World Week Ahead: Traders digest US jobless rate, Beige Book Looms

Monday 8th October 2012

America's unemployment rate is watched by the Federal Reserve and the White House. Having fallen to 7.8 percent in September it is now the lowest since January 2009. American firms created 114,000 jobs last month, almost matching estimates.

The Dow Jones Industrial Average ended last week at 13,610.15, the highest close since December 2007. The Standard & Poor's 500 Index fell 0.03 percent on Friday though it finished within coo-ee of the highest level since the end of 2007. The Dollar Index, though, remains relatively weak, at 79.337, down from 84 in late July.

Markets now know what shape and form the next round of quantitative easing, QE3, will take and on Wednesday in the US they'll know what snapshot of the US economy Federal Open Market Committee members will be taking to their next meeting.

The Fed's Beige Book of regional economic activity from the 12 Federal Reserve districts is designed to provide policy makers with anecdotal evidence on the world's biggest economy, according to Bloomberg.

The Fed already released minutes of its last meeting so we know policy makers are confidence they can manage the risks around QE3 - US$40 billion a month of purchases of mortage bonds.

The bond purchases will become the latest signal of economic health because the programme will be suspended once a sustainable recovery is underway in the US.

The euro has strengthened to $1.3033 from $1.2888 at the start of the month and up from $1.204 on July 24. It will be in focus again this week as the region's leaders meet. The euro zone has become famous for the ability of its leaders to meet seemingly to resolve the debt crisis, only to disappoint markets.

Finance ministers meet on Tuesday in Luxembourg, when the agenda will be dominated by Spain's economic reforms and its reluctance to formally ask for a financial bailout tied to conditions that would be politically unpalatable. Ministers from the wider European Union meet on Wednesday.

Spanish 10-year bonds rose last week, pushing the yield down to around 5.73 percent, seemingly signaling more confidence in Spain's ability to meet interest payments than in late July, when the yield reached almost 7.6 percent.

"It feels as if we are in for a month or so of Spanish trouble," said Erik Nielsen, London-based chief global economist at UniCredit SpA (UCG), Bloomberg reported.

On Wednesday, Spain's Prime Minister Mariano Rajoy will be in talks with French President Francois Hollande in Paris, while Germany's Chancellor Angela Merkel on Oct. 9 will make her first visit to the country since the crisis began in 2009.

Spain would be the first European nation to participate in the European Central Bank's bond-buying program and there have been several false dawns when markets were tipping the nation was about to put out its begging bowl. But mass protests in Spain, where unemployment has reached 25 percent and more local elections loom, mean a high level of bravery would be needed by Rajoy's administration.

Rajoy's latest comment is that a request for aid is being considered but isn't imminent. His deputy, Soraya Saenz de Santamaria, said this month the government isn't sure such a programme would work.

Out today in Asia is Japan's trade balance and current account figures for August. On Thursday, China reports new yuan loans for September and Australia's employment data is also out on Thursday.

Australia's jobless rate rose to 5.3 percent from 5.1 percent, according to a Reuters survey of 20 economists. The participation rate held unchanged at 65 percent.

In Europe, Germany's estimated inflation figures for September are released and are expected to show zero growth in prices, month-on-month, for a 2 percent year-on-year increase in the consumer price index.

The week ends again with key US data, as it did last week with non-farm payrolls. The US producer price index for September and the University of Michigan consumer confidence report for October are both out on Friday.

BusinessDesk.co.nz

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