The Week in Review

The US Non-farm employment data posted better than expected results and revisions to the markets delight. As a result, we saw improved risk appetite. Expectations were for an overall loss of over 100,000 jobs and an increase in the private sector by 42,000 jobs. The street was pleased to see the numbers come out at an overall loss of 54,000 jobs and increase in the private sector by 67,000. The big headlines over the next couple of days will talk about how the private sector increased jobs and how the people who had given up looking for a job are starting to enter the job market again. Equities have rallied across the board, gold decreased by over 1%, and the safe haven currencies (yen,franc) are currently weaker. The rally that we are seeing is however small. In order for maintained growth and risk appetite, the manufacturing sector will have to improve, the tax cut issue will have to be addressed, and growth overseas needs to continue.

Earlier in the week, the German labor market showed some signs of stabilization and the euro rallied from the decrease in unemployed by 17,000. The euro managed to rally against the other majors. Yesterday the ECB also checked their hand and announced nothing new regarding monetary policy or the overall state of the Euro-zone. Despite the improving data out of Europe and an upgraded growth forecast, they raised emergency liquidity and announced that no future rate hikes will happen in the foreseeable future.

U.K. manufacturing drops to the lowest level in nine months. Net lending increased by 300 billion, but the street was hoping for 700 billion. One of the few bright notes for the UK was that consumer spending was relatively positive on Tuesday. The past couple of weeks have not had positive data for the UK. The sterling fell across the board to all the majors this week.

Australia had a busy week with retail sales, housing data, GDP and trade balance data. Housing, retail sales and GDP all printed higher than thier forecasts. The Australian trade balance however was not as impressive, but the numbers were still positive. Despite a lower than expected trade balance, exports fell only by 4% despite weaker demand in coal and iron. The Reserve Bank of Australia is very concerned with the condition of the worldwide economy and we could see the cash rate remain at 4.5% for some time.

Japan is the envy of no other country. After ending a one party government for over 50 years, Japan's finance ministers have not been able to have any success in stopping a strengthening yen or saving their economy. In addition to a disastrous political environment, they have an aging population and a currency that does not trade on their fundamentals but on the ones for the rest of the world. To start the week, the BOJ added $117 billion dollars to the banking/financial institution sector. To the surprise of some, the BOJ avoided verbal intervention and actual intervention.

The fact still remains that US economy is still weak. The housing situation has no real signs or beliefs for positive improvement. If we need another round of quantitaive easing that will just hurt the deficit and draw more scrutiny as some analyst firmly believe the first $700 billion of QE have not helped the economy. The positive job news is also only temporary. Alot of the jobs lost over the past two years came from small business. It is helping small business that will help market sentiment believe in the recovery. Political opinions are at a crossroads regading the Small business jobs plan and this issue will be fueled entering election season. While consumer confidence is improving, this will not last unless we see more jobs created in the private sector.

Now that summer trading is almost over, price action could have some break outs. The key support level for the euro dollar remains 1.2500. Potential catalysts for a weaker euro are the return of sovereign debt concerns or a slowdown in China growth, or weaker data from Germany. If the euro economy dodges these bullets, we could finally see a break above 1.3500. If we have weaker data in the U.S., we could see 84.00 breached and 82.00 tested. The other hot topic in the U.S. will be the coming elections.

Next week's coverage will focus on Industrial and manufacturing data in Europe and also trade balance figures around the world. As always, a close eye will remain on any economic news regarding consumer credit, inventories or employment in the US.