Reuters Insider - Inside the News: Euro Gains Seen Capped After Payrolls Data
13/06/2016 11:06
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Description: The risk of a disappointing U.S. payroll number on
Friday is high but the return of euro zone debt
worries is likely to limit any benefit to the
single currency, says Jane Foley of Rabobank.
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Transcript (May be auto-generated)
1000 GMT, non-farm payrolls, expected to hit a seven-month high but any
disappointment is likely to rock the market and Ben Bernanke's testimony could
take any shine off the numbers. Eurozone debt worries are also rolling back
through the market this morning. Some Eurozone data just out. Final revised GDP
for the third quarter, three-tenths of 1% on the quarter so off from the
four-tenths expected and 1.9% year-on-year, bang in line. The unemployment rate
stays at 10.1% in the Eurozone. Worries over Eurozone sovereign risk resurfacing
to push peripheral bond yields wider over bunds; the Western European sovereign
CDS index up 6 basis points to a record-high. China's Vice President or Vice
Premier Li meeting German
Chancellor Merkel; that could lift sentiment later on in the day, traders
saying. The Euro falling to a four-month low though against a broadly higher
Dollar; the Greenback driven by hopes of a strong US employment report. Reuters
consensus forecast is for a gain of 175,000 in December; that compares with
39,000 in November. Dollar-Index also climbing to its highest since early
December. 81.076 is where we stand right now. European stocks meanwhile turning
negative, banks leading decline as this week's rally runs out of steam.
Treasuries dipping back in the wake
of yesterday's selloff as investors braced for the jobs numbers. Reuters Fixed
Income Analyst Vincenzo Albano says bond markets are ready for some
disappointing numbers. The 10-year note has lost a 3.30 seconds in the Asian
trading tonight probably on fears of a disappointing non-farm payroll later
today. And in fact, that may open a way for a break of the upper resistance line
in the yield of the 10-year note back to the 3.50 level. All right, let's get
out to Jane Foley, Senior Currency Strategist at Rabobank. On the back of that
Jane, are there too many long the Dollar right now?
What happens if we get 90? Well, at that setting is the risk of course today's
ADP numbers did push higher that market consensus and there are talk in the
market this morning of numbers as high as 400K and yet if you look at that ADP
number, we also know that that under shot, the private payrolls component by, in
11 of the past 13 months. So this week's very strong ADP could have been just
catch-up to the numbers we already have in that payroll. So there is the risk
that we will get a disappointing number. The Dollar of course could backtrack,
we could see trading above at 1.30 again this afternoon, 1.31 maybe 1.3080 but
of course, you've already mentioned those
peripherals problems in the Eurozone. We've seen those yield spreads widen out
again today. We've got that Portuguese bond auction I confirmed for January 12,
we've got a big redemption in Portugal for April, I believe. So from that point
of view, you know, there's going to be a lot of talk as to whether or not
Portugal is heading for a bailout so that should limit the ability of the Euro
certainly to make an awful lot of headway this afternoon. On the other side of
the coin of course, in our range here, Reuters' is 350,000 for the top. If we
get 300-350, what happens to Euro-Dollar then? Well, we're certainly you know,
that the Euro will be having it from both sides if you like.
It's got these peripheral problems and then it's got a story where we really
would have to restart re-evaluating the Dollar outlook. We know that the Fed is
fairly gloomy about the unemployment prospect so we know that that's one of the
main reasons that it decided towards QE2. And we also know that Bernanke thinks
that it could take several years for the US unemployment rate to normalize to
significantly lower levels. But if we did get us a huge surprise and the
payroll's a huge upward number, then the market would begin to think, well, does
that mean if we get this again, next month or the month after the Fed would rein
back that 600 billion Q2? So it would be a positive story for the Dollar. Very
quickly Jane. Does the Dollar tend to react more to the rate or to the payroll
number? I think the payroll number but that employment rate of course, cannot be
overlooked. It could be very important still. Okay. Jane Foley, many thanks.
That's it for now. Join us again at 1030 GMT. For insight with Reuters
Breakingviews and of course, we'll have live coverage of the US non-farm
payroll. That's starts, our coverage starts at 1328. I'm Axel Threlfall, this is
Reuters