Negative Job Data

Investors Find Silver Lining in Negative Jobs Data

May 4 • Market Commentaries • 2551 Views • Comments Off on Investors Find Silver Lining in Negative Jobs Data

The Labour Department said Friday that the economy added just 115,000 jobs in April. Economists had expected a gain of 163,000. The unemployment rate fell to 8.1 percent in April from 8.2 percent in March, but mostly because more people gave up looking for work.

Traders tend to buy the dollar and the yen, two currencies they consider safe havens, when they are concerned that the economy is slowing. The euro fell to $1.3089 in late trading Friday from $1.3151. The euro fell as low as $1.3078, its lowest point against the dollar since April 19.

Concerns that the economic recovery is weakening also pushed traders to buy yen, sending the Japanese currency to a two-month high against the dollar.

Also weighing on the euro are key elections in France and Greece coming up this weekend. A change in leadership in France could alter the way Europe deals with its on-going debt crisis.

The dollar fell to 79.87 Japanese yen from 80.29 yen. Earlier, the dollar fell to 79.56 Japanese yen, its lowest point against the yen since Feb. 21. The dollar strengthened against most other currencies Friday. The British pound fell to $1.6147 from $1.6181. The dollar rose to 0.9177 Swiss franc from 0.9135 and to 99.56 Canadian cents from 98.87 Canadian cents. The U.S. currency also rose against the Australian and New Zealand dollar, the Norwegian krone, the Hong Kong dollar and the Mexican peso.

The dollar rose to a two-week high against the euro after the U.S. government reported that hiring slowed in April. Prior to the release, analysts came up with these possible scenarios

With a weaker than expected ADP, the associated jobless claims, and mixed readings from the two ISMs, the whisper number is likely below the 160k consensus call. The 12 estimates posted on Bloomberg since May 1st average just 143k suggesting that the market is looking for a print closer to 140k then 160k.

 

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The broad market reaction is likely to be:

  • Below 150k: USD negative, keeping the door open to further QE3.
  • Between 150 and 170k? USD neutral, still a weak number but generally priced into markets.
  • Over 170k? USD strength, as it will dampen expectations for QE3 and offset some of the negative economic data released over the past weeks.

With the actual report, fitting category 1, the markets have found a silver lining in a negative report. The headlines of most financial news, now reads Fed accommodation or monetary easing, or Bernanke to the rescue.

Whatever might come out of it, it seems that investors are overall optimists.

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