Markets Temporarily Bulled up for NFP Headline

This morning’s focus temporarily shifts from Greece to the U.S., where the granddaddy of economic indicators, the nonfarm payrolls (NFP) report, could give up a subtle hint to the timing of the Federal Reserve’s first rate lift off. Capital markets are expected to be active, at least until U.S. trading desks thin out enough for the long weekend, just after New York’s midday.

All week, traders have been held captive by the barrage of Greek headlines, which has instigated brief risk-off and -on position taking, depending on what’s been said. Nevertheless, the USD heads into this morning’s employment report being well supported by yesterday’s strong ADP (+237,000) and Institute of Supply Management survey (53.5) readings. The dollar is trading stronger against every other Group of 10 currency as position squaring dominates ahead of the NFP, and Sunday’s referendum in Greece amid thin liquidity conditions.

The expectations for a Fed rate hike as early as September will likely trade aggressively one way or another; at least until the Greek referendum results are known and assimilated by the market. If Greek-related market turmoil does happen to erupt and have a massive negative impact on the market, then this could actually influence the Fed’s first rate hike for 2015. Despite many investors willing to take a wait-and-see stance until after Sunday’s Greek event risk, others are willing to shift their focus back to U.S. fundamentals and NFP gets no bigger. Today’s price movement is expected to be whippy due to the anticipated liquidity constraints.

The Buck is Well-Supported

Today’s market sentiment is upwardly biased for the USD for two reasons. Firstly, the strong ADP national employment report, and secondly, the market’s anticipation that the Greeks will vote to back the eurozone’s bailout conditions on the weekend (various polls suggest +47% for and +43% against). Market consensus for today’s jobs headline is looking for an NFP growth print of +230,000 with an unemployment rate to tick down to +5.4% from +5.5%, and a +0.2% average earnings print. Nevertheless, after last weekend’s price action on the Asian open where the EUR plummeted (€1.1186 to €1.0995) and portfolio managers pared back their euro bond exposures, many individuals will be dissuaded from holding large positions over the weekend.

Riksbank Stumps Markets Again

The Swedish central bank flatfooted the market again this morning and cut interest rates further into negative territory while expanding its quantitative easing (QE) program. The Riksbank cut its repo rate to -0.35% from -0.25% and extended its bond-buying program by SEK45 billion. Perhaps more importantly, Swedish policymakers are prepared to make their monetary policy ‘more expansionary’ if needed. The accompanying statement noted that monetary easing is needed as uncertainty aboard had risen and that it was difficult to assess the consequences related to Greece.

The market will now be concerned that the Riksbank could act between meetings. If it does, there are a number of options open to policymakers. It’s possible for them to cut their repo rate even further into negative territory, and again increase monthly QE amounts. Finally, the central bank could intervene directly in the forex market.

During this morning’s Riksbank post-rate decision press conference, Governor Stefan Ingves noted that Greece’s problems were “no big issue” for Sweden, but there is increasing economic uncertainty in Europe. He noted that Swedish monetary policy was having an impact on inflation, and reiterated that inflation had bottomed and is heading back higher. The SEK currency is broadly weaker across the board after the unexpected cut rates and expanded QE. The EUR/SEK went from €9.2450 to approach €9.37 directly after the release.

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