Forex Investment and Currency Trading

US equity markets and the dollar surged and bonds sold off sharply after UBS and Lehman announced new capital issues and fears over the financial crisis receded a little.

In Asia the Nikkei and Hang Seng rose 1.04% and 1.26% respectively. Stockmarkets in Europe rose strongly, with the FTSE gaining 2.64%, despite large write downs at a German and Swiss bank. European financials gained especially in London. US stockmarkets surged in excess of 3% each, with the S&P closing up 3.59% also led by strong gains in financials. Front-month WTI fell USD0.51 to USD 100.99 on renewed USD strength with Gold spot closing below USD900 for the first time since Feb 5, down from USD916.88 to USD882.13. The USD gained strongly against the EUR, GBP and JPY. Two-year UST yields gained 17 bps while ten-year yields gained 13bps, with the 2s-10s shedding 5bps to 176bps. 

Wednesday in the US brings the ADP Employment Change (Mar) and Factory Orders (Mar). Both are secondary to Fed Chairman Bernanke testimony on the “Economic Outlook” before the Joint Economic Committee of Congress. Fed Chairman Bernanke in his first comments since the March 18th FOMC will likely note the increasing weakness in the economy, continuing weakness in housing and the fading of inflation pressures. He will also emphasise the measures taken to improve financial market liquidity. He will not rule out further easing but might imply that the pace of easing will slow. 

The ADP Employment Change (Mar) is expected to print a fall of 40k vs. -23k prior.  But this is a volatile number and February’s figure was a big fall from January so a bounce up is quite possible. The big picture is that the jobs market is gradually weakening. Initial Jobless Claims have averaged 363k so far in March vs. Feb 348k and Jan 334k. The ISM manufacturing employment subcomponent (see below) improved today, but it was still contractionary. A significantly stronger ADP number, may lead some to revise their Non Farm Payroll forecast upwards, but the correlation is weak. We expect a fall of -60k on Friday, slightly worse than the consensus (-50k). 

Factory Orders (Feb) are expected to print -0.8% v. -2.5% prior, based on the larger than expected fall in Durable Goods Orders (-1.7% vs. -4.7%) which forms two-thirds of the Factory Orders number.