Quick Word on Jobs Data

I had thought I had gone a bit out of the limb warning of the risks of a stronger than expected report and that the stronger the report the worse the dollar would perform. Instant gratification, but with holidays in the US, Canada and Japan on Monday, the market may not significantly extend the dollar's decline ahead of the weekend. However, short-term momentum and trend followers are probably still net short the euro, though some nimble players have reversed ship.

The employment data is only good becasue expectations have been so depressed. The 103k headline increase and 137k private sector increase are not spectacular by any stretch of the imagination. The August series was revised up by 57k and the July report by 42k. The work week increased by 6 minutes and this is worth say around 350k full time equivalent and hourly earnings rose 0.2%.

The jobs and income should underscore the likelihood of a firm retail sales report. This has also been hinted by the reasonable weekly chain store sales reports and the auto sales. Manufacturing lost 13k workers, the biggest decline in since Aug 10. This may limit the gains in mfg outout and therefore industrial production. On the other hand, US domestic auto sales are outstripping production. Constuction jobs grew by 26k and this suggests construction spending is another net positive to GDP. The jobs were concentrated in the non-residiential space.

The report strengthens ideas of a realtively robust Q3 GDP around 2.5%. As a starting point, I am assuming Q4 GDP is around 2%.

In the position squaring near-term dominant factor, I look for the euro to rise toward $1.36-$1.37 and sterling toward $1.57. Canada reported much stronger than expected employment data and there is room for CAD to run, perhaps pushing the greenback toward CAD1.01. The Mexican peso should also do better now that imminent US recession fears should lessen. Emerging market currencies in general can recover too.