cross markets data reaction

Canadian Data Looks To Waken Loonie, Drive Equities To Fresh Records

Wednesday, 04 April 2007 23:41:09 GMT  |  John Kicklighter, Currency Analyst

Net Employment Change (MAR) (11:00 GMT)	Ivey PMI (MAR) (14:00GMT)
Expected:                 11.0K	Expected:                 62.4
Previous:                  14.2K	Previous:                  60.5

How Will The Markets React?

Both the Canadian dollar and government debt have been relatively inactive for the past few weeks as the few top shelf market-moving economic indicators populating the calendar have fallen flat. What’s more, this stubborn period of congestion has held firm despite extended gains in energy prices. Now, as crude prices pull back on strong US inventory numbers and cooling geopolitical tensions in the Middle East, conservative traders may think it is alright to settling in to enjoy the low volatility conditions. However, prudent investors should not rely on calm waters just yet. Tomorrow, the Canadian fundamental scene heats back up with the staggered release of March employment and the Ivey PMI survey for the same month. Both indicators have proven their worth before, even though their February numbers failed to generate much of a reaction. The action will begin early in the North American session with the 11:00 GMT release of Statistics Canada’s labor data. Economists’ predictions forecast a modest 11,000-person jump in new hires, which is inline with February’s 14,200. This middle of the road estimate is optimal for big moves in the event of a surprise. Whether the market is caught off guard with a big increase that rivals January’s 88,000 figure or a contraction that shakes confidence in the consumer sector, a print that falls a considerable distant away from the official forecast will arouse interest either way. In all likelihood, the first contraction in seven months would be the most harrowing outcome. Considering the market conditions after the employment number, market participants will then move on to the Ivey purchasing mangers report scheduled to hit the wires at 14:00 GMT. Despite the rising price for raw materials and slacking demand from across the boarder, analysts are projecting a ten-month high for the business sentiment gauge. Since this report has close ties to international trade and future employment trends, it too can get the markets moving.

Bonds – 10- Year Canadian Government Bond Futures

The benchmark 10-year Canadian government bond saw its biggest advance in three weeks following a disappointing building permits release early in the session. According to the government’s numbers, building approvals plunged 22.4 percent in March, the biggest drop in over a year. Dashing any hopes of promise in the component data residential permits dropped 17.8 percent while those for non-residential units slid 28.7 percent. Altogether, the indicator placed a heavy weight on expectations for consumer spending and business investment, key areas of interest for policy makers. Looking ahead to tomorrow, the employment and Ivey PMI numbers will have their go at driving government debt prices. A strong showing could take the 113.00 floor in the nearby 10-year bond contract. 





FX – USD/CAD

Long known as the black sheep of the majors, USDCAD continues to ignore the greenbacks push and pulls against its other liquid pairings. On the other hand, while USDCAD is diverging from action in other parts of the currency market, it may be for the best. For the past seven months, the pair has been setting up a number of technical formations that could direct and intensify reactions to volatility triggers on economic events. The most encompassing formation traders should be keying in on is the broad trend channel that has defined action since late August. At the time of this writing, USDCAD spot was only stones throw from the channel bottom recently falling across 1.1500. What’s more, this level is buttressed by a 38.2% Fibonacci retracement of the1.0930 – 1.1880 rally that lies only slightly higher at 1.1520. So what can be the catalyst for the next big move? A new direction may be determined as soon as tomorrow morning when the nation’s employment and business sentiment indicators hit the wires. The labor data will be of particular interest since it will not have to compete with the US’s NFPs for attention. These may very well be the best conditions to determine the true authority Canada’s employment data has over the nation’s currency. Then, a little later in the session, traders will take in the Ivey PMI number for last month. Like the jobs numbers, the business gauge could produce a considerable response since it represents to some extent trends in both the US and Canada. Should the indicator miss expectations on the basis of weak export orders, the immediate reaction in USDCAD could be muddled as economists debate whether this worse for Canada or the United States.





Equities – S&P/TSX Index

Contrasting the reserved action in the debt and currency market, Canadian equities were on the move Wednesday. The session opened up like any other day. Reserved price action in the US markets was keeping movement at home reserved. However, investors north of the boarders were determined to show the unanimity as a strong bid worked its way under the market as time wore on. In fact, the bid was so pervasive at the end of the session that the benchmark S&P/TSX Composite Index closed at its high – a new record – at 13,448.31. Technically speaking, this would suggest that tomorrow’s open is in store for another buying wave as investors that were unable to get at the end of day Wednesday look to get their positions filled. However, a reliable extension could easily turn into a bearish belt hold depending on how the morning’s data hits the wires. Ominously, employment data for March is set for release well before the nation’s capital markets open. If the gauge prints as expected with a modest but steady 11,000 addition to the national payroll, the bullish crowd could easily rally around a seventh consecutive rise in employment. Alternatively, should last month provide the first contraction in so many months, the optimism surrounding consumer-driven growth could quickly crumble away and burn bulls with a false break. Even after the labor data passes, event risk will not be alleviated. The Ivey Purchasing Managers Index for March will be a little nearer and dearer for share holders as they gauge optimism for revenues through spending habits. As its stands, economists expect a 10-month high; but this may be setting the bar too high in a sensitive market.

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