US jobs heightens call for QE

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The US jobs report that the administration, and the market to a certain extent, hoped would bring life to the US economy was sadly lacking. According to the survey no jobs were created in the US economy in the month of August. According to one source, once you subtracted the births and deaths in the country and combined that with some ongoing high-profile legal disputes the figure was more like 60,000 jobs lost. The United States is currently going through a period of jobless stagflation. Stagflation is a portmanteau of stagnation (no growth) and high inflation; an economic recipe straight from the witches cauldron. It is now increasingly likely that the Federal Reserve will have to bring out the big guns at its September meeting. Goldman Sachs agreed with this assessment in a note to clients on Friday evening.

All the European news over the weekend was a net euro negative especially the absolute drubbing that Angela Merkel’s CDU party took in regional elections. This was made all the worse by the fact that it was Angela Merkel’s home state. The average German is getting increasingly vocal about their opposition to the multiple bailouts in the Eurozone and is letting the government know at the ballot box. We may also see the German Supreme Court vote on Wednesday that parliament will have a greater say in bailout plans going forward. This would obviously increase the chance of new measures being voted down.

This has brought EURUSD back into the 1.41s and GBPEUR back into the 1.14s.

There was also a worrying quote floating round on Saturday from an unnamed IMF official that a default on the part of Greece was a certainty. The official said “definitely before March, maybe this year, and it could come with this program review.” The IMF is in Greece at the moment monitoring deficit reduction targets and there are rumours that, much like there were a few months ago, that the next aid tranche may be withheld as the Greek government has not lived up to expectations.

So with all this rolling around you would hope that the economic calendar would be quiet and allow us to pick our way through the mire with some form of vision; that would be too easy. There are no less than 4 central bank meetings this week (Reserve Bank of Australia, Bank of Canada, European Central Bank and the Bank of England) plus UK manufacturing production numbers, German exports and the US’s Beige Book. What I’m saying is that with markets as they are at the moment I think you would be very mistaken if you do not hedge yourself if you see the price that you have budgeted for. Do not hold out for more. It is a gamble in these markets.

Before all that we have services numbers from Europe and the UK at 09.00 and 09.30 respectively. Overnight China’s PMI fell to a record as the new business slipped after a spate of interest rate rises by the PBOC. While we have not had any interest rate rises in the UK , and only 50bps worth in the UE, it is likely that ours will follow a similar path. If both numbers are poor then we could and should see further risk off and the dollar and Swiss franc keep up its recent good run.

Indicative Rates Sell Buy
GBPEUR 1.1403 1.1423
GBPUSD 1.6113 1.6137
EURUSD 1.4120 1.4141
GBPJPY 123.77 123.98
GBPAUD 1.5230 1.5258
GBPNZD 1.9160 1.9198
GBPCAD 1.5892 1.5920
NZDUSD 0.8398 0.8411
GBPZAR 11.42 11.47
USDZAR 7.0840 7.1240
GBPPLN 4.7712 4.7968
EURJPY 108.46 108.72

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