Investors maintain a generally positive mood ahead of employment data from US. S&P 500 ended at another record high of 1877.03 overnight while Asian equities followed. Euro was boosted by up ECB press conference yesterday and maintains the strong gains against dollar and yen. Though, it's overshadowed by commodity currencies, which were boosted by risk appetites and solid economic data from Canada and Australia. Yen and dollar are the weakest currencies as usual in such environment. But, it should be noted that the weakness was closely followed by Sterling, which was pressured in cross against the euro. The dollar will face a tough test from employment data today and there is risk of disappointment as the job market could be dragged down by services sector.
Economists expect the US non-farm payroll to show 150k growth in February while unemployment rate is expected to be unchanged at 6.6%. Looking at corresponding job data, ADP employment was a disappointment and showed only 139k growth versus expectation of 150k. Prior month's ADP figure was also revised sharply down from 175k to 127k. The 4 week moving average of initial claims was slightly up to 337k. Employment component of ISM manufacturing was unchanged at 52.3. However it should be emphasized that the employment component of ISM services dropped sharply from 52.5 to 47.5. That was the first sub-50 reading since December 2011 and the worst reading since March 2010. So, overall, there risk of today's NFP is heavily skewed to the downside which, in that case, could send the greenback lower.
Nonetheless, the NFP data today is not likely to affect Fed's tapering path. Atlanta Fed Lockhart said yesterday that "unless we really fall off track in the economy pretty dramatically, I think the tapering program should proceed." And the "bar" for a pause or renewal of asset purchases would be "very high". New York Fed Dudley said the threshold for changing the course on tapering is "pretty high" and "the outlook would have to change in a material way relative to my expectation." Philadelphia Fed Plosser said "we are not going to deviate from that path unless something pretty significant happens."
Yesterday, the ECB left the main refi rate unchanged at 0.25% in March. Interest rates on the marginal lending facility and the deposit facility also stayed unchanged at 0.75% and 0.00% respectively. While the Quarterly Macroeconomic Projections forecast only show very gradual economic recovery and below-target inflation by 2016 (1.5%), it does not seem that the central bank would add more easing measures in the near-term, unless faced with big risks. The ECB at this meeting also maintained its forward guidance that interest rates are expected to remain at present or lower levels for an extended period of time, unchanged from the February one. The euro climbed higher on the inaction. More in ECB Expects Inflation to Stay Below Target in the Medium Term, No Action Unless Material Downside Risks.
Looking ahead, Swiss employment, CPI and foreign currency reserves, German industrial production will be released in European session. US will release NFP as well as trade balance. Canada will also release job data and trade balance.