stopped in its tracks. Dow futures
are down over half a percentage point in pre-market trading, and it looks
like the 10,000 level that was broken yesterday is not going to be the
buying opportunity that many thought it would be. The more compelling
piece of data this morning was actually the US unemployment rate, which
has finally topped the 10% mark, coming in at 10.2% versus expectations of
a 9.9% reading. Many economists have been calling for this level to be
reached for some time now, but the psychological impact of a double digit
jobless rate cannot be ignored. Even more disconcerting for the US economy
is the fact that this number does not reflect the thousands of discouraged
workers who are not actively looking for a job. Taking all of this into
account, it appears that if a recovery is in the cards for the world’s
largest economy, it will be a jobless one. The US dollar has managed to
eke out small gains on the news this morning against most majors save the
Japanese yen.
Silver Lining for Canada's Unemployment
Canada also released unemployment data this morning, posting a surprise
loss of 43,000 jobs on expectations of a gain of 10,000. This reading also
pushed our nation’s unemployment rate up to 8.6%, showing that our close
link to the US is a bond that cannot be ignored. On a more optimistic
note, however, all of the jobs lost in the month of October were part-time
positions. This could possibly mean that companies are moving away from
hiring temporary workers and holding on to their current staff in the
hopes of better things to come in the new year. The rate of job losses in
the country is also starting to slow, indicating that recovery probably
won’t be swift, but that the bottom is in for now. The Canadian dollar is
marginally weaker this morning from yesterday’s close.
ECB Hints at an End to Stimulus
After leaving interest rates on hold yesterday, ECB president Jean Claude
Trichet was sounding almost optimistic on the European economy, saying
that, although things still aren’t great, the latest data suggests that
recovery is just around the corner. The most intriguing soundbite to come
from the post-decision communiqué was Trichet’s comment that liquidity
measures employed by the ECB to keep interest rates low can be “phased out
in a timely manner.” This could definitely be the first step in the ECB’s
exit strategy from their current accommodative position, making them the
first of the big central banks to even hint at plans for withdrawing
liquidity. The next step for the ECB could be to raise interest rates, but
with the European economy still in a fragile state, the chances of that
happening in the next few months are remote, as inflation is still
nonexistent, and a shock like that could pull the EU back into recession
in a hurry. Regardless, with the Fed on hold for a while, the BoE
expanding their QE program, and deflation running rampant in Japan, the
ECB could be the first of the big central banks to hike rates in 2010. The
euro has remained firm against the dollar on these comments, even in light
of today’s poor employment figures.
After one of the most data-heavy weeks we have
seen in months, we get a bit of a reprieve next week with only a few
high-impact releases to note. The Bank of England releases their inflation
report on Wednesday while the Aussies release their employment figures on
the same day. These releases will be somewhat subdued by the US and
Canadian holidays next Wednesday as liquidity will be poor.
Have a great weekend
Brendan McGrath, Senior FX Trader
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