• July non-farm payrolls +163K vs +100K exp
• US unemployment rate 8.3% vs 8.2% exp
• ISM non-manufacturing index 52.6 vs 52.0 exp
• Rajoy: We’ll take action when we see what’s in ECB bazooka
• EFSF asks banks for credit lines
• Spanish and Italian 10yr yields down approx 30 bps
• Spanish and Italian stocks up +6%
• Tropical Storm Ernesto forms near Gulf, adds to $4 oil gain
• WSJ: door still open to Fed action
• US stocks hit highest since May
• US to sell stake in AIG

The euro drifted down to 1.2222 at the dawn of US trading after gains in Europe and then surged as high as 1.2392 after non-farm payrolls. Shorts were squeezed relentlessly in the move.

Cable was along for the ride, paring some of its losses but remaining the laggard on the week. In both EUR and GBP, the gains failed to take out yesterday’s pre-ECB spike highs.

USD/JPY got moving as Treasuries sold off following payrolls and the ISM data. Buy stops above 78.50 were taken out on the way to 78.77.

The commodity currencies may not have gained as much as the 2% rally in the S&P 500 would suggest but CAD broke below parity for the first time since May and NZD added to gains to finish a strong week.

QE or no QE, there were plenty of buyers for gold as it rallied to $1603, up $15.

• EUR net short position down to 139K from 155K
• JPY net long position up to 32K from 25K
• long AUD up to 37K from 26K
• CAD switches to long +12K from short -2K
• NZD long grows to 10K from 8K

The data is from the close on Tuesday. The market is still very short EUR but after two weeks of gains, traders are taking profits. The commodity currencies still have lots of breathing room for gains.

The US Treasury is unloading $4.5 billion of its shares in AIG. The bailed out insurance company plans to buy as much as $3 billion.

Could be an election move to unwind bailouts, could be a sign of a high in stocks, could be nothing at all.

And I’d also like to ask him not to take it back on Monday…

The S&P trades up 2% with about 2 hours left in the trading day.

By Brai Odion-Esene

WASHINGTON (MNI) – President Barack Obama Friday highlighted the
postive aspects of a better-than-expected July employment report, while
his challenger Mitt Romney pointed to the slight rise in the
unemployment rate as continued proof of the admnistration’s failed
policies.

Speaking from the White House following the report that the U.S.
economy added 163,000 jobs in July, Obama said the 172,000 increase in
private payrolls means the U.S. economy has now created 4.5 million new
jobs over the last 29 months and 1.1 million so far in 2012.

However, “We’ve still got too many folks out there who are looking
for work,” Obama acknowledged. “We’ve got more work to do on their
behalf.”

He said this work involves not just reclaiming the jobs lost during
the 2008 to 2009 recession, but restoring the sort of financial security
that “too many Americans have felt was slipping away from them for too
long.”

Romney, on the other hand, called the increase in the unemployment
rate from 8.2% to 8.3% “a hammer blow to struggling middle-class
families.”

In a statement after the report’s release, the GOP presidential
candidate declared that his proposals to boost job growth, unveiled
Thursday under the umbrella of the campaign-themed ‘Plan for a Stronger
Middle Class’, “will turn things around and bring the economy roaring
back, with 12 million new jobs created by the end of my first
term.”

Obama does not have a plan, Romney said, noting that the country
has now gone 42 consecutive months with the unemployment rate above 8%.

“Middle class Americans deserve better, and I believe America can
do better,” he said.

Obama urged patience, arguing that, “We knew when I started in this
job that this was going to take some time” with the country working its
way out of a crisis on a scale not seen since the 1930s.

Senior economic officials within the administration shared Obama’s
cautious optimism, with Council of Economic Advisers Chairman Alan
Krueger saying in a separate statement: “While there is more work that
remains to be done, today’s employment report provides further evidence
that the U.S. economy is continuing to recover from the worst downturn
since the Great Depression.”

Jan Eberly, the Treasury Department’s chief economist, told
reporters during briefing that the labor market appears to be continuing
on the path of gradual improvement, but stressed that despite some
positive developments, many Americans confront ongoing challenges.

The main focus of the president’s remarks was on the need for
Congress to pass an extension of the Bush-era tax cuts for Americans
making less than $250,000 a year.

“Rebuilding a strong economy begins with rebuilding our middle
class,” Obama said. “When families have the security of knowing that
their taxes won’t go up, they are more likely to spend and more likely
to grow the economy.”

Obama described the actions of House GOP in particular as
“disappointing,” and accused them of holding the middle class tax cuts
hostage.

Wednesday, the House voted to approve Republican legislation to
renew all the Bush-era tax cuts for another year on a 255-to-171 vote.
Earlier in the day, the House rejected a Democratic plan — passed by
the Senate — to extend the tax cuts only for those families making
$250,000 or less. The Democratic plan was defeated on an 170-to-257
vote.

** MNI Washington Bureau: 202-371-2121 **

[TOPICS: M$U$$$,MGU$$$,MFU$$$,MCU$$$,MAUDS$]

I’m not a big fan of weeklies…takes to long to know when you’re wrong, so I’m looking at the dailies, and they are showing strength heading into the weekend.

If we close around present levels (1.2375) we’ll be above the downtrend in place since the first of May as well as above the 50% retracement of the 1.2693/1.2042 decline at 1.2368.

1.2406 is key near-term. We topped at 1.2406 yesterday and there is a bottom from June 28 there. A break targets follow-through to the 61.8% retracement of the post-EU summit drop at 1.2444.

How much you want to bet he writes a story later today or Sunday night that quotes an unnamed official saying as much?

Squeezed in between Jackson Hole on Aug 31 and the FOMC mid-month.

Incredible volaility the past two days but markets could get very quiet for the remainder of the month.

Meanwhile Rajoy is calling for a meeting as soon as possible.

Huge day for the euro but offers at yesterday’s spike highs are likely to contain today’s ranges. Sovereign sellers were seen around 1.2400 yesterday.

As large as today’s gain may seem, the weekly chart is not yet signalling a more substantial euro rally.

EUR/USD eeked out a fresh high since July 6 yesterday but the weekly gain is only 60 pips.

Solid resistance remains in the 1.2400/20 range. The 61.8% retracement of the early July fall is also at 1.2437. If those levels give out, expect to see a re-test of 1.2700 but until then, the shorts still have a shot.

• Euro is irreversible

Not sure what to make of these few headlines. Sort of suggests that since there is no way out for those with major fiscal problems that they better get their houses in order.

EUR/USD continues to soar on short-covering after European bond yields tumbled.

WTI crude up to $91.64 now, up more than $4.50/barrel.

It’s broken through yesterday’s and last week’s highs to the best level since July 23.

This is starting to look like a major squeeze.

European stocks powered ahead like Usain Bolt today.

• UK FTSE +2.2%
• French CAC +4.0%
• German DAX +4.0%
• Spain IBEX +6.1%
• Italy MIB +6.1%

All the indexes wiped out yesterdays losses (which were almost equally substantial). On the week, all the bourses were higher.

Impressive turnaround.

-Please Note: Median forecasts can alter due to inclusion of later
estimates

London, Aug 3 (MNI) – The following are highlights of forecasts
for upcoming U.K. economic indicators and events.

All times in GMT/ET format.

———————————————————————–

Monday, Aug 6

Prior

2301/1901 UK Jul KPMG/BRC Retail Sales Monitor
2301/1901 UK Jul KPMG/BRC Sales Like-4-Like (%y/y) 3.5
2301/1901 UK Jul KPMG/BRC Total Sales (%y/y) 1.4

The CBI’s July retail survey’s reported sales volume balance
dropped to 11 from 42, hit by the wet weather, but that survey centred
on the early part of the month and the BRC survey extended out to July
28.

It should, therefore, be a bit more upbeat as the weather
improved and it will capture whatever boost there was in the run-up
to the Olympics.

————————————————————————

Tuesday, Aug 7

Prior Median
0830/0430 UK Jun Index of Production
0830/0430 UK Jun Industrial Production (%m/m) 1.0 -4.2
0830/0430 UK Jun Industrial Production (%y/y) -1.6 -6.0
0830/0430 UK Jun Manufacturing Output (%m/m) 1.2 -4.3
0830/0430 UK Jun Manufacturing Output (%y/y) -1.7 -5.8

These data are expected to be exceptionally weak, with two days
output lost due to the long Jubilee weekend that will not be filtered
out in the seasonal adjustment.

A plunge in June industrial production was factored into the first
estimate of Q2 GDP, with National Statistics estimating output dropped
3.5% on the month, contributing to a fall of 1.3% on the quarter.

The key element of these data is how close they are to that
estimate, with any substantial departure raising the possibility of a
subsequent revision to the 0.7% quarterly fall in GDP.

————————————————————————

Wednesday, Aug 8

Prior

0930/0530 UK Aug BOE Quarterly Inflation Report

0930/0530 UK Aug BOE 2yr CPI, Market Rates (%) 1.6
0930/0530 UK Aug BOE 2yr CPI, Constant Rate (%) 1.6
0930/0530 UK Aug BOE 2yr GDP Market Rates (%) 2.7

0930/0530 UK BOE Governor Mervyn King Leads
Inflation Report Press Conference

Downgrades to both the growth and inflation forecasts in the August
report look almost inevitable. The May Inflation Report showed CPI
coming in at just 1.6% two years ahead and the central projection in the
August report is likely to show it lower still.

The May report’s implied forecast for 2012 growth was just under
0.7%, and the likelihood is this will be cut to close to flat.

The unknowns include what estimates the Inflation Report makes for
the impact for the credit easing initiatives that have recently been
launched, most notably the Funding for Lending Scheme, which should have
some offsetting up effect on both growth and inflation.

————————————————————————

Thursday, Aug 9
Prior Median
0830/0430 UK Jun UK Trade Balance
0830/0430 UK Jun UK Goods Trade Balance (stg bln) -8.4 -9.0
0830/0430 UK Jun UK Non-EU Goods Balance (stg bln) -3.9
0830/0430 UK Jun UK Total Trade Balance (stg bln) -2.7 -2.9

The weakness in the Eurozone, and slowing elsewhere in the global
economy, is weighing on exports and hopes for an export led UK recovery
have faded. These data are likely to show little, if any, improvement in
the trade balances.

————————————————————————

Friday, Aug 10

Prior Median

0830/0430 UK Jul Producer Price Index (PPI)

0830/0430 UK Jul PPI Output (%m/m) -0.4 0.2
0830/0430 UK Jul PPI Output (%y/y) 2.3 2.1
0830/0430 UK Jul PPI Input (%m/m) -2.2 1.7
0830/0430 UK Jul PPI Input (%y/y) -2.3 -1.1
0830/0430 UK Jul PPI Core Output (%m/m) -0.2 0.1
0830/0430 UK Jul PPI Core Output (%y/y) 2.0 1.6

Input prices look sure to have ended their run of declines in July,
spiking up due to steep rises in agricultural commodity prices,
reflecting the drought in the US, and a marked increase in the oil
price.

Lag effects and subdued demand suggest there will be, at most, a
slight rise on the month in output prices on the core and non-core
measures.

The two BOE MPC members who voted against extending quantitative
easing in July noted that “While inflation had fallen … this was very
largely a consequence of temporary price-level effects resulting from
the reduction in oil prices.”

If those temporary effects fade, the doubts over whether the
inflation outlook will continue to improve rapidly.

Prior
0830/0430 UK Q2 Construction Output
0830/0430 UK Q2 Construction Output (%q/q) -5.2
0830/0430 UK Q2 Construction Output (%y/y) -9.7

In the first estimate of Q2 GDP construction output was a major
drag, plunging 5.2% on the quarter, with National Statistics estimating
that output fell 7% between May and June.

These data provide a second take on that estimate and, given the
magnitude of the estimated fall, there is a chance of a substantial
revision.

————————————————————————

For further information contact David Robinson on 4420 7862 7491;
e-mail: drobinson@marketnews.com.

[TOPICS: MABDS$,MTABLE]

The Saturday papers are filtering out and The Australian has a good read on housing that talks about declining home ownership, saying that families can’t afford to enter the market.

The mining boom may be delivering six-figure salaries but it is denying home ownership.

The focus groups have long shrieked about housing affordability. Politicians, however, tended to err on the side of the family already in the market because their capital gain mattered more at the ballot box.

There is also political talk. Yesterday the opposition announced plans to curb foreign investment by toughening up the rules for entities which include state-owned investments. Gillard might not be so bad for AUD after all.

Finally, talks are starting up about a major review of the Australian financial system. It’s dry reading but aI can’t help but chuckle every time Treasury spokesman Joe Hockey is referred to as ‘Mr. Hockey’.

Sung to the tune of Amazing Grace…

Can’t say Mr. Market hasn’t given you loads of opportunity these last three sessions…

EUR/USD as high as 1.2372 so far. 1.2406, yesterday’s ECB spike high is the next target.

–During Hill Break, Partisan Fiscal Rhetoric Expected to Intensify
–As Parties Exchange Blame, Quiet Fiscal Talks Will Continue
–Bipartisan Talks Seek To Turn Simpson-Bowles Framework Into A Bill

By John Shaw

WASHINGTON (MNI) – For the last five months or so Democrats and
Republicans have tried to frame the fiscal debate by staging symbolic
votes and articulating well-honed partisan talking points.

For the next five weeks or so, Democrats and Republicans will be
limited to partisan budget talking points.

Congress has just begun its long August recess which will extend
until Sept. 10.

Deprived of the House and Senate floor to make their fiscal points,
lawmakers will resort, no doubt, to cable TV stations, talk radio, web
sites and Twitter to make their fiscal arguments.

The Republican view, stated repeatedly and insistently, is that
Congress should pass and President Obama should sign legislation that
extends all of the Bush-era tax cuts for a year and replace the $110
billion in across-the-board spending cuts scheduled for the 2013 fiscal
year with a different spending package that trims a raft of
discretionary and entitlement programs and spares defense programs.

The Democratic view, also stated repeatedly and insistently, is
that Congress should pass and President Obama should sign legislation
that extends all of the Bush tax cuts for those families making $250,000
or less for a year and replace the scheduled across-the-board spending
cuts in FY’13 with a “balanced package” of spending cuts and revenue
increases that includes some defense programs.

Budget experts agree there is no chance that Republican or
Democratic leaders will abandon these well-entrenched stances before the
November elections.

“The two parties are in full war mode now and I expect that to
continue unabated until November 6,” says Bill Frenzel, a former
Republican congressman who is now a guest scholar at the Brookings
Institution.

“But then on the ‘day after’ I think both parties will focus more
intently on the fiscal realities that confront them. Especially if we
have some form of divided government next year, I think there is a
decent chance we can make some significant progress in 2013 on the
deficit,” he adds.

While the partisan squabbling is certain to continue over the next
five weeks and rage on until election day, Frenzel notes there are
constructive activities occurring quietly on Capitol Hill and in
Washington think tanks.

“There is some important fiscal work occurring behind the scenes on
the Hill. They have a (deficit reduction) framework that they are
turning into legislative language. But there are still many hard
decisions to make,” Frenzel adds.

Senate Budget Committee Chairman Kent Conrad told MNI this week he
remains “very encouraged” by the wide-ranging deficit reduction talks
that are taking place on Capitol Hill, adding he expects these talks to
continue informally over the August recess.

Conrad said the talks will continue at a staff level and also
through informal conversations among lawmakers even while most lawmakers
depart Washington during the next five weeks.

“I’ve been working on this every day and I expect to continue to do
so. My staff will be working on this throughout August. We have to keep
at it. There has been an incredible amount of work done on developing a
(deficit reduction) package,” Conrad said.

He said that it remains uncertain if these talks can lead to a
deficit reduction agreement that Congress will consider later this year,
but added that it’s “very unlikely” that Congress will take up a deficit
package before the November elections.

“But the important thing is to be ready. We are doing are homework
now,” he said.

Conrad said that it is “very difficult to know” if the deficit work
that is being done will lead to a specific package and, importantly, if
the political environment on Capitol Hill after the election will be
conducive to considering such a package.

“Time will tell. We just don’t know. All we can do is to be ready
so if there is an opportunity to do something after the elections we can
step forward,” he added.

Conrad has said lawmakers have several deficit reduction templates
to guide their deliberations such as the Simpson-Bowles package and a
similar one drafted by former Senate Budget Committee Chairman Pete
Domenici and former White House budget director Alice Rivlin.

The Simpson-Bowles plan calls for more than $4 trillion in deficit
reduction over a decade, with a blend of spending cuts and tax
increases. It would reduce spending to about 22% of GDP by 2022 and
bring revenues up to about 21% of GDP in 2022.

Some lawmakers and budget groups are working with Alan Simpson and
Erskine Bowles to update their plan which was first released in December
of 2010.

In an essay in Friday’s “Politico,” former Democratic congresswoman
Jane Harman and former Republican congressman Vin Webber urge Congress
to use the Simpson-Bowles plan “along with pieces of some other worthy
plans” as a framework for a sweeping bipartisan deficit reduction
agreement.

** MNI Washington Bureau: (202) 371-2121 **

[TOPICS: M$U$$$,MFU$$$,MCU$$$,M$$CR$]

By Steven K. Beckner

(MNI) – Better than expected July jobs numbers Friday were widely
perceived as relieving pressure on the Federal Reserve to inject more
monetary stimulus into the economy, but not as precluding further easing
steps.

The Fed’s policymaking Federal Open Market Committee will be
getting another employment report in August before it convenes again on
Sept. 12-13 to revise its quarterly economic projections, and Fed
watchers generally agreed a relapse into subpar job growth would
increase the odds of a third round of large-scale asset purchases and/or
other stimulative measures.

Wednesday, to the surprise of many, the FOMC left monetary policy
on hold, although it kept in place highly accommodative policies. It
kept the federal funds rate target between zero and 25 basis points and
reaffirmed its expectation that it will need to stay there “at least
through late 2014.”

The FOMC also continued its maturity extension program (“Operation
Twist”) and securities reinvestment policy.

The Labor Department Friday announced that non-farm payrolls rose
by 163,000 in July — including a 148,000 increase in private payrolls
– much better than the median forecast of 100,000. This followed three
consecutive months of gains below 100,000. Downward revisions to prior
months reduced payrolls by just 6,000.

While the establishment survey results were somewhat encouraging,
household survey findings were much less so. The unemployment rate rose
from 8.2% to 8.3% as employment declined by 195,000, and labor force
participation fell by 150,000 after rebounding for two months.

Average hourly earnings rose just 0.1%, following a 0.3% June gain,
and the average work week remained unchanged at 34.5. The aggregate
hours index inched up 0.1%, following a 0.4% rise.

Later, the Institute for Supply Management’s July survey of
non-manufacturing activity showed employment swinging sharply into
negative territory for the first time since December, even though its
overall index rose modestly.

While the jobs data provided some relief after the slough of Spring
and early Summer, analysts were not uniformly enthused. Nor were they
convinced that the Fed will remain on hold.

On one hand, Charles Lieberman, chief investment officer for
Advisors Capital Management LLC, called it “a good solid report” that
“might provide some evidence that the slowdown was at least partially
due to the winter being very mild,” causing strong job growth earlier in
the year and a subsequent give-back.

Now, Lieberman said that weather effect may have been “washed out
of the data and we’re going back to a moderate growth path.” Third
quarter GDP growth could well be stronger than the 1.5% estimated in the
second quarter, he said.

Mark Vitner, managing director and senior economist at Wells-Fargo,
praised “a surprisingly decent non-farm payroll gain” and noted it was
“a bit better than the average for the year.”

“It probably alleviates some of the fear that we’re going to slide
back into recession,” said Vitner, who said of the household data that
they “move around quite a bit” and noted there were seasonal quirks
related to autos and services that may have skewed the data.

Still, the report “doesn’t change the fact that we’re still stuck
in slow growth mode,” Vitner said. “We’re not growing fast enough to
reduce the unemployment rate … . There’s nothing in this report to
suggest that employment growth is picking up.”

Gus Faucher, senior economist at PNC Financial Services, observed
that July was “the best month since February for job growth and far
better than the consensus … . Anything over 150,000 is a good number.”

But Faucher remained a bit dubious. “We’ll see if (larger job
gains) can be sustained in August,” he said, adding, “It’s worrisome
that unemployment rose — not just that it rose, but that it rose
because household employment declined. That’s certainly something to
watch.”

Faucher also pointed to the slowing of wage growth and flat
workweek, while observing, “the gain in jobs is going to help offset
some of the weakness in wage growth.”

Diane Swonk, chief economist for Mesirow Financial, sounded even
more skeptical, emphasizing that the increase in the unemployment rate,
the decline in household employment and the renewed decline in labor
force participation are “not what the Fed wants to see.”

Looking at report’s monetary policy implications, Swonk said “it’s
not a game changer.” She said she still expects to see the FOMC launch a
third round of quantitative easing and said it is likely to take the
form of purchases of mortgage-backed securities to build on the housing
sector’s nascent momentum.

She was not prepared to say when the FOMC would approve a QE3, but
said “timing is really critical.” She said the FOMC will likely “wait to
see the whites of the eyes of their (economic) target.” She said further
disruption from Europe and/or from U.S. fiscal policy could supply the
necessary trigger.

Swonk said “communication is on the table” as well and said a
change in the FOMC’s “forward guidance” on the future path of the
federal funds rate “may be the first step.” She was referring to the
possibility that the FOMC could delay initial hikes in the federal funds
rate from “late 2014″ until sometime in 2015.

But she said “credibility is becoming an issue” as the election
approaches, because “many people who would be contenders (to replace Ben
Bernanke as Fed Chairman) under (Republican presidential nominee Mitt)
Romney don’t agree with his communications strategy.”

Faucher said further Fed easing will hinge most heavily on the next
employment report. “If the August number is like this, I don’t expect
them to move; if it’s back below 100,000 I don’t know if a round of
quantitative easing is likely, but it’s certainly possible.”

Faucher said he expects that if the FOMC decides to ease at all it
will do so “decisively,” making QE3 the most likely option. “If they do
decide to move it’s going to be a full measure, not a half measure.” But
he said the FOMC could also push out the expected date for the first
rate hike to mid-2015.

Vitner said the jobs numbers “shouldn’t change things for the Fed
all that much.” Nor should the recent estimate that GDP growth has
slowed to 1.5%, he said. If long-run potential growth is now just 2.2%,
as some have estimated, then “there’s no reason to push the panic
button. The difference between 1.5 and 2.2 is a rounding error.”

To “panic,” the Fed “would need to see GDP growth threatening to
break below 1%,” he added.

“I don’t see that they do much,” Vitner said, adding that QE3 would
have relatively little impact.

Still, Vitner said he “wouldn’t be surprised if they did it.”

Lieberman said the employment report “doesn’t make (the FOMC’s)
decisions any easier.”

“It seems like they’re leaning toward something at the next
meeting, but this isn’t such a weak report that it pushes them over the
edge,” Lieberman continued. “The fact that they get another employment
report (before the September FOMC meeting) is helpful. They’ll need it.”

** MNI **

[TOPICS: M$U$$$,MMUFE$,MGU$$$,MFU$$$,M$$BR$,MAUDS$]

Because after all, every silver cloud has a dark lining, or something…

They do raise a good point, however. Swiss rates should be edging back toward positive if all is right with the world, but they ain’t…

Fear the Draghi! He said not to short the euro and he was right!

So what it fell nearly 30 pips in the immediate aftermath of his remarks…

EUR/USD continues to benefit from lower Spanish and Italian bond yields as the EFSF takes matters into its own hands as far as leveraging its assets, if press reports are correct.

1.23466 the high so far, No real resistance until the 1.2390/1.2410 area.

Risk trades have advanced another leg higher, pinning another 10 pips to most pairs.

• EUR/JPY broke through 97.00 to the highest levels of the week.
• NZD/USD has cleared offers up to 0.8165 and AUD/USD has cleared a 1.0550 barrier.
• Cable is not edging into offers at 1.5605/15.

At the end of the day, the story is the broad weakness in JPY with several important levels cleared out.