[ForexNews]

Long-awaited non-farm payrolls indeed came in lower than last month, -539k, close to revised forecasts after Wednesday's ADP report, and the unemployment rate rose to 8.9% as expected. The green shoots look greener, though the number was helped by government job adds of 72K (census time!), and Euro/dollar jumped a penny past 1.3500, taking out the 200 day moving average at 1.3460 to a new one month high, in line with positive technicals which target 1.3591. Risk appetite was subdued overnight after the stress test results had a few oddities (the press questions government projections), and long Euro liquidation in Asia nudged it down to 1.3343. Sterling continues lower vs Euro, and Euro/GBP should gain given the deep "line in the sand" between ECB and BoE monetary policy, ECB clearly only credit easing vs BoE serious quantitative easing. German industrial production was flat, expected to fall, albeit still -20.4% y/y, as German car buyers went to town with the government's generous EUR 2,500 incentive to exchange an old car for a new one, offsetting continuing weakness in most other parts of industry. Back to the US employment, the duration of those out of work for 15 weeks or more is a new record; today's report of unchanged hours worked was still an all-time low, and economists note that since hours worked leads persons employed in labor market upturn, this recession looks far from over. Continued deleveraging by US households makes a notable Q3 economic upturn unlikely and hence Euro's gains vs USD may not be sustainable. Also, USD/yen is sideways under 100, a signal that risk appetite isn't back with a vengeance.

USD/CAD has seen a new 7 month low today with a surprising gain in Canadian jobs reported, +36K and concentrated in full-time employed, though described as "self employed."

[ForexNews]

The market clearly took today's US employment report as a risk positive and sharp USD negative, despite the failure of payrolls to really fit in as a "green shoot" in terms of data. On top of the financials stress tests, the market's current risk-friendly mode is pushing USD significantly lower, including EUR above the 1.36 level. Going forward, a key factor will be if positive real macro numbers begin to finally emerge from the data flow. The fact that the employment numbers represented a relative improvement from the past few months may be a current positive and has clearly been interpreted as such by markets, but still indicate an economy that is actively contracting (that "first derivative", which is almost always positive in the US - except for sizable recessions). While the risk-aversion demand for USD has faded, the "fundamentals" case for a higher USD - the massively shrinking current account deficit - still is in place, while the Euro-Area picture is also still quite weak.

Global Economic Calendar: Activity still subdued A plethora of key economic data around the globe

The highlights of the US calendar will be the April CPI, retail sales and industrial output reports. Prices are heading deeper into deflationary territory versus year ago levels. Early surveys for May will also be important to gauge the potential improvement in the second – or even the first – derivative. In Europe, the flash estimate for Eurozone GDP is likely to reveal the unusual depth of the recession in Q1. In the UK, the BoE will likely reduce its 2009 GDP forecast again in the Inflation Report after the weak 1Q data. In Japan, market expects the leading indicator to rise for the first time in six months.

Global Economic Weekly: Print now, worry later
Central banks step up QE while economic data improve

Even as the economic data show further improvements around the globe, monetary policy is turning ever more accommodative. Indeed, with rising unemployment and huge output gaps, deflation is a greater near-term concern for central banks than inflation. This past week, the Bank of England and the ECB surprised the markets on the upside with their announcements concerning government and covered bond purchases, respectively. Equities have successfully cleared the hurdle of the US stress test on banks, and economic confidence is rebounding. Even with all the headwinds facing the economy, we believe that prospects for recovery in the second half of the year are improving. Bonds are likely to remain under pressure.

Worrying about a “W”?
Some observers seem to be worrying about a “W”, that is, about a relapse into recession after a temporary recovery over the summer. Analysts continue to think that the double-dip scenario has a low probability in, say, the next six quarters. The fiscal stance will remain highly stimulatory at least through to the end of next year. In addition, monetary policy is gaining traction via asset prices. Rather than a short-lived improvement followed by an immediate relapse, some believe it is more likely that economic conditions will improve gradually but the recovery will then gain some strength going into the final months of the year and early 2010.

ECB: Credit easing lite Upon delivering the expected 25bp refi rate cut to 1% and adding a 12-month refinancing auction to its toolbox, the ECB last Thursday also announced that it would buy around €60bn of Euro-area covered bonds. Some see this as a useful step. Still, the ECB’s variant of credit easing lite could end up supporting one particular segment of the capital market without changing the ECB’s overall monetary policy stance very much. But the ECB is quite accommodative anyway.

The return of Fed credibility

The key measure of Fed credibility – the ratio of financial assets to real assets – has posted the first up-tick since the collapse of Lehman Brothers in September. While no measure is a perfect measure of credibility, the increase in this ratio suggests growing market confidence in the Fed’s ability to manage the ongoing crisis.