The disappointing release of June US non-farm payroll has hurt the investors risk appetite strongly today causing a sell off in the equities markets as the data have shown adding 467k lost jobs out of the farming sectors and an increasing of the unemployment to 9.5% in June. It looks that the recovery is really halting and unreliable and the current economic situation can exacerbate. The unexpected huge amount of lost jobs because of this credit crisis show that the business confidence is still at a very low level and the pace of contraction can increase again and the demand is still weaker than spurring a growth. These new loses of the labor market can lead to a cautiousness of the consumers' spending which can dampen this sluggish demand which should bring growth again. S&P 500 could not close above 900 this time and Dow has lost 233 heading lower to complete the third consecutive week of loses since it has started its rebound on the 9th of Last March when it reached this year low at 6469 as today is off because of the US independence day.
The Single currency has dived below 1.40 versus the greenback which could get benefits as a safe haven of the investors at these times of losing confidence in taking risks relying of the growth speculations. The single currency has got no clear direction from Trichet's comments today after the ECB decision to keep the interest rate unchanged at 1%. The central Bank has mentioned in the recent meeting that it will buy covered bonds worth 60 billion Euros with mortgages loans or public loans in the euro area and it has surprised the market last week by adding that it will extend the one year loans which worth about 442 billion euros to the European banks on 1% to afford the required liquidity to move the current economy stagnation and the market was waiting for new clues today from Trichet's comments which came very conservative and as expected repeating the mantra that the current interest rate is appropriate and the current negative inflation rate is likely to be short lived and the gradual recovery is expected to be in the first half of next year and the current situation is not out of the ECB expectations. By god's will, we are to wait today for June services PMI data of the Euro zone which is expected to be 44.5 from 44.8 in May in a low volume day because of the closing of the US markets today.
The Japanese yen was supported by the frustrating jobs figure of June in US as it increases the carry trades unwinding in the favor of the low yielding currencies such as the greenback and the Japanese yen which has an interest rate at just .1%. Nikkei is expecting to follow the US stocks market to add further loses negatively impacted by the strong yen which can hurt the Japanese exports at this time of sluggish global demand and The Japanese Tankan survey of the big manufacturing in the second quarter came strongly negatively impacted by this weak demand at -9.4% and it was expected to be 6.9% which could put further pressure on the Japanese stocks which could not get out of the negative impact of the disappointing release of June US consumers confidence survey which can hurt the demand for the Japanese exports.
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FX Consultant
Walid Salah El Din
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