Financial Times

Gotta be music to Spanish and Italian ears, don’t it?

Oh dear

Not everyone carried away by euro’s recent renaissance.

Banks, not government, provided most of the 2008/09 stimulus. The chickens may be beginning to come home to roost as a result of poor lending practices.

Thank goodness for the British press. Without them, we would not have photographic evidence of Silvio Berlusconi’s BungaBunga lair.

Mo one can doubt the once and possibly future Italian PM’s vigor…

• Non-farm payrolls 96K vs 130K
• Unemployment rate falls to 8.1% as participation falls
• Canadian employment 34.3K vs 10K exp
• Canada Ivey PMI 62.5 vs 59.0 exp
• UK Niesr GDP estimate +0.2% in Aug quarter
• Spain deputy PM: will analyze before decision on aid
• EU banking union draft leaks
• Merkel: ECB conditionality is a very important point
• Van Rompuy: No doubt Greek future is in the euro
• CIC chair says China can grow 7.5% this year
• BOC's Carney: no Dutch disease here
• Portugal announces new austerity measures
• S&P 500 gains 0.4% to 4-year high of 1437
• On week, S&P 500 gains 2.2%
• EUR leads, USD lags

Terrible payrolls report in every way. No silver linings at all and the market is now pricing in a good chance of QE3 next week.

EUR shorts got squeezed once again, sending EUR/USD above 1.28.

Cable rallied to a four-month high of 1.6034.

USD/JPY screamed down nearly a full cent but found bids ahead of 78.00 and drifted up to 78.24.

Gold up almost $40 to $1736.

EUR/USD heads into the close quite close to session highs, now just above 1.2800. There is some wood to chop on up to the 1.2840 area, so a break higher early next week would be very impressive indeed. My guess is that we get some backing and filling between 1.2700 and 1.2825/40 early next week until the major event risks out of Europe are out of the way Tuesday. After that, we have the Fed to contend with on Thursday.

All the best for a restful weekend.

Reuters poll of 59 economists sees 60% change of QE3 compared to 45% in an Aug 24 poll.

• Median of survey of primary dealers sees 68% chance
• 36 of 52 economists see QE3 as open ended
• 49 of 52 economists see rate guidance extended

I would put the odds even higher than 60% but economists are loath to change their calls so quickly. When all is said and done, I expect the market to go into the announcement pricing in an 80% chance.

The smart money didn’t get out of the way of the EUR rally, at least not as Tuesday night when the latest CFTC Commitments of Traders data was collected.

• EUR net short increases to 102K from 101K
• JPY net long increases to 24K from 22K
• GBP net short 7K vs net long 2K last week
• AUD net long decreases to 62K from 78K
• CAD net long increases to 67K from 61K
• NZD net long decreases to 11K from 14K
• CHF net short increases to 13K from 11K

On the other hand, futures traders piled into CAD longs at the right time.

US DATA: Aug Tsy STRIPS -$1.14 bln and +$1.1b ex maturities. Bonds
+$0.4b and notes -$1.6b. The 2.75% bonds of ’42 had $912m stripped.

Backing away from the highs in the final hours of trading . USD/JPY up to 78.28, perhaps on the slightest worries about intervention, or intervention rhetoric.

Cable hit a four-month high today and broke 1.60 but given the broad USD losses, only a 75 pip gain on the day is a small disappointment. Watch 1.60 on the close.

Best campaign slogan yet.

Shortly, we will get the weekly CFTC numbers  (could be a big fall in EUR/USD shorts).

Surely the moves of the past two days got everyone thinking about making faster money. Rock out and rest up for next week.

Look out for Chinese data on CPI, industrial production and retail sales on Sunday.

Portuguese PM Coelho is addressing the nation in Lisbon and talking about the 2013 budget, with new austerity measures.

• Will increase the social security contribution rate
• Will reduce social security charged to companies

They’re sticking to plan A, which is equal doses of hope and prayer.

To be fair, it’s certainly working at the moment.

• China can achieve 7.5% growth target in 2012
• Economy will be ‘fine’ if it can grow about 7%
• New infrastructure spending will help boost growth

The CIC is China’s main sovereign wealth fund. Chairma of the Board of Supervisors Jin spoke to Reuters in Mexico City.

Hard to argue with our loquacious Austrian friend. The ECB has put a lot on the table. It is up to the politicians to agree to abide by the ECB’s framework or go it on their own. If they go it on their own, don’t expect the rally in European bond markets to last. It is predicated on unlimited by by Draghi and Co, sooner rather than later.

The euro bulls got paid, as the pair topped the leaderboard this week, gaining 1.69% or210 pips. Most of the gains came today.

EUR/USD has now gained in 6 of the past 7 weeks. Lots of eyes on the 200-day moving average at 1.2841.

What will be the best trade next week?

ATHENS (MNI) – Greek prime minister Antonis Samaras appealed Friday
to the European Union to release the next loan tranche for Greece
immediately.

Speaking at a press conference in the Greek capital after a meeting
with European Council President Herman Van Rompuy, Samaras said that the
Greek people have “reached their limits.”

“I have raised the issue of a timely release of the next loan
tranche, which will be primarily injected into the domestic economy in
order to boost liquidity,” Samaras said.

“Our efforts are persistent and painful and are being made in order
to regain our credibility and honor our commitments,” he added.

The Greek prime minister said he described to Van Rompuy the
enhanced privatization program his government is pushing through as well
as the extremely high unemployment levels and unprecedented recession
the country is suffering from.

Samaras again noted negative statements about Greece made by EU
officials and reiterated that such words “harm Greece’s efforts to
recover.”

Van Rompuy asked the Greek government to continue pushing for
structural reforms and acknowledged the efforts made so far, calling the
Greek people “courageous.”

“Monopoly behaviors must be broken. It is not just a matter of
bringing the fiscal deficit down. It is also a matter of social justice.
Those who have must carry their share of the burden,” he said.

“The Greek prime minister reassured me that the coalition
government is committed to make the program successful. I am convinced
in the end the program will be successful and Greece will have
[efficient] institutions and public administration,” he added.

Van Rompuy said he was “confident that the future of Greece is
within the Eurozone” and that the EU will continue to support Greece’s
effort towards recovery, provided that the indebted country honors its
commitments.

“For those who doubt, I would like to remind that we have approved
E240 billion worth of financial aid for Greece and that the ECB has
purchased many Greek bonds,” Van Rompuy emphasized.

He added that “the crisis is not Greek” and that the “decisions
taken by the EU summit in July and those taken by the ECB yesterday are
very important.”

Athens bureau. Email: apapamiltiadou@marketnews.com

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