The trading action at opening time in New York this morning was dominated by nervousness in the wake of the large decline in the Dow on Wednesday. That drop was, in turn, precipitated by the poor showings in the ISM’s manufacturing and the ADP’s private payrolls figures. Global benchmark indices fell to one-week lows yesterday as apprehensions that the global economic recovery is struggling through an unexpected (by many) “air pocket.”
Despite certain economists’ assertions that this phenomenon is but a “run-of-the-mill, mid-cycle breather,” investors remain spooked by the prospects of yet another serious global economic contraction. The “risk-on” trade morphed into “no risk, thanks” faster than the negative headlines were being bolded on Wednesday. When the “risk-off” leaning becomes the comforting attitude to adopt, there is normally one beleaguered asset that tends to benefit from the shift; the good old greenback.
Markewatch’s Jim Lowell sums it up as follows: “When Calamity Jane comes to town, I don’t think there’s a better bet than the greenback. Say what you will, the technical trading charts suggest that what pulls the dollar’s trigger best is a marketplace shoot ‘em up that leaves all customers looking for a table to dive under. I have been a longstanding dollar bull, which is a kind way of saying I have been poked in the eye more than once by that call.” Join the poked-eye club, Mr. Lowell. Someone here is a “member emeritus” of it.
Thus, and quite understandably, the metals’ trade (as well as a host of other speculators) was keenly focused on the day’s release of US initial jobless claims numbers as well as tomorrow’s overall US employment statistics courtesy of the Labor Department. Fortunately for certain markets at least, the level of unemployment claims filing did manage a small (but smaller than hoped-for) decline (to 422,000 for the latest reporting week) while the four-week average of such filings dropped by 14,000 to its lowest level in more than a month; it ran at the 425,500 level.
The Labor Department’s fresh data did not initially appear to help the US dollar too much (it remained 0.45 lower, at 74.36 on the trade-weighted index) but the consensus was that the euro’s momentary strength was more of an impact factor at this juncture. The common currency received an additional psychological lift in the wake of a tough-talking Mr. Trichet this morning. The ECB President’s call to “arms” included urgings for significantly tougher fiscal interventions to take place in the eurozone as well as for the advent of a central finance ministry intended to look after Europe’s fiscal issues.
At this point, such an agency would immediately be given quite a “to-do list” to be sure. Just last night, Moody’s Investor Services reshuffled the alphabet soup lettering related to Greece’s sovereign rating to Caa1 from B1 and also assigned it a “negative” outlook. Moody’s concluded the game of ratings Scrabble with the caveat that Greece’s present “risks imply at least an even chance of default over the rating horizon.”