Confidence Weak Despite Triple Shot Central Bank Actions, Could NFP Help

Markets are rather unconvinced by the triple central bank actions yesterday. Even though ECB and PBoC cut rates and BoE expanded the asset purchase program, European equities ended flat only while the Dow was down -47 pts. Asian stocks followed and were broadly lower today. The dollar jumped over the board together with the Japanese yen on risk aversion. Spanish 10-year yield was back at 6.8%, the level before the EU summit while Italy 10 year yield was back pressing 6%. The developments highlighted markets deep concern on slowdown in the global economy. And indeed, PBoC's surprised second cut in a month was seen as an alarm in China, rather than something to cheer for. Focus will turn to job market data from US today which could trigger another round of volatility in risk markets.

Overnight, ECB cut the benchmark interest rates to historical low of 0.75%. And more importantly, the deposit rate is now at 0.00%. Comments from ECB President Draghi was overwhelmingly cautious as his noted that "downside risks to the euro-area economic outlook have materialized" and the bank doesn't see "risks for inflationary expectations." Draghi warned that Q2 indicators pointed to a "renewed weakening of economic growth and heightened uncertainty." With deposit rates at zero, markets are already speculating that there could be another round of LTRO in September, and ECB could eventually adopt quantitative easing.

Talking about QE, speculation of QE3 from the Fed intensified this week as ISM manufacturing index dipped into contraction region in June, for the first time since 2009. Yesterday's ISM services indices also disappointed by dipping to 52.1 in June. A bad NFP number today will fuel further expectation of additional easing from Fed. Markets are expecting NFP to show 90k job growth in June with unemployment rate unchanged at 8.2%. The ADP private report beat expectation and showed 176k growth in June, which should be NFP positive. The employment component of ISM manufacturing index dropped slightly to 56.6. in June but remained solid. That of ISM services have indeed improved to 52.3 in June. 90k for NFP is not an aggressive number and judging from the leading indicators, we'll more likely get an upside surprise today than not. In addition to NFP we'll have some more important economic data featured today.

Swiss CPI is expected to show deflation unchanged at -1.0% yoy in June. UK PPI is expected to show further moderation in upstream price pressures, in particular with PPI input dropping -2.2% yoy in June. Canada will release its employment report today and is expected to show 5k growth with unemployment rate unchanged at 7.3%. Canada will also release building permits and Ivey PMI.