• The dollar, while rising against the yen and Swiss franc, fell versus other key counterparts after better-thanexpected US employment data eased concern of a double-dip recession. For the week, all the major crosses except sterling rose against the greenback. Private-sector payrolls grew more than expected in August and job losses in July and June were revised down, while the August ISM non-manufacturing index fell to the lowest level in seven months. Treasuries continued to weaken and commodity prices rose. The S&P 500 gained 14.41 to 1,104.51, extending its biggest weekly gain since July. The USD/JPY pared strong gains. The EUR/USD rose for a fourth consecutive day. The GBP/USD advanced today but recorded its fourth weekly decline. The Australian and Canadian dollars were supported by a better commodity outlook.
• The dollar index fell for a fourth straight day and closed at the 82 support. If this support holds, a short-term USD rally may occur. If not, the index will likely fall to the 80 support. A drop would be bullish for risky assets like equities and commodities; thus, decreasing the risk of a global economic slowdown. Resistance is in the 83.50 area.

Financial and Economic News and Comments

US & Canada

• US nonfarm payrolls fell for a third consecutive month in August, falling a less-than-expected 54,000, following a revised 54,000 July decline (vs. previously reported -131,000) and a revised 175,000 June drop (vs. previously reported -221,000), according to figures from the Labor Department. The unemployment rate increased to 9.6% from July’s 9.5%, as expected. Private-sector payrolls rose 67,000 in August after an upwardly revised 107,000 gain in the previous month. Manufacturing employment fell 27,000 following July’s downwardly revised 34,000 increase. Government employment dropped 121,000 in August, reflecting the departure of 114,000 temporary Census 2010 workers. Average hourly earnings rose 0.3% m/m to $22.66 in August after a 0.2% m/m increase in July. Growth in average hourly earnings slowed to 1.7% y/y from July’s 1.8% y/y. Average weekly hours remained at 34.2. 

• The ISM US non-manufacturing index declined to a lower-than-expected 51.5 in August from 54.3 in July, indicating US service industries expanded for an eighth straight month but at the weakest pace in seven months, data from the Institute for Supply Management showed. The business activity index decreased to 54.4 from 57.4, showing business activity grew for a ninth successive month but at a slower rate. The new orders index fell to 52.4 from 56.7, suggesting new orders expanded for a 12th straight month but at a slower pace. The employment index declined to 48.2 from 50.9, indicating non-manufacturing employment contracted in August after one month of expansion. The prices paid index jumped to 60.3 in August from 52.7 in July, suggesting prices paid by non-manufacturing organizations for purchased materials and services rose for a 13th straight month and at a significantly faster pace.

Europe

• Eurozone retail sales posted a third consecutive gain in July for on both monthly and yearly bases, according to data from Eurostat. Retail sales grew a marginally less-than-expected 0.1% m/m in July, after upwardly revised increases of 0.2% m/m in June and 0.5% m/m in May. July retails sales rose a more-than-expected 1.1% y/y, following upwardly revised gains of 1.2% y/y in June and 0.9% y/y in May.

• The eurozone composite PMI declined to 56.2 (vs. preliminarily reported 56.1) in August from 56.7 in July, indicating euro-area services and manufacturing industries expanded for a 13th straight month but at a slightly slower pace, final August PMI data from Markit Economics showed. The services PMI edged up to 55.9 (vs. preliminarily reported 55.6) from July’s 55.8, suggesting the services sector grew for a 12th successive month and at the highest level in three months.
• The German composite PMI declined to 58.4 (vs. preliminarily reported 59.3) in August from 59.0 in July, showing Germany’s services and manufacturing sectors expanded for a 13th straight month but at a slightly slower pace, according to final August PMI data from Markit Economics. The services PMI increased to 57.2 (vs. preliminarily reported 58.5) from July’s 56.5, suggesting the services sector expanded for a 13th straight month and at the fastest rate in three years.
• The CIPS/Markit UK services PMI declined to a lower-than-expected 51.3 in August from 53.1 in July, indicating the UK services sector expanded for a 16th straight month but at the slowest pace since April 2009, data from the Chartered Institute of Purchasing and Supply and Markit Economics showed.
• Switzerland’s consumer prices remained unchanged m/m as forecast in August, the first month they did not fall in four months, after a 0.7% m/m decline in July, according to CPI data from the Swiss Federal Statistical Office. The consumer-price inflation rate slowed for a fourth consecutive month, to 0.3% y/y, the lowest since December 2009, from July’s 0.4% y/y.

Asia-Pacific

• Japan’s capital spending decreased a less-than-expected 1.7% y/y in Q2 2010, a 13th straight quarter of decline but easing from an 11.5% y/y drop in Q1, data from the Ministry of Finance showed, signaling the government will revise upward its Q2 GDP growth estimate next week. Capital spending excluding software declined 1.5% y/y, easing from Q1’s 12.9% y/y drop.
• The Australian Industry Group/Commonwealth Bank performance of services index increased to 47.5 in August from 46.6 in July, indicating Australia’s services sector contracted for a fourth consecutive month “amid uncertainty related to the Federal election and the gradual withdrawal of fiscal stimulus” but the pace of contraction eased slightly, according to data from the AiG and Commonwealth Bank of Australia. Sales of services expanded for the first time in four months, with the sales index rising to 51.8 in August from a contraction-level 44.4 in July. The new orders index increased to 47.0 from July’s 46.1, suggesting new orders shrank for a fourth straight month but at a slightly slower pace. The employment index declined to 47.0 in August from 50.4 in the previous month, showing employment contracted for the first time in three months.

FX Strategy Update

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