Risk Appetite Wanes Ahead Of NFP

Risk Appetite Wanes Ahead Of NFP


FX markets remain heavy as news flow out of Greece continued to paint a worrying picture, in equity markets, risk appetite remains buoyant as signs of a global recovery spread. Asian regional indices rose across the boards as the Nikkei climbed +1.17, Hang Seng 1.23 and Shanghai rose 0.60%. EURUSD failed to consolidate yesterday's gains, falling to 1.2887 from 1.2943. As we speed closer to today's critical NFP. Next week’s election and uncertainty created by the 'fiscal cliff' and European peripherals, the market is likely to keep the pair (damaged on both sides) rangebound. USDJPY traded higher as a steady negative news stream hurt the JPY. Ultra weak corporate earnings from Panasonic, Sony and Sharp (which doubts its own survival), pushed USDJPY to 80.34 from 80.11. We suspect that further gains will have to wait until this afternoon US payroll reports. In Australia, PPI data printing below expectations but unchanged at 1.1% y/y.

However reaction in the AUD was muted on the release, as it traded lower to 1.0380 from 1.0420. Interestingly, AUDJPY is a pair to watch as it nears range highs at 83.40. The Greek Court of Auditors ruled that the proposed pension reforms including increasing the retirement age to 67 and cutting pensions could be unconstitutional. This significantly complicates the process as Greece lawmakers are expected to vote on the reforms next week. While lawmakers could disregard the courts ruling it would be subject to considerable number of legal challenges. The Greek finance ministry officials were quick to call the court’s ruling to be only 'opinion'. This news plus evidence that the latest Greek public opinion poll has shifted against the government, indicates that passing and implementing the Troika required austerity measures will once again be a challenge.

As for today, this week’s ADP with new methodology printed at above expectations and has now fueled speculation by some analysts that it has become a leading indicator (finally). Boston Fed President Rosengren provided the markets with a clear reminder of why these numbers are so critical, stating that the Fed would keep buying bonds until the unemployment rate drops to 7.25%. In the European session, we have EC PMI manufacturing and UK PMI construction then the focus will turn to the US and payroll figures.