Sentiments Lifted as Greece Passed PSI Hurdle, But Markets Cautious Again Ahead of NFP

Sentiments are further lifted today as Greece has successfully completed the PSI bond swap deal. The Ministry of Finance just confirmed that participation rate reached as 85.8%. And Greek government is optimistic that after activating the collective action clauses, overall participation could surpass 95%. Greece has cleared an important hurdle in securing the second EUR 130b bailout from EU. Finance Minister Venizelos will have a call with Eurozone finance ministers later today on the progress while IMF will discuss the bailout for Greece on March 13. EUR/USD recovered strongly cover high but faced some resistance ahead of 1.33 level.

While the Greece risk is cleared, focus will now turn to non-farm payroll from US today. Markets are expecting 210k job growth in February while unemployment rate is expected to be unchanged at 8.3%. Looking at the leading indicators, ADP job report showed 216k expansion in the private job market. The four week moving average of initial jobless claims improved notably from 375k to 355k. Employment component of ISM manufacturing dropped form 54.3 to 53.2 in February while that of ISM services dropped from 57.4 to 55.7. Nonetheless both employment components stayed comfortably above 50 level. Hence, today's Non-farm payroll report will likely show healthy job growth even though it would possibly be lower than January's 243k.

However, we'd like to point out again that the latest risk selloff, which had DOW dived to as low as 12734 and gold dived to as low as 1663 earlier this week, was triggered by Bernanke's testimony last week. At that testimony, markets were clearly disappointed at Bernanke's lack of mentioning of QE3. And, a solid NFP number today should further reduce that chance of additional QE from Fed. So the question is, would risk market response negatively to a good NFP number today? This is the main question for traders.

China's CPI moderated sharply from 4.5% yoy to 3.2% yoy in February, below expectation of 3.4%m and was the lowest number in 20 months. The data clearly showed that inflation pressures are easing and should give China much leeway for additional policy easing giving that Premier Wen has set the CPI target to be 4% this year. . Indeed, there have been speculations of an imminent reserve ratio cut by 50bps this week. PPI also dropped from 0.7% yoy to 0.0% yoy. and was the lowest number since December 2009.

Other data to be watched today includes German CPI, UK productions, Canada employment, trade balance and US trade balance.