Risk Stabilises Pre-Payrolls
Risk stumbled early during the European session, lacking obvious macro catalysts, though there were signs of stabilization on the US open, with several bourses edging into positive territory but struggling to hold these levels. Payrolls are obviously the key driver for risk today but it would be difficult for markets to dismiss the weak PMI prints across Europe released overnight. Stabilisation at very low and contraction levels are no reason to cheer and markets will continue to ask questions over the economic cost of austerity well into the coming year. For now though, payrolls will have an added impetus given Fed policy will be back on the agenda as Operation Twist’s expiry may be due to technical factors. The election next week will keep Fed expectations on the sidelines, but the narrative of policy aiding lower unemployment will remain unchanged and current trends in payrolls will continue to play a role in how the Fed decides to complement the new QE programme in mortgages. Overnight, Boston Fed President Rosengren served reminder of what is at stake, declaring that the Fed should keep buying bonds until the unemployment rate falls to 7.25%. Now at 7.8% there is clearly little prospect of an imminent cessation of quantitative easing, and our US economists still expect the Fed to more than double the pace of bond purchases in December. Meanwhile in Europe, Greek newspaper Kathimerini calculates that the coalition government might only be able to muster 153 votes in favour of legislation due to come before parliament on Wednesday and the following Sunday. A simple majority of 151 votes is needed to pass bills in the 300 seat parliament, and it is still an open question whether parliamentary ratification will happen on schedule. Where the euro is trading today does not reflect the considerable risk of another political crisis in Greece within the next two weeks. Elsewhere, Canadian payrolls are also due and the market is expecting another 10k gain in employment, with the unemployment rate to hold at 7.40%. Overnight EURUSD traded 1.2866-1.2950 and USDJPY 80.12-80.34.
Click here to read the full report: UBS Morning Adviser America
UBS Investment Bank