The dollar and yen are holding on to yesterday's loss against european majors as markets are awaiting January employment data from US. ECB rate decision and Draghi's press conference triggered a rebound in euro with the EUR/USD breaching 1.36 overnight but there was no follow through buying above that level. On the other hand, rebound in stocks also lifted yen crosses in general with the USD/JPY back above 102 level for the moment. The Dow closed 188.3 pts, or 1.22% higher and the short covering in equities carried on in Asia today. The Nikkei is up nearly 300 pts at the timing of writing, trading around 14450 after an attempt on 14000 handle earlier this week. The employment data from US will be defining for the trend for the rest of the month.
Economists are expecting 175k growth in non-farm payroll in January, comparing with the poor figure of 74k back in December. Unemployment rate is expected to be unchanged at 6.7%. The leading NFP data were mixed. The ADP showed 175k growth in private sector comparing to prior months 227k. ISM manufacturing employment deteriorated sharply to 52.3, down from 56.5. However, ISM services employment improved to 56.4, up from 55.6. The 4 week moving average of initial jobless claims also dropped to 333k, down fro 357k a month ago.
Overall, the chance for an upside surprise is roughly equal to that of downside surprise. We might actually get a number that's not far from consensus expectation of 175k. The more important point to note is whether there would be upward revision to December's 74k figure. So far, Fed has continued with in measured tapering in January by lowering the monthly asset purchase size by another USD 10b to USD 65b. The pace of tapering would be highly dependent on incoming data. We don't expect Fed to slow down the pace unless we'd get two consecutive months of weak, sub-100k job growth.
Other data to be watched today include Canadian employment, which is expected to show 17.5k growth in January with unemployment rate dropping to 7.1%. UK will release trade balance, industrial and manufacturing production. Germany will also release industrial production and trade balance. Swiss will release retail sales and foreign currency reserves.
Released earlier today, RBA said in the monetary statement that "over the past few months, there have been further signs that very stimulatory monetary policy is working to support economic activity." The RBA revised their GDP projection to 2.25%-3.25% in 2014, up from prior forecast of 2.00%-3.00%, thanks to the depreciation in Aussie. Meanwhile, it also projected that inflation would peak between 2.25% to 3.25% between now and June 2015. And, it reiterated that " period of stability in the policy rate is likely."
Yesterday, the ECB refrained from easing further in February despite heightened disinflationary pressures. The accompanying statement is more dovish than expected, though. President Draghi indicated that the economic situation has got more complex and the central bank is 'extremely cautious' over incoming data. To our surprise, the ECB would publish the staff projections through 2016, nine months earlier than normal. The focus is on the inflationary outlook which we believe should remain far below the central bank's target. We expected the ECB to cut interest rates further in March. More in ECB Kept The Powder Dry, Announced To Release New Economic Projections In March.